The environmental factors are numerous and complex. Some of these factors are static while others are dynamic.
The environmental factors generally vary from country to country. The environment found in India may not be found in the USA or the UK and vice versa.
Environment may be local, national and international. Again, environment may be market environment and non- market environment.
When the business environment is influenced by market forces like demand, supply or competition, it is referred to as market environment. When business environment is influenced by social customs, government laws, religious taboos, it is referred to as non- market environment.
Lastly, business environment is influenced by economic and non-economic factors. Economic environment is shaped by the monetary policy, tax policy, economic policy, industrial policy etc. of the country concerned.
The non-economic environment is shaped by political, social, cultural and historical factors.
Government is a political institution but it has a social purpose; it provides the ways and means of maximising social benefits and minimising social costs.
Any type of business activity is affected by Government. The days of laissez-faire are gone. Business is no longer left alone.
Government intervention in business activity in the present day world is a hard fact. Under a democratic set up, the ideology of the ruling party influences ownership, management, and size of business.
The rightist inclination of the ruling party will formulate liberal pro-business policies while its leftist inclination will accept measures like nationalisation and expansion of the public sector.
The government works through bureaucracy. In a system where government regulates business extensively, bureaucracy is very powerful in enforcing rules and regulations. Businessmen have to oblige bureaucracy in different ways.
Political stability of the country is another factor which affects business activities. Business thrives where there is political stability. In the recent past, industry moved out of West Bengal because of the Naxalite movement. Because of terrorism, today business in Punjab and Assam and tourism in Kashmir have come to a halt.
The most important element in political environment of India is the emergence of a welfare state. Business must not do anything which will conflict with the ideal of a welfare state.