A business exists in and interacts with its environment. The term environment forces external to a business firm under which it operates. A business firm gets input for its operation from its environment and offers output for sale to the people of the environment. Thus every change that affects the environment also affects the business.
The general business environment can be broadly classified into the following categories.
(i) Social (ii) Political (iii) Economical and (iv) Technological environment.
Social environment of business simply covers all the social factors that put impact on the business. Businesses always operate in society, so various factors of society like literacy (Educational institutes), awareness, family, religion etc. put huge impacts upon the conduct of business. Consumers, employees and social institutions are integral parts of social environment. A proper understanding of the needs and aspirations of consumers and employees is highly essential for accomplishing the long-term goals of business. A business does not function in a vacuum. It has to act and react to what happens outside the factory and office walls. These factors that happen outside the business are known as external factors or influences. These will affect the main internal functions of the business and possibly the objectives of the business and its strategies.
The following are the three aspects of social environment which influence the present day business.
It consists of political part ie, Government, stability of Government, attitude of government towards business, laws made for regulations of business and so on since every business has to function within the political framework of the nation. Its growth and development depends on the bye-laws enforced the confidence of businessmen and leads to business prosperity.
An external environment of a company that includes the factors that determine the income and wealth-generating ability of the economy. Those Economic factors which have their affect on the working of the business is known as economic environment. It includes system, policies and nature of an economy, trade cycles, economic resources, level of income, distribution of income and wealth etc. Economic environment is very dynamic and complex in nature. It does not remain the same. It keeps on changing from time to time with the changes in an economy like change in Govt. policies, political situations.
“Technological Environment means the development in the field of technology which affects business by new inventions of productions and other improvements in techniques to perform the business work". External factors in technology that impact business operations. Changes in technology affect how a company will do business. A business may have to dramatically change their operating strategy as a result of changes in the technological environment.
Today, the business environment is subject to rapid changes. The dynamic nature of environment is on account of
Industry is an important part of business. It is concerned with the production of goods and services. An industry may be either a primary industry or a secondary industry.
Primary industries are those industries which engage in the activities of extraction, production and processing of natural resources. These industries may be further sub-divided as extractive industries and generic industries. A company in a primary industry can also be involved in turning natural resources into products.
Secondary industry are those industries which use the products of the primary industries. These industries may be further sub-divided as manufacturing industries and construction industries.
Industries which are engaged in the extraction of raw materials from the earth, sea and air are known as extractive industries. The main examples of extractive industries are fishing, forestry, mining, quarrying and so on. Fish, timber and various minerals like coal, iron and, lime stone etc., are its main products. These are either directly consumed or used as raw materials for manufacturing. For instance, while fish, fruits, etc, are directly consumed, minerals are used as raw materials to produce various finished goods.
Industries which are concerned with producing and multiplying certain species of plants and animals are called genetic industries. Poultry farming species genetic industries. Poultry forming, cattle breeding, nurseries, forestry etc., are the examples of such industries.
Industries which are engaged in converting raw materials into finished goods are known as manufacturing industries such industries create form utilities. For instance, the iron are extracted from the earth is converted in to steel by manufacturing process. The products of the manufacturing industries may be of consumer goods, intermediate goods and capital goods.
The products of the manufacturing industries may be of consumer goods, intermediate goods and capital goods. If consumer goods such as cloth, sugar, soap etc., are required for direct consumption by people, intermediate goods are needed to producing other goods. Steel for making machinery and cement for making building are the examples of intermediate goods. On the other hand, goods required for the manufacture of consumer and intermediate goods are known as capital goods. For example machinery and equipments.
Industries which are engaged in the construction of building, roads, dams, bridges, canals, etc. are known as construction industries. These industries get their raw materials such as cement, sand bricks, steel, wood etc., from manufacturing industries. Construction industries are labour intensive and their precepts remain fixed at one place.
Commerce is an organized system for the exchange of goods and services. It is a wide term consisting of all those activities which facilitate transfer of goods with the object of earning profits. It provides the necessary link between producers and consumers to ensure proper distribution of goods. The primary aim of commerce, therefore, it to ensure the supply of goods at the right place, in the proper quantities and at the right time.
According to James Stephenson “Commerce is the sum total of all those process which are engaged in the removal of the hindrances of person, place and time in the exchange of commodities”.
Commerce plays an important role by removing the following hindrances in the exchange of goods and services.
