ENVIRONMENTAL

FACTORS OR
COMPONENTS

P R O F. DR. P . H . TA M G A D G E
The word ‘Business Environment’ has been defined by various
authors as follows,
“Business Environmental compasses the climate ’or set of
conditions,
Institutional in which business operations are Conducted.”—
Arthur M.Weime

‘‘Business environment is the aggregate of all conditions ,events

and influences
That surround and affect it.”—Keith Davi

“Environment contains the external factors that create

opportunities and threats to the business
Environment consists of factors external to the industry that may have
significant impact on the firm's strategies. Here we will look at six
broad dimensions: Demographic, Socio-cultural, Political,Legal,
Technologca1.

1. Political Environment: It is the political environment of the country

which decides the fortune of the business in a country Economic and
Global. Recently when Dr. Manmohan Singh led UPA government
came in power and new economic policy changed the whole
definition of business in India on the one hand it gave a bulk of new
opportunities for business on the other hand it also brought threat
for inefficient organizations. Not only political philosophy but also
political stability has a significance importance. More stable will be
the political environment of country the more conducive will be the
environment for business. The consensus among various political
parties on key issues are also relevant in this case. 2. Regulatory and
Legal Environment: The political environment
2. socio-culture: Socio-culture variables like the beliefs, value
system, attitudes of people and their demographic composition
have a major impact on their personality and behavior style.
The consumers' preferences have undergone a drastic change
through the 1990s. This has led to the production of more cars,
refrigerators, air conditioners and other articles that were at
one time considered ostentatious and luxurious. Not only this,
socio-culture paradigms also dictates the preference of
consumer in different regions.
3. Global Environment: The international environment consists of
all factors that operate at the transnational, cross-cultural level
and across the border. The world is a global village today and it
is getting closer and closer as far as business is concerned. WTO
Rulrs and regulation. For the sake of business, countries are
burying their grievances and forging economic relationships
like America and Russia are today good friends and China
Pakistan and India are becoming enemy.
4. Economic Environment:
The economic environment consists of macro level factors
related to the means of production and distribution of
wealth, which have an impact on the business of an
organization. The economic structure of a country, whether
it is socialist, mixed or capitalist, has a drastic impact on
the economy. Economic policies such as foreign trade
policy, industrial policy, fiscal policy, GDP growth rate,
policy of licensing, monetary policy, development of
financial institutions, development of money and stock
market, and the extent of globalization are some of the
aspects of an economy that reflect on business in an
economy. A slight change in monetary policy can release
crores of rupees into the economy that may result in a
decrease in interest rate, which further increases
investment as well as inflation. Also, banks' lending rates
decide the level of investment in any country. The higher
the interest rate, the lower the level of investment
5. Regulatory and Legal Environment: The political
environment governs the legal and regulatory
environment of country. The regulatory environment
plays a vital role by dictating the do's and don'ts of a
business. Every country has a different legal
environment. In India we have the Companies Act that
governs companies, the MRTP Act competition Act which
restricts monopoly, FERA Act various laws regarding
shares, the Consumer Protection Act, environmental
laws, and the implementation of GATS. GATS has
resulted in the implementation of international laws
regarding patents. There are also laws for import and
export, licensing etc. that have a drastic impact on
business and the future of organizations.
.
6. Technological: Technological forces present a wide range of
opportunities and threats that have to be accounted for in the process of
business strategy formulation. Technological advancement may dramatically
affect an "organization's products, services, markets, suppliers, distributors,
competitors, customers, manufacturing process, marketing practices, financial
composition, and competitive position." Some of the important factors that
influence operating in the technological environment are:
(a) Sources of technology like company sources, external sources and foreign
sources, cost of technology acquisition, collaboration and transfer of technology.
(b) Rate of change in technology, rate of obsolesce.
(c) Impact of technology on human being, the man machine system, and the
environmental effect of technology.
(d) Communication and infrastructural technology in management
7.Supplier:
 Price
The price of supplies will have a direct effect on how much it costs the company to produce a product. A
higher cost of raw materials will lead to a higher cost of production. If a company can find a
cheaper supplier it could lead to increased profit.

 Location and transport costs

If a supplier is located near to your company the transport and delivery costs will be lower. If the
product being supplied is perishable it would be better to source a supplier close to your business as
they will be able to deliver the goods quickly.
.
 Lead time
Lead time is the amount of time taken between an order being placed and an order being received.
Some companies will require stock to be delivered quickly especially if the products are perishable
or the company is using just in time (JIT) stock control methods.
 Reliability
If a supplier does not deliver at the agreed time, or with the correct goods, this can affect a business’s
ability to produce and deliver their product to the customer.
 Reputation
Suppliers that have a good reputation will be more likely to fulfill orders on time and provide a high
quality product. If a supplier has a bad reputation you may not be able to rely on them to provide
the quality supplies that your company requires.
THANK YOU