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Dimensions Of Business Environment

Explain the dimensions of business environment?

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Michael Koren eNotes educator | Certified Educator

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There are five dimensions of the business environment that influence many firms. These dimensions include the economic environment, the social environment, the political environment, the legal environment, and the technological environment.

The economic environment includes what the rate of inflation is, the current level of interest rates, and how much money is made by consumers, as well as local, state, and national economic policies. These factors influence the performance of a company. For example, if consumer income drops, it may be more difficult for a company to sell its products and to make an acceptable profit.

The social environment includes customs, educational levels, literacy rates, demographics, and lifestyle choices. For example, a company that misinterprets local customs and traditions may struggle to be successful.

The technological environment includes the changes in technology that may aid in the operation of a business. A company must stay current with new technological trends. These may impact consumer preferences for products. These may also impact the cost of the production of products. For example, landline phones are disappearing as more people use cell phones. Newer, more efficient machinery may help reduce a company’s operating costs that could help the company be more competitive.

The legal environment includes the rules and regulations that impact the business environment. It is important that the business leaders understand these rules and regulations and follow them. Failure to do so could be very costly.

The political environment includes the political stability within a country and how supportive the government is towards the business community. A lack of political stability may deter business investment and expansion. Governments that develop unfriendly policies towards businesses may risk losing those businesses to other countries or may discourage businesses from increasing investment and expanding their operations.

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jamesregan12 eNotes educator | Certified 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. 

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krishna-agrawala | Student

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.