Non-Economic Environment means those surroundings or factors or elements under which the business institutions of any country have to function. In other words, the non-economic environment includes all those elements or factors, which the business organization have to keep in view to establish and operate. These are physical, social, cultural, political, legal, technical, educational, historical, moral, environmental and international, etc.
Following are the characteristics of a non-economic environment:
- These are related to non-economic factors or elements.
- These are dynamic and changeable.
- Business institutions can make changes in their objectives, policies, methods, functions, and strategies, according to the non-economic environment.
- These are more important even than the economic factors.
- The non-economic environment is closely related to human qualities, social customs, and traditions, political situations and historical coincidences, etc.
The non-economic elements have significant contributions to the economic business environment of any country.
Psychological and social needs are as essential for economic development, as are the economic needs.
Similarly, mentions that for economic development, it is essential that people have to an intense desire for progress, they feel ready to make all possible sacrifices, they are conscious to mold themselves according to the new thoughts and their economic social, political and legal organizations are helpful in transforming these desires in action.
Following are the non-economic environments affecting business environment.
- Physical Environment
- Socio-Cultural Environment
- Political Environment
- Legal Environment
- Technical and Technological Environment
- Educational Environment
- Historical Environment
- Moral Environment
- Cultural Environment
- Ecological Environment
- International Environment
1. Physical Environment
The physical environment is the main key to entrepreneurial behavior and the operation of the business.
It determines the boundaries of nature. Business and nature have a close relationship.
Geographical and ecological conditions have an important role in the establishment of the enterprise and determination of its form.
Hence, the entrepreneurs detect the place of the business by keeping all these things in view.
Following elements are included in the physical environment.
1. Natural Resources
Natural resources of the business include nature, land, mineral, wealth, water, environment and raw material, etc. Every country has limited natural resources.
So, the business has to make its optimum utilization.
The country who has favorable natural resources develops its economy faster. United States of America and Canada are examples of it.
Different climates are required for the production of different commodities.
The components of climate are temperature, rains, humidity, etc. Ecological conditions and climate affect the demand and supply of the business.
The business environment is directly affected by infrastructure and its composition.
The infrastructural facilities, like water, energy, roads, transportation, finances, insurance, godowns, training, research, technical institutions, and other services are necessary for the development of the business and industries. Top 5 Indicators of Economic Development.
Sources of energy or power are the base of the business.
Petrol, electricity, atomic power, gas, solar energy are important energies for the development of business. They substantially affect the environment also.
5. Public Utilities
These include services of transportation, communication, hydroelectricity, television and broadcasting for the business enterprises.
It includes various locational issues for the business. Elements like mountains, plateaus, plains, oceans, rivers, canals and ports have a significant role in the determination of the business.
The natural environment is made of natural elements, like flora and fauna, air, light, and marine events, etc. These also indirectly affect the operation of the business.
The aforesaid physical conditions affect the nature of demand, production, commodity mix, marketing mix, environmental balance, cost composition, prices, and supplies, etc.
Hence, the entrepreneur keeps the physical condition into consideration, before taking the decisions.
2. Socio-Cultural Environment
Factors like social outlook towards education, literacy, fashion, tendency, population growth, family structure, dynamism, materialism, etc. affect the business.
In the modern age, new social recognition and values have been established. These include the high quality of life, feelings of respect for people, love for knowledge and education, faith in authorities and feelings of competition.
It is necessary to keep these in view, in the management and operation of the business.
3. Political Environment
The political environment also affects business enterprises and operation of their activities.
The interaction between government, politicians, and business significantly affect the form of the business.
So, it has been correctly said that political decisions may change even the direction of the business.
4. Legal Environment
The legal environment affects the business very substantially.
If suitable legal arrangements do not exist for safeguarding the interests and powers of the entrepreneurs, businessman and other parties related to the business, no one will like to carry out any significant business.
Following factors create the legal environment of the business.
1. Constitutional Provisions
Business environment of the country is affected by constitutional provisions, the reason being that the constitution of any particular country may permit freedom to carry out certain business, whereas it may also put restrictions on some other items of business.
In such conditions, the business organizations are required to work, within the framework of the constitution.
2. Economic Policies
Various economic policies are formulated in the country and they are changed and revised also, from time to time, according to the needs and requirements.
The government policies include industrial policy, licensing policy, monetary policy, export-import policy, government purchase policy, financial subsidy policy, public distribution policy, public policy, and forest policy, etc.
These policies do affect the business environment also.
3. Taxation Policy and System
The taxation policy and system also affect the business environment.
These policies of central, state and local governments may be in respect of tariff duties, direct and indirect taxes, their rates and taxation system.
These are also the constituents of the constitutional environment.
4. Pollution Control Act
Such acts include environment conservation act, water pollution control act, and air pollution control act, etc.
5. Economic Acts
The government also enacts several economic acts like consumer protection act, essential commodities act, black marketing prohibitory act, weights and measures act, and adulteration prevention act, etc.
These acts also affect the business organization and its functioning.
6. Industrial and Labour
Several acts have been enacted for the industries and labor in the country, like factories act, wages act, minimum wages act, industrial disputes act, shop and establishments act, workman compensation act, employees state insurance act, provident fund act, gratuity payment act, etc. These acts affect the environment of the business.
7. Others Factors
- The judicial system includes judicial systems at all stages and their working status.
- Policies and rules relating to social control, nationalization, socialization, privatization, etc. also affect the business.