These hindrance arise due to the absence of contract between producers and consumers. When producers are faced with the problem of finding the buyers, the consumers do not know the source of supply of goods required at prices which they can afford commerce removes this hindrance by means of trade. It provides an organized market where the buyers and sellers can contact each other.
A major problem that confronts producers is the distance between the place of production and the market. Commerce removes these problems by means of transport. Modern means of transport carry goods too far-of places quickly and safely. Packing of goods helps to preserve their quality in transit and storage. With the help of packing, businessman can preserve the quality of goods. Thus, transportation and packing are useful commercial activities.
In modern industry, there is usually a time lag between production and consumption of goods. It necessitates to store the goods until they are sold. This problem can be solved by means of warehousing. It provides suitable storage facilities to protect the goods from rain, sun, moisture, rests and so on.
There is always time gap between the sale of goods and the realization of cash after their sale. During this period, traders require funds to conduct their trade commerce removes this problem by means of banking.
Every business involves various risks. While goods are transported from one place to another they are subject to a number of risks such as loss by damage, fire, theft, destruction etc, commerce removes these hindrance by means of insurance. The insurance companies provide coverage for all types of losses of goods.
Sometimes, producers find it difficult to sell their goods because of consumers unawareness of such goods. Commerce removes this problems by means of advertising and publicity. Advertising and sale promotion remove this hindrance by bringing goods and services to the knowledge of consumers. Advertising also persuades people to buy the goods and services.
Trade is an important branch of commerce. It implies buying and selling of goods with the object of earning profit. It is concerned with the removal of hindrance of person by providing a link between the producer and the consumer. All other commercial activities like transport, insurance banking, warehousing and advertising revolve around trade. Thus trade is considered as the nucleolus of commerce. Trade may be classified into
(i) Home or internal trade
(ii) Foreign, external or international trade.
When trade is carried out within the country, it is called home trade. In the case of home trade, both the buyer and the seller belongs to the same country and the payment involves in national currency. For instance trade between a businessman in Mumbai and a businessman in Trivandrum. Home trade may be divided into wholesale trade and retail trade.
Wholesale trade means buying goods in large quantities from producers and selling them in small quantities to the retailers. A person who deals in wholesale trade is called wholesaler or wholesale dealer. He acts as the link between producers and retailers.
Retailing is the selling of goods in smaller quantities to the ultimate consumers. The person carrying on the retail trade is known as the retailer. He serves as the connecting link between wholesalers and consumers. He buys goods in large quantities from the wholesalers, cuts them into small pieces or units and sells them to the consumers.
Where the trade is carried out between two countries, it is called foreign trade. It implies buying and selling of goods between two or more countries. For instance, trade between India and America. Foreign currency and international means of transport are used in foreign trade.
It means the purchasing of goods from a foreign country. For example, a businessman in India buys machinery from a businessman in U.S.A
It means the selling of goods to foreign countries. For example, Indian Tea company sells tea to USA. Entre-pot involves import of foreign goods with a view to re-exporting them and making a profit in the process. For instance, an Indian may import certain goods from European countries and export them to Srilanka.
The term auxiliaries to trade’ involve subsidiary activities which facilitate trade. The important auxiliaries to trade are transport, communication banking, insurance, warehousing and advertising. In fact, these activities support both trade and industry ie, the entire business activity.
They help in carrying goods from producers to traders and finally to consumers. They bridge the geographical distance and create place utility. Thus the transporting agencies such as railways, airways, shipping companies and roadways are important commercial institutions.
Very often, businessman face the problem of financing banks and other financing banking institutions help businessmen by providing safe and quick means for remittance of funds from one place to another.
Business involves a number of risks. These can be covered with the help of insurance companies. A businessman gets his assets insured at a very nominal payment of premium.
Since goods are produced in anticipation of demand, the problem of warehousing arises. It refers to the holding of goods until they are finally consumed. Warehousing performs a useful function of matching supply with demand and creates “time utility”.
Advertising informs the customers about the availability of various goods. It removes the hindrance of knowledge and creates and sustains demand of the product.
Practice in Related Chapters
|Nature and Purpose of Business
|Forms of Business Organisations
|Public, Private and Global Enterprises
|Emerging Modes of Business
|Formation of a Company
|Sources of business finance
|Social Responsibility of Business and Business Ethics