Every business or company deals with the challenges and opportunities presented by the environment, and they could be favorable or unfavorable depending on various factors. Today, we’ll study the types of the business environment in detail.
Table of Contents
What is a Business Environment?
The business environment comprises external and internal factors that impact the operations and functions of the company both in a positive and negative way. The impact on the environment is so great that it makes the business restore and modify the whole business.
The business environment presents equal opportunities and threats to the business for its growth and development. The whole environmental experience offers the company and its associate a great learning experience in its process.
Types of Business Environment
There are main types of the business environment, and they’re as follows;
Internal Business Environment
The internal business environment, as the name implies comprises the inner factors of the company like the management, technical support, and other assets of the company like marketing, human, and financial resources of the company.
Here, the financial resources mean the financial and accounting capabilities of the company. The physical resources imply the physical assets of the company that it uses for the production and to transform input to output like building production plants and machinery. However, HR (human resources) plays a significant and crucial role in the inner environment of the company.
The human resource department makes the managerial decisions of the company. The technological support system has the technical knowledge that they employ in the production and manufacturing of products and services.
The inner environment comprises such factors that you can change and control relevant to the external environment and its requirements. But the internal environment of the company has been changing drastically for the past decade. Some say the modern and contemporary work environment doesn’t improve the productivity and growth of employees.
It’s because businesses and companies have started following the flexible working style and made significant changes in the inner environment. For instance, gym facilities in the workplace and while working, putting on informal clothes, and an employee-friendly working environment. They claim that what businesses and companies need is the work friend workplace environment rather than an employee-friendly, and it would push them to their fullest potential. Google has the world’s best internal workplace environment for its employees that promotes their growth and productivity.
External Micro Business Environment
The external micro business environment comprises outer organizational and institutional forces that are out of control and could impact the company. For instance, suppliers could impact influence the availability of a company’s product and its prices. Some of the main external micro-business environmental factors are as follows;
Suppliers play a significant role as the external micro-environmental factors because they provide raw material, ingredients, and other necessary components for the production. The production company should have a regular supply of raw materials for the smooth functioning of its operations. If the company doesn’t get the required raw material in the proper size and format, then it would interrupt the company’s processes. It would amplify the production cost and lower the profit margin, and customers would end up paying high costs.
Many tech companies have set up production plants and they manufacture raw materials for the smartphone companies. In order to carry out various business operations, they require energy. Many companies have set up their own private production plants to make sure the smooth supply of electricity and energy without interruption. Small companies can’t make demands and they have to follow the strategies of the external suppliers.
It’s better if you don’t rely on a single supplier, because if the suppliers’ firm has to face lockdown, strikes of workers, or any other issues, then it would negatively impact the production process of your organization. In order to lower the uncertainty and risk, you have to hire various suppliers.
Resellers are the market intermediaries comprise of wholesalers, retailers, distribution firms, agents, and merchants. They offer the service of transporting the products from the manufacturing facility to the end destination and the final customers.
Resellers take the service of various companies and agencies like management consultancies, advertising agencies, and marketing research agencies in order to promote and sell the products to the correct end customers. They’re the significant link between the company and the customers.
Customers are the entity that actually buys and consume the product in return for money. They play a significant role in the external environment because the profitability of the company depends on the end consumers.
It’s significant for the company to cater to the needs of customers through excellent customer service and both of them are important for customer satisfaction. Speaking of customers, there are different types of customers like institutions, companies, governments, and individual customers. You have to deal with them differently because they all are separate enteritis.
If you want to retain customers, then you have to satisfy their needs and wants. Customer satisfaction has become increasingly important recently because you have to provide customers with various options, and they have to choose one. If the customer doesn’t like your product, they would choose the competitors’ offers.
The competitive market is the order of today’s business environment, and the era of monopoly has gone. Businesses and companies have to compete with each other in order to get the attention of customers. If you want the non-price competition in the market, you have to pay the price of hiring the best talent, sponsoring an event, or advertising and promotional campaigns.
Purchasing the best quality raw material at a good price from the suppliers, then you have to face the competition. It’s because of the scarcity of raw materials and many competitive businesses and companies. However, the global competitive market and globalization not only influence the price but also impacts the customers and the country’s economy.
The general public is a group that has an impact and interest in the capability of a person to achieve its goals and objectives. It comprises media groups, women’s associations, environmentalists, consumer protection organizations, local groups, and the association of citizens.
Environmentalists have been impacting businesses and companies because of environmental pollution. Many people are campaigning against alcoholic drugs and cigarettes because of their injurious impacts on their health.
External Macro Business Environment
Some of the main external macro business environments are as follows;
Political & Legal Factors
Political and legal factors shape the market in various ways. It means that you have to upgrade your business relevant to the political and legal forces and make the decision while keeping in mind such factors. However, some of the main political and legal factors are as follows;
- Export & Import laws
- Health & safety laws
- Discrimination laws
- Fraud laws
- Employment laws
- Copyright laws
The country’s economy and economic circumstances have a great impact on the company in terms of the decision-making process of customers and production level. Some of the main economic factors that could impact the business are as follows;
- Supply & Demand
- Exchange rate
- Interest rate
A socio-cultural environment of the market has a great impact on the business because you have to produce the product relevant to the culture of the society. You have to avoid all of those hazardous practices that are irresponsible and dangerous to society. Some of the main socio-cultural factors are as follows;
- Lifestyles differences
- Age distribution and life expectancy rate
- Immigration and emigration rates
- Population growth rate
- Size and structure of the family
- Social classes
- Health issues and consciousness
- Beliefs and religion of people
- Education level
- Buying habits
Tech skills, expertise, and capabilities have a great impact on the production processes, and it also deals with the production of tech material and parts. They’re necessary for the smooth running and functioning of your company. In fact, it comes to the basic small factors like what type of maintenance tools and trolleys you’re using in order to keep your equipment and tools safe. Some of the main technological factors are as follows;
- Wireless charging technology
- Security relevant to cryptography
- Efficiency and engine performance
- Computer calculation speed and power
- 3D technology of printing and others
- Connectivity of internet
Every business employs natural resources somehow or the other and they can be minerals, oils, coals, agricultural products, forests, plants, etc. Some of the main natural factors are as follows;
- Biological species and their survival
- Regulations and laws relevant to the environment
- Renewable resources/non-renewable resources
- Climate change
After a careful study of types of business environment; micro and macro external environment factors; we have realized that they have a great impact on the operations and the decision making of the company. Since they’re uncontrollable factors, you have to find a way to run your business by avoiding them.