What Is a Business Environment? (With Types, Benefits and Examples)
By Indeed Editorial Team
Published April 2, 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
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. In this article, we discuss what a business environment is, share the different environments your business might experience and provide examples to clarify what each looks like.
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 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.
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.
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.
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.
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.
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.
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 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.
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.
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