Business Environment
Business environment means the sum of all external forces that affect a firm's decisions but lie outside its control. Questions test the dimensions, the features, the importance of scanning, and the split between specific and general forces.
Dimensions
- Economic: interest rates, inflation, income levels, growth, exchange rates.
- Social: customs, values, family structure, education, lifestyle.
- Technological: innovation, obsolescence, R&D spending.
- Political: ideology, stability, government attitude to business.
- Legal: Companies Act, Consumer Protection Act, environmental norms, labour law.
Specific vs general forces
Specific forces affect a firm immediately - customers, competitors, suppliers, investors. General forces affect all firms - the five dimensions above.
Features and importance
Features: totality of external forces, specific and general forces, inter-relatedness, dynamism, uncertainty, relativity. Importance: first-mover advantage, early warning of threats, tapping opportunities, resource planning, coping with change, image building.
Scanning process
Identify relevant variables, collect information, analyse it, interpret it, act on it. SWOT is a tool used at the analysis stage: strengths and weaknesses are internal; opportunities and threats come from the environment.
Worked example
A steel maker faces stricter emission standards plus a subsidy for electric arc furnaces. Reasoning: the emission norm is a legal dimension and a threat; the subsidy is an economic dimension and an opportunity. A full-mark answer names both dimensions rather than writing only "it is a threat".
Traps that cost marks
Listing internal factors (value system, management structure) as part of the external environment; vague answers that never name a dimension; confusing SWOT with the five dimensions.