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Concept & Nature of Business Environment

A. B.

Internal Environment External Environment

Micro external environment / Micro environment Macro external environment / Macro environment

Business Environment
Refers to all those factors that have a direct or indirect bearing on the functioning of business Business environment in broad sense includesInternal Environment (consisting of controllable factors) External Environment (consisting of uncontrollable factors)

A. B.

A. INTERNAL ENVIRONMENT Consists of factors which are internal to the firm & hence are controllable factors such as Value system Goals & objectives Management structure & internal power relationship Resources & technology

Consists of those factors which are external to the firm & hence are uncontrollable factors. External environment of business can be classified into a. Micro external environment / Micro environment b. Macro external environment/ Macro environment Micro external environment- Consists of those players whose decisions & actions have a direct bearing on the company, such as, Suppliers of inputs Workers & their unions Customers Market intermediaries Competitors


Characteristics of factors in the micro environment: These factors are more intimately linked to the firm than macro factors. These factors are said to be less uncontrollable than macro external environmental factors.

b. Macro external environmentconsists of all those economic & non-economic factors which exercise their influence on business activity in general (at national & global level) & thus determine the opportunities & threats a firm may have in business. Characteristics of factors in the macro environment: The effects of these uncontrollable & dynamic factors may be positive or negative on a business firm. These factors are said to be more uncontrollable than micro external environmental factors. Macro environment consists ofi. Economic environment ii. Non-economic environment

i. Economic Environment

National economic environment: consists of national /

country level factors like, Economic system of the country Economic policies of the country Economic condition prevailing Regulations of the monetary Authority

b) Global economic environment: consisting of global /

international factors like, WTO principles & agreements Other international treaties / agreements/ protocols Economic conditions in other countries Regional economic groupings Dominance of MNCs Protectionism policy of developed countries

ii. Non- economic Environment

Political system (Political environment) Legal system (Legal environment) Socio- cultural system (Socio- cultural environment) Natural/ Physical system (Natural/ Physical environment)

Business Environment
Internal Environment External Environment

Micro External Environment

Macro External Environment Non- economic Environment

Economic Environment (EE) National Economic Environment (NEE)

Global Economic Environment (GEE)