Business Environment
Business environment questions are usually classification tasks: given a change, name the correct dimension and justify it.
Meaning and features
Business environment is the sum of all external forces affecting a firm. Features: totality of external forces, specific and general forces, inter-relatedness, dynamic nature, uncertainty, relativity and beyond the firm's control.
Two layers, five dimensions
- Specific: customers, suppliers, competitors, market intermediaries, public.
- General: economic, social, technological, political, legal. Economic covers interest rates, inflation and income. Social covers customs, values and family structure. Technological covers innovation and obsolescence. Political covers ideology and stability. Legal covers statutes and court rulings. Importance: first-mover advantage, early warning of threats, tapping opportunities, resource planning, coping with rapid change, image building.
Worked example
The state bans single-use plastic carry bags and a retailer switches to jute and paper. The ban is legal environment; consumer preference for green packaging is social; the new packing machine is technological. Reasoning: the trigger is a statute, so legal is the primary answer, with the social dimension as supporting evidence only.
Traps
- Placing competitors in the general environment; they are specific.
- Confusing political with legal: political means ideology and stability, legal means enacted law and courts.
- Describing the environment as static or fully controllable.
- Listing employees as external; they are internal.