Business Environment | Meaning, Types, and Importance

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In this session, we will discuss the meaning of the business environment, and the types of the business environment.

Meaning of Business Environment

Business Environment is the most important aspect of any business. It is referred to the past, future, and present conditions of any business. They may be outside or inside the organization. The business environment involves the collection of all internal and external factors such as the whole organization’s employees, customer’s needs, expectations, management clients, demand and supply, suppliers, owners, activities by the government, innovation in technology, social-trend, market trend, economic change, etc. These factors affect the function of the organization and the organization works directly or indirectly.

Business is environment-specific. It is neither self-sufficient nor self-containe. It operates in a dynamic environment. Internal environment forces provide strengths and weaknesses to the business. External environmental forces provide opportunities and threats for the business.

According to Keith Davis:- The business environment is the aggregate of all conditions, events, and influences that surround and affect it.

According to V.P Michael:- The business environment is the sum total of the environmental factor which provides an atmosphere for business.

It helps in identifying the opportunities of business, assists in planning, tapping useful resources, and improves the overall performance of the organization growth and profitability of the business. There are various types of business environments like microenvironment and macro environments.

In the session on the meaning of the business environment, we will also discuss the types of business environments.

The types of business environments can be dedicated to the following points.
  1. Internal environment
  2. External environment
    • External microenvironment
      1. Suppliers of inputs
      2. Customers
      3. Marketing intermediaries
      4. Competitors
      5. Publics
    • External macro environment
      1. Economic
      2. Social
      3. Technological
      4. Political and legal
      5. Demographic

Internal Business Environment

The internal environment consists of conditions and forces within an organization. It is located within the organization. It provides strengths and weaknesses to the organization and it is controlle by the organization. So the internal environment includes physical assets, technological capabilities, human, financial, and marketing resources, management structure, the relationship among various constituents, goods, objectives, and the value system prevailing. (business environment)

The organization depends on financial insinuations for the supply of funds. To represent the financial capabilities of the organization by the financial resources. While the physical resources of the organization are an indicator of physicals assists. which includes the organization of machinery, production plants, and buildings, etc. which convert the input into output.

Human resources can display the most important character in the internal environment. Overall the managerial decision taken by the human resources. While is technological resources represent the technical knowledge that is use in the manufacturing of goods and services. The internal environment consists of the factors which are controllable and which changed according to the requirements of the external environment. There’s been a drastic change in the internal environment in the last decade or so. Doesn’t help the contemporary work environment of the organizational employees to be more productive and the internet is your organization that suffers.

It all is the main resources why the organization has started to adopt a more flexible way of working by making necessary changes in the internal environment.

External Business Environment

The external environment is relatively watched compared to the internal business environments. It consists of conditions and forces outside the organization. the external environment is located outside the organization. It provides opportunities and threats to the organization. the external environment cannot be controlled by the organization. external environment influences the organization and is also influenced by the organization. So it is also known as the general environment. It is further classified into external micro and external macro-environment. (business environment)

External Micro Business Environment

The external microenvironment includes that types of character display whose decisions and actions have an impact on the organization. The two commodities are the most important aspects of modern business that are production and selling. Accordingly, the microenvironment of business can be divided. Input suppliers and workers along with their unions are exercising an influence on production and performers in the microenvironment.

Suppliers of inputs

Suppliers of inputs are the most important part of the external types of the business environment. Which includes suppliers of its inputs such as components and raw materials for the organization. For the smooth functioning of an organization. The inputs such as raw material should be regular that’s why it is very essential.

In the organization If the supply of raw materials is uncertain, then it is recommended that the organization should have a large stock of raw materials to continue its transformation process uninterrupted. This will unnecessarily raise its cost of production and reduce its profit margin or the customers will have to bear the increased price.

Many of the organizations have a regular supply of inputs such as raw materials some firms adopt a strategy of backward integration and set up phone production plants for producing raw materials. Similarly, energy input is an also important input in the business of manufacturing. (business environment).

Many of the industries such as Reliance industries have their own power generating plants so as to ensure an uninterrupted supply of electricity for their manufacturing businesses. However small industries cannot adopt the strategies and have to depend on outside sources for the supply of needed inputs.

Further, it does not allow depending on a single supplier for any of these inputs. If there is any destruction due to workers’ strike or lockout or similar things on the supplier’s end, then it will adversely affect the production work of the organization negatively. Therefore, to reduce risk and uncertainty. it is advised that organizations go ahead with multiple suppliers.


Customers mean by that person and most an important part of external microenvironment who buy and use a firm’s product and services of the organization in exchange for money. So all of the organizations can get profit from the customer because the customer is that type of character display in the market where all of the organizations are dependent on that. It is the responsibility of the organization to get better customer services and necessary to keep the customers satisfied. Taking care of customer’s sensitivity is essentials for the success of an organization. (business environment)

To buy products from an organization there are different categories of customers. For example, Audi car manufacturing organization. Such as Maruti Udyog has individuals, companies, institutions, government as its customers. Although, Maruti Udyog, has catered to the needs of all these types of customers by providing different varieties and models of cars.

To get more customers one of the organizations will always be in competition with rival firms and thereby increasing the market share of the organization. It does so by increasing the market demand in the market by spending on advertisements and promotions. And most of the organization can use that the strategy to get new customers and retain the old ones.

A part of retaining customers is giving more customer satisfaction. Recently customer satisfaction has become of parament importance of the fact that customers are provided with multiple options for buying the products. If a customer is not satisfied with a certain product or service. We can always opt for a competitive one it was not the case about half a century ago. (business environment).

Marketing Intermediaries

In the organization’s external environment marketing intermediaries display the most important character. Sometimes of selling and distributing the products to the final buyers. Marketing intermediaries include agents and merchants which are distribution firms, retailers, wholesalers, etc. They are responsible for stocking and transporting goods from their production site to the destination and to the final customers.

So the organization gets profit or increase sales then they can take help of different agencies, Such as advertisement agencies, market research consultancies, management consultancies. Which assists a business in targeting promoting and selling its products to the right markets. Thus marketing is displaying the types of character which are important to link between customers and organization. (business environment). A part of retaining customers is giving more customer satisfaction. Recently customer satisfaction has become of parament importance of the fact that customers are provided with multiple options for buying the products. If a customer is not satisfied with a certain product or service. We can always opt for a competitive one it was not the case about half a century ago. (business environment).

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