Business Environment Definition [What Are Internal & External Environmental]

Business Environment Definition Generally, the environment of each business organization can be divided into the following two categories: What is meant by Business Environment'? Describe its various components [Various Components of Business Environment]

Business Environment Definition [What Are Internal & External Environmental] - Describe It's Components

A. Internal Environment

Every organization has an organization through which it does its work. This organization is its internal environment. This internal environment is made up of the following major components

  1. Aims and Objectives of the Organization
  2. The ideology or philosophy of the institution
  3. Society's policies, rules and regulations
  4. Resources of the Institution
  5. Organizational Structure of the Institution.
  6. Interpersonal relationship and coordination between employees and officers
  7. Production and Processes

Employee skills, beliefs, managerial behavior, research system, marketing strategies, internal rules and regulations, administration, accounting and finance, etc. are also included.

B. External Environment

The external environment of a business organization refers to its entire external business world. It includes all those circumstances, groups, factors, etc., which affect the decisions, activities and success of an organization. It includes all the economic, political, social, cultural, technical and managerial factors that affect the functioning and success of any organization.

In fact, the external environment of the organization is its real environment, living in which it has to conduct its work. The organization has no control over this environment. It is always in motion. As a result, businessmen and managers have to mold themselves according to this environment. It is particularly worth noting here that the geographical area of ​​the external environment of each organization is determined by its area of ​​operation. The external environment of an organization having international level is influenced by the factors like international economic, social, political, cultural, technical etc. whereas that of a local organization will be affected by local factors. Therefore, the geographical area of ​​the environment of each organization determines its own scope of work. In short, we can include the following components in the external environment of the organization.

Internal & External Environmental, Business Environment Definition
Internal & External Environmental

Economic Environment and Its Components:- What is meant by Business Environment'? Describe its various components:-

The economic environment of the business is made up of all those factors and forces which have a direct economic impact on the functioning and success of the business. Sturdivant has written that the economic environment generally refers to those external forces which have a direct economic effect on a business. There are many economic factors in the environment which have a direct impact on the success of the business which are as follows:-

Economic system of the country

The economic system of the country, which can be capitalist, communist, socialist, mixed ie any type, directly affects the economic development of that country.


The condition of the economy can be developed, developing or underdeveloped. Business entities in developed countries are in a position to develop fully. Business organizations in developing and backward countries have to face many difficulties and challenges.

Direction of the economic cycle

The condition or condition of the economic cycle in the country also creates opportunities and challenges for the development and expansion of business. The speed of change in the rate of currency spread or the price level also affects the business environment.

Structure of the economy

The nature and sources of national income, distribution of income, rate of capital formation, level of development of industry, commerce and foreign trade etc. all the components explain the structure of the economy. Positive development of all these factors can provide significant opportunities for business growth. Without them the business cannot grow.

Competing Institutions

The existence of any business organization is also affected by the status of its competing institutions. The number of goods produced by the competing organizations, the availability of substitute goods, their quality, price reliability, etc. are all factors that generate competition for each organization.

Capital Formation and Investment

The business environment of the country is directly affected by the rate of capital formation in the country, development of capital market, availability of investors etc.


Labor power is also considered as a major component of the economic environment. Factors related to labor force like achievement of labour, their educational and mental level, their beliefs and expectations, prevailing wage rate, labor productivity, relationship with employers, participation of workers in management etc. affect the business environment.


The suppliers of the business are also an important component of the business environment. Their policies, types and conditions of goods and services, etc. all directly affect the business. Without these, no organization can produce goods or services.

Economic Policies and Rules

The economic policies and rules of the country regulate the business environment of the country. Industrial policy, licensing policy, monetary policy, import-export policy are counted among the major economic policies of the country. Similarly, there are many economic laws like Companies Act, Banking Act, various Acts related to Capital Market, Foreign Exchange Act etc. The business environment is regulated by these policies and rules or acts. Due to this, everyone starts having confidence in the stability and continuity of the economic environment.


The customer segment is an important component of the business environment. The income, gender, income, residence, need, desire, standard of living of the customers also directly affect the business.

It is thus clear that all the above components of the economic environment constitute the business environment and affect the business.

Physical Environment and Its Components

The physical environment of the business is the most important basis for the operation of the business. Geographical and ecological conditions have played an important role in the establishment and formation of business. The following components are mainly included in the physical environment

1. Physical Resources

The physical resources of business include nature, land, grains, water, external, environment, raw materials etc. These physical resources are limited. So the business has to make optimum use of them.

2. Climate

Different types of climate are required in the operation of different manufacturing industries. Environmental conditions also affect business demand and capital.

