Topic 2: Business Environment

1. Meaning

The business environment is the sum of all internal and external factors that affect the way a business operates.

2. Internal Environment

Factors within the control of the business:

• Owners and shareholders
• Management and organisational culture
• Employees
• Finance and equipment
• Business objectives

3. External Environment

Factors outside the business's control.

a) Micro (Immediate) Environment

Customers, suppliers, competitors, financial institutions, the public.

b) Macro (General) Environment

4. Importance of Understanding the Business Environment

1. Helps identify opportunities and threats.
2. Assists in planning and decision making.
3. Helps a business adapt to change.
4. Helps in complying with laws and regulations.
5. Improves competitiveness.

5. Ways Businesses Respond to Environmental Changes

• Adjust prices and products.
• Adopt new technology.
• Train staff.
• Lobby the government or form associations.
• Diversify to spread risk.