The term business environment means the totality of all individuals, institutions and other forces that are outside a business but that potentially affect its performance.
Business environment can be characterised in terms of
- totality of external forces
- specific and general forces
- inter-relatedness
- dynamic nature
- uncertainty
- complexity
- relativity
Importance of business environment: Business environment and its understanding are important for (i) enabling the identification of opportunities and getting the first mover advantage, (ii) helping in the identification of threats and early warning signals, (iii) coping with the rapid changes, (v) assisting in planning and policy and (vi) improving the performance.
Elements of business environment: Business environment consists of five important dimensions including economic, social, technological, political and legal.