Elements of business environment
Business environment consists of five important dimensions including economic, social, technological, political and legal. These dimensions can be written as follows:
PESTLE (Political, Economic, Social, Technological, Legal)
In some textbooks, you will read about four important dimensions which are as follows:
PEST (Political, Economic, Social, Technological)
Political Environment
Political environment means political stability and overall peace in the country. Given an option, any company would prefer India over Afghanistan for doing business because of lack of political stability in Afghanistan. On the other hand, India is politically stable and relatively peaceful country.
Economic Environment
Economic environment includes such factors as interest rates, inflation rates, changes in disposable income of people, stock market indices and the value of currency. A very high inflation rate may not be good for the business. During the last two decades, disposable income of people has increased significantly, and has resulted in growing sales of cars across the country.
Social Environment
Social environment includes social forces like traditions, values, social trends, society’s expectations of business, and so on. Mc Donald’s sells beef burgers all over the world. But India is not a country of beef eaters because of religious sentiments. So, Mc Donald’s sells chicken burgers in India.
Technological Environment
Technological environment includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business. Let us look at the mobile handset market to understand this. Before smartphones came on the scene, majority of people may not have tried their hands on online shopping. Now, with smartphones in almost every urban households, even small towns have become good markets for e-commerce providers.
Legal Environment
Legal environment includes various legislations passed by the government, administrative orders issued by government authorities, court judgments as well as decisions rendered by various commissions and agencies at every level of the government— center, state or local. Some states are dry states. This means it is illegal to sell liquor in those states. Companies which sell liquor do not need to focus on such states.