Business Environment: The Concept and a Literature Review (PDF)

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See discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/346381732 "BUSINESS ENVIRONMENT: The Concept and A Literature Review" Conference Paper · September 2020 CITATIONS READS 3 37,360 2 authors, including: Nikhil Patil Karnatak University, Dharwad 7 PUBLICATIONS 7 CITATIONS SEE PROFILE All content following this page was uploaded by Nikhil Patil on 03 June 2021. The user has requested enhancement of the downloaded file.  “BUSINESS ENVIRONMENT: The Concept and A Literature Review" 1) Dr. Uttamkumar Kinange, Professor, Kousali Institute of Management Studies (KIMS), Karnatak University (KU), 2) Mr. Nikhil Patil*, Research Scholar, Kousali Institute of Management Studies (KIMS), Karnatak University (KU), Dharwad, KARNATAKA – INDIA | E-Mail: [email protected] | * Corresponding Author To cite this document: (APA Format) Uttamkumar Kinange, Nikhil Patil (2020). 'BUSINESS ENVIRONMENT : The Concept and A Literature Review', 11th International Conference on Shifting Paradigm in Business Economy and Society : Vision2050, Faculty of Management, PACIFIC University, Udaipur, INDIA, 09-10 September. A. ABSTRACT The aim of this conceptual research study paper is to conduct a comprehensive literature review concerning the concept of BUSINESS ENVIRONMENT (BE) and importance of Business Environment (BE) in the area of Business and Management research studies. This conceptual research study organizes the existing literatures in the recent and past studies around the area of Business Environment (BE) concept. This Literature review found interestingly that the stream of Business and Management research studies around the concept of Business Environment is dominated by the Internal Environment (IE) and External Environment (EE) studies which are mixed and scattered studies. Also found that the effects and importance of both Internal and External Environmental studies differ across the reviewed literature. This creates opportunities for further research studies to look at the topic of Business Environment (BE) as a holistic concept in the area of Business and Management research studies. This conceptual research study paper concludes with a review, suggesting scope for future holistic conceptual research and identifying several implications of concept of Business Environment to the Business and Management world. B. KEYWORDS Business, Management, Strategic Management, Business Environment, Internal Environment, External Environment, Literature Review. 1 of 10  “BUSINESS ENVIRONMENT: The Concept and A Literature Review" _____________________________________________________________________________________ C. INTRODUCTION Today firms, including those embracing entrepreneurial orientation are faced with complexities in Business Environments (Washington et al., 2016). The Business Environment (BE) is a combination of forces, situational factors and actors, which can be characterized by different criteria in which business is carried out and is the basis for the creation and development of business (Sardak S.Е., Movchanenko I.V. 2018). The Business Environment (BE) has high dynamism, information uncertainty and unpredictability of events and results of their activities, which requires a revision of traditional approaches to the formation of competitive strategies and management in the global economic space which shape and influence the functioning of businesses. Hence, identification of the Business Environment is a complex and important issue (Sardak S.Е., Movchanenko I.V. 2018). Business Environment of most developing countries is often characterized by market and demand uncertainties, high rates of inflation, poor physical infrastructures such as road network that affects lead-times, and poor public policies and regulations (Maiwada & Khalid, 2012). Similarly, it is argued that the nature and conditions of business environment could have a major effect on the entire business operations of a given industry and subsequently the performance (Abimbola & Agboola, 2011; Sohal & Perry, 2006; Wong et al. 2014; Yu & Ramanathan, 2012). Haruna Muhammad Khalid et al. (2018) argued that business environment should be the starting point of any research on organizations, because the nature, condition and circumstances of any organization depends upon its environment. Business Environment (BE) is all that involves the company and it is all that is beyond the sectoral boundaries or limits of the organization, the environments are characterized by intense competition, economic intensity, technological changes, information exchange, uncertainties about government policies and other factors that may threaten the future of the company. What characterizes the external environment is that organizations have not control over it (Daniel Nascimento-e-Silva et al. , 2019). 