Dimensions of Business Environment

The business environment is made up of many constituents and we call it a dimension of the business environment. These dimensions are very critical for the understanding of the business environment and also this dimension also tells what is are the internal and external factors the influence activities and operation of the firm. having knowledge about these dimension of business facilitate decision-making, hence business are able to achieve their objective and goals.

► Dimensions of Business Environment

There are various dimensions of the business environment but mainly it is divided into five categories that are as follows.

  1. Economic Environment
  2. Technical Environment
  3. Social Environment
  4. Political Environment
  5. Legal Environment

✔ 1. Economic Environment

The business environment is closely related to economic characteristics and economic policy dimensions such as the structure and nature of the economy, the stage of development of the economy, Economic policies and global linkage, etc.

Important economic environmental factors are.

Structure and Nature of the economy

  1. level of development (developed, developing, and least developed)
  2. Low-income, middle-income, and high-income economies
  3. Contribution of different sectors (primary, secondary, tertiary)

Economic condition

  1. Per capita income
  2. GDP trends
  3. Demand and supply
  4. Inflation
  5. Trade and BOP trends
  6. Forex reserve position

Economic policies

  • Industrial Policy
  • Monetary Policy
  • Trade policy or EXIM policy
  • FDI policy

Global linkage

  1. International Trade
  2. Investment Flow
  3. Membership of WTO, IMF, World Bank, Trade blocs, etc.

Also Read : Theories of International Trade 

2. Technical Environment in business

Technology is one of the important determinants of the success of firms as well as the economic and social development of a nation.

Technological development facilitates not only the introduction of new process and product but also improve the operational efficiency of the company.

Access to new technology is both an opportunity and a threat for a firm. Technology provides a competitive advantage and the success of any business is depend on innovation or technological development i.e lot of firm R&D and innovation.

3. Social Environment in business

One of the important dimensions of the business environment is the societal environment. The social system is an integral part of the business and changing society’s beliefs, attitudes, and values have far-reaching effects on business and its activities are subject to social judgment.

A business enterprise shall make a profit only by accomplishing socially accepted goals by satisfying society’s needs.

The major elements of the social environment that affect the business environment are.

  • Knowledge and belief
  • Societal norms and ideals
  • Tradition and culture
  • Religion
  • language
  • Social trends
  • Consumer preference, Habits, and taste

4. Political Environment

The government plays a very vital role in deciding the faith of businesses. The decision taken by the government has a critical impact on business activities and functioning on only on the domestic level but also on a global level.

The government’s attitude toward businesses allows businesses to achieve macroeconomic and microeconomic stability, employment level, regulatory framework, promotion of trade and commerce, entrepreneurial activity, infrastructure development, and labor welfare.

5. Legal Environment in business

The legal environment is an important determinant of business location and functioning.  The legal environment not only includes the law passed by the legislature but also includes government executive orders and judgments given by courts.

The legal environment provides the knowledge about law of the land and business should comply with these laws.

This knowledge law covers the many subjects that directly and indirectly affect business functioning.

Prerequisite knowledge of these legal aspects of business ensures the smooth functioning of the business.

The legal environment includes various laws like

  • Companies Act 2013
  • Indian Contract Act 1872
  • Industrial Protection Act
  • Consumer Protection Act 2019
  • Environmental Protection Act 1972
  • Labour code 2020
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