Business environment may be defined as the totality of the conditions and effects of various other organizations (institutions), affecting its behaviour. Every organization operates in the environment and is closely linked with it, so it can grow and develop. The organization and its environment have on each other multiple effects, thereby causing a feedback between each other, which determines the smooth functioning of the organization. Environment creates opportunities and threats for the organization and influence its development. The organization draws its resources from surrounding, and gives back products and services. Organization's environment includes all the elements of the direct and indirect impact outside it which are relevant to its functioning.
Types of business environment
There are two kinds of environment: near environment (marketing, direct, intentional) and external environment (far, macro, general, intermediate). The boundaries between these types of environment are not clear.
External business environment consist of all circumstances placed outside of organization that may affect its operation. Manager describe the further environment by following dimensions: macroeconomic socio-cultural, environmental, legal, political and international. Each of these areas contain the conditions and events that may affect the organization.
Near environment consists of specific organizations or groups (customers, competitors, suppliers, owners, trade unions, local pressure groups, government agencies, local government authorities, financial institutions, strategic allies, market regulators) that may have direct impact on the organization.
Market environment (usually regarded as near environment) consist of:
- Suppliers - supplying goods to organization related to the core of its business,
- Intermediaries - they support the organization in the distribution process, and provide various less essential services to the business,
- Competitors - those compete with the organization in the market and determine its position on the market,
- Customers and institutional buyers (manufacturers, wholesale and retail businesses, government agencies, institutions are not profit oriented), who are the final recipients of products or services of the organization,
- Entities supporting the organization (e.g. marketing agencies, consultancies and advisory firms, independent third parties).