Dimensions Of Business Environment

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jimjimjimmy's profile pic

jimjimjimmy | (Level 2) Adjunct Educator

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Generally, it is agreed that there are five dimensions to the business environment that influence performance. These dimensions are: a) Economic b) Social c) Technological d) Political and e) Legal. Most obviously, the economic environment consists of the conditions under which any given business finds itself within the market that corresponds to the service provided. These economic conditions include economic policies, interest rates, inflation rates, and consumer incomes. However, as previously stated, the business environment is not limited purely to economic concerns, for businesses are also affected by social and technological influences. Put simply, the social environment is the underlying societal structure within which the business operates. This structure would include things like literacy rates, traditions, educational levels, etc. The technological environment, on the other hand, relates to the technological advances that arise at any given point in time. This includes innovations in medicine, bio tech, telecommunication, etc. But businesses aren't purely limited to these influences, for there are political and legal dimensions to the business environment as well. Political dimensions consist of factors like the current government's attitude toward various industries, and in America, political lobbies are a big example of the often intertwined relationship of politics and business. Other factors include major political parties and the beliefs and practices that correspond to those parties. Finally, the last dimension of the business environment is the legal environment, and this consists of the rules and regulations under which a business must operate. This dimension is somewhat related to the political dimension since it includes the laws drafted by the government in power, but more specifically, this dimension is largely controlled by the three levels of government that affect business: central, state, and local. The legal environment is largely geared toward protecting consumers' interests, such as the mandatory inclusion of health warnings on packaged cigarettes. 

krishna-agrawala's profile pic

krishna-agrawala | College Teacher | (Level 3) Valedictorian

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Dimensions of business environments are often classified in 6 major groups represents by the acronym PESTEL. These are:

  1. Political
  2. Economic
  3. Sociocultural
  4. Technological
  5. Environmental
  6. Legal

Political environment includes factors like the nature of government policies particularly those related to taxation, industrial relations, regulation of internal business and industry, and foreign trad regulations. It also relates to the stability of the government in power and risk of major political disturbances.

Economic factors, as the name implies related to the general condition of the economy within which a business operates and conducts business. It will include factors like GNP, economic growth rate, interest rates, inflation rate, moneys supply, and unemployment rates.

Sociocultural factor cover the nature of the life style, culture, attitude and other such common factors that influence an describe the behavioral characteristics typical of the people. It will include factors like demographic profile of the people, culture, and life style.

Technological dimension covers the nature of technology available and used by an economy or industry in general. It also covers the extent to which development in technologies are likely to take place. This may be reflected in factors like expenditure on R&D and rate of obsolescence.

Environmental factor refers to the physical or geographical environment affecting the business. It also includes the considerations like environmental pollution.

Legal dimension describes the framework of legislation impacting the business. The kind of laws more important to business relate to areas like monopolies and consumer protection, employment and industrial relations, health and safety, and joint stock companies.