Since every business organisation has an environment, success of the organisation also depends on the suitability of its environment. A business environment includes all the external forces and conditions around the organisation. And it will always affect the working of the business directly or indirectly.
These external forces can be the investors, competitors, suppliers, customers and so on. The environment will directly affect the nature of the product or the service you are offering to your customers for example increased awareness for health care has raised the demand for organic food and roasted snacks.
These external trends can be positive or negative, the trick is to take full advantage of any opportunity from the external environment and know how to convert a disadvantage into an opportunity as well. In order to make sure that you grasp every advantage you need to remain well informed about each changing trend.
For example if an Indian firm finds that a MNC in entering the Indian market with new substitutes, it should act as a warning signal and one must prepare to meet the threat by adopting measures like improving quality, reducing cost, engaging in aggressive advertising and so on.
The business environment are those factors that influences the individual’s business organization historical factors, psychological factors, government attitude and regard to foreign good, international factors and marketing approaches. The relationship between business and its environment is mutual, that is, the environment exerts pressure on business, while business, in turn influences various aspects of its environment.
Business also depends on its environment for the supply of all its inputs and at the same time to absorb its output. The influence of the environment boils down to two essential forces which the organization must respond to – information gathering and scarce material and financial resources. These forces create uncertainty i.e. lack of information to anticipate external changes and resources availability.