DIPLOMA IN BUSINESS ADMINISTRATION:

BUSINESS ENVIRONMENT
There are several internal and external factors that can influence a company's
business decisions. Different combinations of these factors, like price, social
changes and regulatory changes, can influence the overall environment where
a business operates. Learning more about these ecosystems and how a
business might navigate them can help you adapt to changes and keep a
relative and positive reputation in your market.
What is a Business Environment?
A business environment is all the components that affect a business. These
include both internal factors, like employees and resources, and external
factors, like customers and markets. Each of these contributes to a company's
working environment and can influence how the business functions.
What are the types of business environments?
Here are some of the common types of business environments:
Economic Environment:
Economic environments are how global and local economies might impact a
business. This can include factors like economic conditions, including per
capita income in your target market, or bigger economic systems, such as if a
business operates in a capitalist or socialist society. When evaluating your
economic business environment, you might consider spending pattern trends,
inflation rates and growth rates to help you decide how you might market and
sell your products.
The economic and competitive forces in the marketing environment influence
both marketers and customers' decision and activities. The overall state of the
economy fluctuates in all countries. The health of the economy influences
how much consumers spend and what they buy. These changes in general
economic conditions affect (and are affected by) the forces of supply and
demand, buying power, willingness to buy, expenditure levels and the
intensity of competitive behaviour.
Purposes:
To find out how economic factors may affect the business.
Areas to be considered:
➢ Consumer activities, such as spending Patterns.
➢ Economic conditions, such as inflation, unemployment, growth, etc.
➢ Government policies, such as fiscal, monetary, exchange rates, etc.
➢ The changes in production and labor market.

➢ The economic and competitive forces in the general environment

influence business organizations and customers' decision and activities.
➢ The overall state of the economy fluctuates in all countries.
➢ The health of the economy influences how much consumers spend and
what they buy.
➢ Therefore, present-day economic conditions and changes in economy
have a broad impact on the success of organization.
The consumption patterns of their potential customers are affected by
economic forces such as:
➢ The rate of inflation.

➢ Interest rates.

➢ The availability of credit for consumer purchases or investment

purposes.
➢ The rate of unemployment. And,

➢ The size of disposable personal income.

Social and Cultural Environment:
A company's sociocultural environment involves the characteristics of people
in a specific market, like demographics and societal roles. You might
consider aspects like your customers' beliefs, language, literacy and life
expectancy when learning about this environment. Each of these could
determine how you might reach specific customers or how they might engage
with your brand. For example, if a family dynamic changes where it's more
common for households to have one child rather than two, you might
consider how this could affect your marketing.
➢ As businesses broaden their operations both locally and internationally,
the need to be aware of social/cultural factors becomes more and more
important.
Purposes:
To find what competitive advantage a business may gain by social changes.
Areas to be considered:
1. Aging population trend, which may increase services for old people.
2. Birth rate increase, which may affect baby product markets.
3. Security condition, e.g. increase in crime may cause a business to
increase insurance costs.
4. Pressure groups, such as environmental groups, local community
groups, etc. which may prevent a business from polluting a river.

➢ Analysis of the social environment is concerned with understanding the

potential impacts of society and social changes on a business, its
industry and markets.
➢ This may include changes in Tastes, fashion, lifestyle, preferences etc.

Technological Environment:
A technological business environment includes the development of new
technology, how people interact with technology and its environmental
effects. Technology can impact a company's internal and external
environments. Internally, it might influence things like the price of
production or how you might automate certain tasks. Externally, technology
can affect how consumers communicate with each other and how quickly
they adapt to advancements in the field.
➢ The technological environment represents the application to of
knowledge based on discoveries in science, inventory and innovations.
New technology results in new products and services for consumers,
improved existing products and often lower prices through the
development of more cost-efficient production and distribution
methods. Technology can quickly make products obsolete.
Purposes:
To find how new technologies might affect the business activities.
Technological areas to be considered:
1. The rate of technological change.
2. The development of I.T.
3. The wide use of the Internet.
4. The creation of new materials for production.

