The various dimensions of business environment are explained as follows:
1. Economic Environment: Economic environment consists of GDP (Gross Domestic Product), interest rates, inflation rates, increase or decrease in disposable income of people, share market indices and increase or decrease in value of rupee are some important economic factors which affect working of a business firm. A business firm is primarily an economic organization and its welfare and survival is ultimately dependent on economic environment and market conditions. For example; increase or decrease in the rate of interest will affect the demand for product and services, increase in disposable income of people will create demand for products and services.
2. Social Environment: Social environment is also uncontrollable force which affects the performance of an enterprise. Social environment includes social forces i.e. values, social trends, customs, traditions and society’s expectations from business etc. if any business organization does not adapt the social environment then it will lead to the dissatisfaction among its customers and rejection of its products.
For example; celebration of Diwali, New Year, and Christmas etc. provides business opportunities to greeting card companies, sweets and confectionery manufacturers etc.
3. Political Environment: Political stability and peace in the country would provide a healthy business environment and new opportunities for growth and development. It sends a signal of strength, confidence to various interested groups and investors. Political instability will have negative impact upon business and there may be uncertainty of business activities. Attitudes of government officials towards business may have either positive or negative impact upon business. For the growth of business and economy, political stability is necessary.
4. Technological Environment: Technological environment include the scientific improvements, methods, innovations, techniques and approaches adopted by a business firm for production of goods and services and its distribution. Technological environment provides new ways of producing goods and services and new methods and techniques of operating a business firm. For example; technological advancement in computers and electronics has change the method of advertising a product, airline companies like Jet Airways and Air India have internet and World Wide Web pages where customers can look for flight and book their tickets online.
5. Legal Environment: Legal environment means framework of laws and various legislations within which a business firm organizes its business activities. It is necessary for all business firms to obey the law of land. Legal environment consists of various legislations passed by the Parliament and State Legislatures, administrative orders issued by the government authorities, court judgments and decisions rendered by various commissions and agencies at every level of the government (Central, State or Local). Proper knowledge of these rules and regulations is necessary for the better business performance. For example; a business firm cannot advertise alcohol beverages on Television. It is prohibited, on the packets of cigarettes, it is compulsory to provide a statutory warning “Cigarette smoking is injurious to health”.