Skip to 0 minutes and 0 secondsNo business, whether big

Skip to 0 minutes and 13 secondsor small, exists within its own bubble. Everything it does, is influenced by its environment which is the all-embracing system in which an enterprise operates. We’ll take a look at 6 different components which influence this environment. The economic component refers to the demand and supply of goods and services, the demand has no limit, or the supply does. Let’s take a fishmonger as an example.

Skip to 0 minutes and 38 secondsWhen more people want to buy his fish, he may supply more fish to keep up with demand. However, there are multiple factors that influence demand and supply such as inflation, income and wealth, employment and productivity. Competition is an equally important feature of business. It plays a role in balancing demand and supply. Different competitors will try to compete over the same thing, at the same time, as your own business. You may buy high quality fish from one fishmonger for a certain price, while another

Skip to 1 minute and 9 secondsmight supply you with more lower quality fish for the same amount of money. What you sell and how much you sell of it, can vary wildly depending on social and cultural components. People in different parts of the world have different values which affect what and how they consume. For example, people in certain cultures may not eat any fish without scales but these fish might be considered a delicacy elsewhere and it’s not just culture which causes restrictions or changes. The political and legal component affects a business on either a local, regional or national level. Politicians could put down quotas for each type of fish caught, this would prevent over-fishing.

Skip to 0 minutes and 0 secondsOther changes can come from the geo-political component which is the influence of the political and economic geography on a state or region. Geo-Politics influences policies and the relationships between countries. With all these external factors influencing business, a company also has its own responsibility for the impact it has on society. A fishmonger could, for example, decide to only sell ethically-sourced fish. This way the fishmonger takes responsibility in both being sustainable and stimulating the local economy. These are the 6 components which influence the business environment.

Theorising the business environment

The term ‘business environment’ implies the macro and micro forces present within the operational realm of businesses, that combine to interact, influence and impact on the activities, functions and decisions of businesses, that are beyond the control of the businesses.

These include customers, competitors, suppliers, government, and the social, political, legal and technological factors etc.

While some of these factors or forces may have direct influence over the business firm, others may operate indirectly.

Thus, business environment may be defined as the total surroundings, which have a direct or indirect bearing on the functioning of business.

It may also be defined as the set of external factors, such as economic factors, social factors, political and legal factors, demographic factors, technical factors etc., which are uncontrollable in nature and affects the business decisions of a firm.

However, the business environment can be categorized into the following:

  • national (sometimes known as the local) business environment

  • the regional business environment

  • the global business environment

Watch this video in which we introduce you to the six different components which impact the business environment.


Your task

Having watched the video, what are the two most important features of your national business environment? To what extent have they influenced or could impact on global businesses operating in your country?

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This video is from the free online course:

The Global Business Environment: Evolution and Dynamics

Coventry University

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