➢ Impacts: All these technological changes will lead to some effects on

the business, such as the product of the business may be replaced by
new products or its production methods may have become out of date.
➢ The technological environment represents the application of knowledge
based on discoveries in science, inventory and innovations.
➢ New technology results in new products and services for consumers,
improved existing products and often lower prices through the
development of more cost-efficient production and distribution
methods.
➢ Technology affects the types of products that organizations can offer.
Suppliers:
Suppliers' environments involve the factors that might influence your
suppliers' performance, which can then impact your business. This
environment can involve several factors, like the costs of producing goods,
the availability of resources and the dependability of employees.
Understanding your suppliers' environment can determine how much time
your business might need to focus on production and adapt to changes, like
cost and availability changes. Other environments, like political and
economic environments, can also affect a suppliers' environment.
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Competitive:
A competitive environment is how companies within your market change and
function and how this might impact your business. This can include when
other types of competitors, both larger and smaller than your company, might
enter or exit the market, as this could affect different behaviors like brand
positioning. Economic and market environments often impact competitive
environments as businesses could adjust their strategies, encouraging you to
do the same.
The Political/Legal Environment:
A political business environment can involve activities in governments or
other legal bodies that influence how businesses might operate. Factors that
influence this business environment can include government stability,
policies involving businesses and new regulations. This environment can
alter other factors, like the suppliers' environment, if there are changes to
import and export regulations or new investment policies.
➢ The political/legal environment consists of the law and interpretation of
laws that require firms to comply with.
➢ Ignorance or noncompliance with the laws, could result in fines.
 ➢ Operating within the legal framework is both socially responsible and
ethical.
➢ Organizations must be aware of state and local laws that influence their
activities.
➢ The central and local government have established regulatory agencies
to enforce laws i.e. CCPC, ZRA, NAPSA etc.
Natural:
A natural business environment is how physical locations, like geography and
climate, can impact businesses. Several factors that can affect this include
weather disasters, availability of natural resources and conservation. Often,
natural environments intersect with others, like political environments. For
example, the government implements new environmental protection laws that
limit the number of raw goods you might receive.
Internal:
Internal business environments include factors like policies, company culture
and business performance. Different from many other external business
environments, companies can often control their internal environments. This
can include reorganizing roles and business structures or promoting activities
that match the company culture. You might adjust internal policies if your
environment has high employee turnover or lower productivity.
Why is a business environment important to understand?
There are several key benefits to understanding business environments:
Understanding changes: Understanding the different environments helps
you understand changes that affect the market and how you might react. With
a deeper knowledge of these changes, you can learn how each environment
impacts others and what you might prepare for.
Identifying opportunities: Environment awareness can help you to identify
opportunities where you might improve within your control and identify
trends. For example, changes in a political environment that might restrict
imports might prompt you to explore local opportunities to maintain
production levels.
Building reputation: Responding to different business environments can
show consumers you're aware of other factors in the world. With
sociocultural environments, you could build your reputation by understanding
your customers' cultures and creating sensitive material or products that
appeal to them.
Examples of business environments:
Here are some examples of business environments:
❖ Political business environment example:
A manufacturing company produces steel equipment for aerospace
companies. As trade negotiations with the country that supplies most of their
materials experience delays, production might also experience delays. The
government increases the taxes on imports, also increasing the cost of steel
imports. The manufacturing company seeks local steel providers to avoid
delays and reduce costs, adapting to these environmental changes.

❖ Sociocultural business environment example:

As more companies offer flexible work arrangements, consumer needs for at-
home products like laptops, work chairs and desks increase. Customers more
likely to purchase supplies like work bags, screen protectors and dividers are
now buying products to adjust to the social norms of working at home.
Supply companies adjust their strategies to cater their office products to
people that need at-home functionality, like comfort and convenience.

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 ❖ Technological business environment example:
Technology companies are now offering automated solutions to build parts of
larger machinery, minimizing the amount of physical labor needed.
Manufacturing companies adjust their internal strategy to focus on how they
can use laborers’ expertise to maximize productivity. Similarly, the
competition uses new e-commerce technology to provide convenient
purchasing options, encouraging one company to adopt similar technology.

Thank you.
REVISION ASSESSMENT:
1. What is a Business Environment?

2. What is the Economic Environment?

3. What does the Technological Business Environment represent?

“Investment in Education pays the best dividends.” Benjamin Franklin.