Thus, it may be concluded that the business is influenced quite substantially by the legal environment and its factors.
Hence, the entrepreneurs and businessmen have to accomplish work according to them.
5. Technological Environment
Various activities related to dynamic scientific and technical improvements and developments also affect the business environment.
Presently, business development is getting quite faster, due to computer technology, automatic mechanization, modernization, innovations, etc.
As a result, today the business is creating several new products, designs, qualities, and utilities.
Production systems have undergone substantial changes, due to technical improvements, which has facilitated large scale production at the lowest costs.
Technical and technological environment affect the activities of business organizations, as follows:
- Day to day changes is taking place in production methods.
- Advancements in automatic machines, artificial humidity, temperature, and refrigeration are very fast.
- New developments have taken place in the field of biochemicals and genetics.
- The chemical raw material is being used, in place of natural raw material.
- Many laboratories are working for industrial technology development.
- Use of automatic machines, computers, robots, technical improvements, and the latest machinery is fast increasing.
- Every organization is paying higher attention to continuous research and development for improvements in its products, production material, and production process.
- New sources of atomic energy and solar energy are now used in production, which has resulted to reduce for the costs of the organizations.
- Developed countries are entering into agreements with developing countries for the transfer of techniques.
- Activities of the business organization have been enhanced and changed, owing to the development of underground transport and railways.
- Use of airbuses and taxies for transportation and the internet etc. for communication has been increased.
- Attention is being paid towards research and development in the field of production in various spheres.
As a result of all aforesaid factors and their effects, the business organizations are creating various new products, designs, qualities, and utilities. New technological and engineering skills in production activities have developed.
It is also true that the development of markets for new commodities, new raw materials, new sources of energy and renovations, etc. also become possible, due to the technical progress of the country.
6. Educational Environment
The educational environment has an important impact on the progress and development of the business.
The educational system, interest for education, educational level, availability of professionals, level of higher education, management courses, level of research, arrangements for administrative education, level of vocational education, relations between education and employment, etc. prevalent in the society.
It creates an educational environment. If all these factors are abundantly available in the country, the level of education becomes quite high and conducive environment is created.
As a result, people in the country start understanding all the issues and changes and provide a conducive environment and good markets to the businessmen.
It also provides opportunities for the development of new techniques in the business and the path of innovations and creativity in the business gets broader.
7. Historical Environment
The historical environment of any country also affects the business.
Historical glory, historical events, historical concepts, national history, and other historical facts have an important role in respect of the policies and decisions to be taken, related to business.
Hence, the history of wars, mutinies, movements, struggle for national freedom, political instabilities, etc. of any country have an important role in influencing the business decisions.
8. Ethical Environment
Ethical principles, values, models, ideas and codes of conduct, etc. guide the conduct of the managers in the field of today’s computer business activities.
Hence, entrepreneurs and businessmen have to necessarily comply with the ethical levels of society.
Ethical conduct includes health, security, labor welfare, social security, working conditions, competitive prices, advertisements, sales, distribution of income, quality control, purchase sales, import-export, issues relating to shareholders and debtors, social costs and payment of honorarium, etc.
Hence, a businessman is required to manage and operate the business organization, by keeping these in view.
9. Cultural Environment
Culture of a nation is reflected by its art, literature, and lifestyles, etc. The culture also describes the outlook of people and their mental development.
The cultural development of the nation affects the public opinion and tendencies towards movement, drug culture, and Hippyism, etc. are on rising.
These cultural values affect demands for the commodities and the market.
Besides, businessmen also formulate his business policies and carry out revisions in them, in accordance with the cultural value.
Thus, business activities are influenced by the cultural environment.
10. Ecological Environment
Ecological environment means a combination of physical and biological situations, which goes on affecting the business, at every moment.
Today, ecological pollution is emerging as a serious problem in the world. Mankind has damaged the environment in the name of development. Global warming is consistently on increase.
Atomic garbage has caused serious problems with pollution. In bigger cities, water, air and sound pollutions have spoiled the life of peoples. Living in such cities are becoming very troublesome, due to pollution. Health hazards have substantially developed.
Survival costs are on rising. All these are making adverse effects on the economic and business environment.
The entrepreneur has to bear the responsibility of solving the environmental crisis, like:
- To maintain the purity of air, water, and natural places.
- Conservation of natural resources.
- To implement programmes for awareness, education, and creativity for the maintaining environment.
- To find out solutions for events of the pollution crisis, by studying their causes and effects.
- To evaluate the effects of the environment on development programmes and to formulate improvement programmes in the affected areas.
This way, the business environment is affected by the environment, for which suitable solutions should be found timely.
11. International Environment
The international environment also affects the system. Presently, the waves of globalization and liberalization are flowing throughout the world.
The international environment includes various factors, like mutual relations between various nations, economic policies of the various national, availability of foreign capital, level of international competition, business activities of multinational companies, conditions of international peace, rules of international trade, etc.
The business institutions should manage and operate business activities, considering these factors.
It is evident that the business environment is influenced by non-economic factors also, Accepting this fact, the planning commission has observed, The problem of developing countries is not that of molding economic activities in existing social and economic structure, but is to so mold this structure itself that peoples expectations may be fulfilled.
Economic and non-economic factors cannot be segregated. They have a mutual relationship.
Economic development is not by any single factor, rather it is by combining various important factors in proper proportion
Thus, now you know the Non-Economic Environments Affecting Business Environment.