3. Infrastructure

For the development of industries and commerce, infrastructure of water, electricity, roads, transport, communication, finance, insurance, warehouse, training, research, industrial goods, technical institutions and other services are needed, because these All influence the growth and expansion of the business immensely.

4. Topography

Mountains, plateaus, plains, seas, rivers, canals, harbors etc. greatly affect the landscape.

5. Public utility services - These include services for business transport, communication infrastructure, hydropower, television, All India Radio, etc.

6. Environment

The natural environment which is created by nature elements and trees, plants, air, light, ocean events etc. It has a profound impact indirectly on the operation of the business.

7. Energy

Energy is also the basic basis of business success. Water, coal, petrol, electricity, atomic power, gas, solar energy and magnetism are the main physical energies of business.

The various components of a business's physical environment not only affect the structure of the business. but also determines its future development. Physical conditions profoundly affect the demand pattern of business, products, material mix, marketing mix, environmental balance, cost structure, prices, supply flow, etc. The problems of centralization of business, environmental pollution, regional balance, equitable distribution of wealth, urban medicine, property security, environmental purity etc. are related to the physical environment of the business. With respect to the physical environment, the biggest challenges faced by the business are of optimum utilization of physical resources, use of efficient and least cost methods of production and protection of national resources.

Socio-Cultural Environment and Its Components

Business is a social institution. Therefore, the socio-cultural environment of the country also affects the business. Socio-cultural environment is formed by the following components

1. Social Values

The moral values ​​of the society affect the ethics of business. It is possible to create a good business environment with good social values.

2. Traditions and Customs

The customs and traditions established by the society guide the business. These also affect the operation of the business.

3. Traditionalist and Scientific

Society is traditional or scientific. If people have stereotypes then proper environment may not be available for business. If there are scientists, then development in the society will provide an environment for the development of business.

4. The attitude of the society towards changes and risks

The attitude of the society towards changes and the ability and spirit to take risks affects the business environment.

5. Characteristics of Population- 

Characteristics of population like female, male, caste, class, varna, religion, income and age etc. all these have an effect on business.

6. Family Structure

Family structure like joint family, nuclear unit family etc. also help in creating business environment.

7. Assumptions

There are many assumptions and opinions prevailing in the society about consumption, standard of living, way of life, purchase expenditure, wealth creation, profit, capital investment etc. The businessman should conduct his activities keeping these concepts in mind.

8. Materialism

The approach of 'comfort and convenience' towards life, the view of maximum consumption of material goods and the desire to live a high standard of living is materialism. This approach inspires the businessman to increase production, diversify and bring new changes in the society.

9. Perception towards work

The level of work spirit or desire to earn money for satisfaction and respect in the people affects the development of business.

10. Attitude towards managerial aspects

The attitude of the society towards the managers, delegation of authority by the managers, discharge of responsibilities, participation of employees in management etc. The social attitude towards the aspects also creates the socio-cultural environment and they influence the business. does.

Political Environment and Its Components 

Political environment of business affects business. Political environment is made up of the following factors. The political ideology of the government can be any of the types of communist, socialist, dictatorial etc. It greatly affects the business environment.

Political stability

Political stability can be estimated on the basis of factors like majority of government party in Parliament, state of government in states, terrorism, social tension, emergency, President's rule etc.

National Security and Military Policy

From the point of view of national security, dealing with enemy roads, trade and military policy of the country etc. also affects the business environment.

Foreign policy-neutrality and factional policy, tariff policy etc. also affect the business environment.

Political donations and gifts

The political environment in the country is created and worsened by donations/gifts from business organizations to political parties and individuals. This also affects the business environment.


The position of bureaucracy in the government, cooperation of bureaucrats with political leaders, red tape, corruption etc. also affect the business environment.

National reputation

The country's reputation in other countries also contributes to the creation of business environment. Due to this, mutual business environment is formed between different countries. With this, the business of the country can be internationalized.

Policy related to public welfare and social justice

The policy related to public welfare and social justice of the government of the country also affects the business environment. To secure public welfare and social justice from these policies, many schemes and reservation systems are implemented, which affect the business environment.

Government policies and rules

Government policies and rules in relation to industry, commerce, import-export, banks, insurance, capital market, nationalization etc. The process of making rules and their implementation status affects the business environment. In short, it is thus clear that the political environment of the country creates the working environment for business. This arouses interest in the business among the people.

Legal Environment and Its Components

The legal environment of the country also affects the business to a great extent. The main reason for this is that if there is no proper legal system to protect the interests and rights of the businessman and the other parties involved in the business, then no person would even want to do business. The major components that make up the legal environment of business are:

Constitutional Provisions

The constitution of the country can provide freedom to do business or can also impose some restrictions. Therefore, the provisions of the constitution affect the business environment of the country.

