Dimensions of business environment

The essentials

The general environment of business is usually studied under five dimensions: economic, social, technological, political and legal. Each dimension contains forces that affect all businesses, though some firms are affected more than others.

Key points

• Economic: interest rates, inflation, changes in disposable income, stock market indices, the value of the rupee, and economic policies such as liberalisation, privatisation and globalisation.
• Social: customs and traditions, values, social trends, literacy, life expectancy, and the composition of the population; for example, growing health awareness raises demand for organic food and gyms.
• Technological: new methods, inventions and improvements, such as digital payments, online shopping and automation. New technology creates opportunities and also makes older products outdated.
• Political: political stability, the attitude of the government towards business, and the general state of law and order.
• Legal: laws passed by Parliament and state legislatures, rules issued by government authorities, and court decisions; for example, rules on labelling, advertising and consumer protection.
• In 1991 India introduced major reforms based on liberalisation, privatisation and globalisation, which changed the economic environment greatly.

Exam tips

• Ask yourself what is changing: a law (legal), a government attitude (political), a habit or value (social), a new invention (technological), or prices, income and interest rates (economic).
• Legal and political dimensions are closely linked but are tested as separate dimensions.

Common mistakes

• Classifying a new law on packaging as political instead of legal.
• Classifying growing interest in fitness as economic instead of social.