Business rules

This includes rules related to contract act, sale of goods, partnership, company, bank, insurance etc.

Economic norms

MRTP in economic rules. Act, SEVI (SEB), Securities (Regulation) Act, Consumer Protection Act, Essential Commodities Act, Anti-Black Market Act, Bonts and Measures Act, etc. can be included.

Industrial and Labor Regulations

These include Factories Act, Industrial Disputes Act, Employees State Insurance Act, Provident Fund Act, Minimum Wages Act, Workers' Compensation Act, Wages Payment Act etc. The environment of business is definitely affected.

Pollution Control

This includes Environment Protection Act, Water Pollution Control Act, Air Pollution Control Act etc.

Tax policy and system

Direct and indirect tax and its rates and tax system is also a part of the legal environment.

Judicial system

It includes the judicial system at all levels and the state of etiquette or gentrification prevailing in it.

Economic policies

Industrial policy, licensing policy, monetary policy, import-export policy, state purchase policy, economic subsidy policy, public distribution policy, labor policy etc. can be included in the economic policies of the country.

All the above major components constitute the legal environment of business in the country. This environment not only affects the business, but also compels it to work according to this environment.

Technological Environment and Its Components

The technical environment is of great importance for the success of the business. Therefore, the most and fastest changes are taking place in the technological environment itself. It is true that as a result of the technological progress of the nation, development of new goods, new markets, new raw materials, new sources of energy, renewal and new services becomes possible in business. Business cannot remain untouched by science. A business which does not adopt technological improvements, not only lags behind in the competition but its existence is also in danger. In fact, only through technological development, innovation and modernization can the path of commercial progress be made. Following are some of the major components of the technical environment of a business.

1. Technological and Technological Development - New Machines, Computers

2. New mechanical improvements

3. Progress towards automatic machines, artificial humidity, temperature and training

4. Development of new sources of nuclear power, solar energy and energy

5. Fragmentation and dissolution of nuclear power

6. Search in the direction of communication, television, sky, convection

7. New Developments in Biology, Chemistry and Genetics

8. New Dimensions of Industrial Engineering, Color and Design Technology

9. Development towards environmental technology.

10. Increase in human sensing ability to analyze objects- radar, electron, microscope, far-sighted equipment etc.

The above technical and technological changes are being used in various fields of business. These have brought revolutionary changes in industrial and commercial activities. According to Sturdivant, science and multi-technology have been a more dynamic and powerful factor in bringing about changes in business.

Historical Environment and Its Components

Historical heritage or events of the country also affect the current environment of business. If a country has a history of social riots, industrial unrest, political instability, government corruption, terrorism, instability in economic policies, then businessmen in that country are surrounded by the possibility of similar incidents to happen in the future. The business environment of that country is always plagued with fear and apprehension. If we take the example of India, then there has never been stability and order in the economic policy of the Government of India. is. Nationalization of industries whenever desired, changed industrial policy, import-export, taxation policy whenever desired. The economic policy of the country was plagued by red tape and legal clutches. As a result, not only foreigners, but also the businessmen of the country have been feeling fear in the development of business

Educational Environment and Its Components

The educational environment of the country also mainly affects the business. Education develops the mental aspects of human beings, from which a good society is made and a good business climate is found in a good society. In this business plant flourishes.

Thus it can be said that the educational environment opens the doors of creativity and innovation for the business environment of the country. Therefore, the businessman should try to develop and adapt himself according to the educational environment. This will develop new technology, managerial knowledge and talents in the country, which will lead to progressive development of business.

International Environment and Its Components

For certain types of businesses like import-export houses, import-competitive industries, replacement industries, industries that import raw materials or parts, etc., it is very important to keep in mind the international environment. In fact, the international business environment affects the business of all countries. Following are the major components of the international environment in the present era.

  • Economic Policies of Different Nations
  • Mutual relations with other nations
  • Availability of Foreign Capital
  • Level of Competition in the International Market
  • Competitive Position of Foreign Entities in the Local Market
  • Import-Export Possibilities
  • Possibilities of transfer and use of technology at international level
  • State of International Peace
  • Prospects and conditions of cooperation and agreement with multinational institutions.
  • Number and scope of multinational corporations.
  • Production and Marketing Strategies of Different Nations
  • International political pressure, secret agreements etc.

In the end it can be said that all the above mentioned environmental components are available in the entire environment of the business. Every business organization is affected by these factors. However, the business organization also affects all these factors. But the impact of each institution is so small that it becomes difficult to measure and measure its impact. But the impact of the whole business on the society can be seen and measured.

Here in this article You know Business Environment Definition & It's Components