2 of 10 1) Dr. UTTAMKUMAR KINANGE, Professor 2) Mr. NIKHIL PATIL, Research Scholar, Kousali Institute of Management Studies (KIMS), Karnatak University Dharwad (KUD), KARNATAKA – INDIA  “BUSINESS ENVIRONMENT: The Concept and A Literature Review" _____________________________________________________________________________________ D. OBJECTIVES The objectives of this research study are; ❖ To study concept of “Business Environment (BE)” ❖ To study importance of “Business Environment (BE)” E. BUSINESS ENVIRONMENT The Business Environment (BE) has been regarded as multi-dimensional constructs, which has different measures and levels. Even though there are different dimensions of business environment, the two major dimensions to business environment: Environmental dynamism and Environmental hostility (Wong et al., 2014; Yu & Ramanathan, 2012). Environmental dynamism refers to the rate of changing marketing practices, the rate of obsolescence, the unpredictable actions of competitors, and unpredictability in demand and consumer tastes (Bourgeois & Eisenhardt, 1988 cited in Wong et al., 2014). Also, environmental dynamism refers to the extent of the unpredictability of change within the company’s environment (Dess & Beard, 1984). Dynamism should be restricted to change that is hard to predict and that heightens uncertainty for key organizational members. Dynamism covers both stability and instability as well as the volatility of the business environment (Dess & Beard, 1984). On the other hand, environmental hostility refers to the intense price competition, rising business costs, low profit margins, severe regulatory restrictions, shortages of labour and/or raw materials, and unfavorable demographic trends, offer few opportunities to exploit (Yu & Ramanathan, 2012). Similarly, environmental hostility refers to competition, concerns relating to low profit margins, and demanding quality standards imposed by the marketplace (Wong et al., 2014). Munshi Naser Ibne Afsal et al. (2018) have shown that each local business environment has entrepreneurial capability, closely connected with social and economic determinants of each region or examined country. The Business Environment is determined by a variety of factors such as gender, education, size and age of the company (Ključnikov et al., 2016). Thus, for a particular 3 of 10 1) Dr. UTTAMKUMAR KINANGE, Professor 2) Mr. NIKHIL PATIL, Research Scholar, Kousali Institute of Management Studies (KIMS), Karnatak University Dharwad (KUD), KARNATAKA – INDIA  “BUSINESS ENVIRONMENT: The Concept and A Literature Review" _____________________________________________________________________________________ business enterprise, the business environment can be considered as an Internal Environment (IE) and External Environment (EE) (Sardak S.Е., Movchanenko I.V. 2018). Internal and External environments are most important to businesses. Internal environment determines how quickly a firm recognizes an opportunity and also how fast it seizes that opportunity. A firm’s internal environment refers to the setting of an organization in terms of its structure, resources, skills, and capacity to deliver goods and services (Washington et al., 2016). Also, the acquisition of skills and resources is important for a firm to build strong internal capacity and respond to the market demand. On the other hand, external environment represents the business and regulatory community of an organization and is one of the main contingencies that a firm faces outside its borders (Prakash K. Chathoth, 2002). External environment is not only important as a source of business opportunities, but it can conversely be a major challenge to a firm. Firms operating in dynamic environments with rapid changes can experience uncertain profitability and thus constantly need to search for new opportunities. According to Anand and Ward (2004), business environment is a multi-dimensional concept that consists of factors such as market competitiveness, government policies and regulations, technological proliferations and location among others. Business environment also consists of regulatory environment, crime, corruption, access to infrastructure and financial development (Bah & Fang, 2015). According to Vasconcelos and Ramirez (2011), business environment is of two levels: Contextual Environment, and Transactional Environment. The contextual environment is from the point of view of the organization, composed of the factors affecting the organization, but upon which the organization has no power or even influence. Economic conditions such as inflation, economic growth, exchange rates and interest rates or socio-political issues like international relations, law and demography are examples of factors that form the contextual environment. While the transactional environment consists of the supply chain partners and organizations such as customers, dealers and suppliers of the organization. Business Environment or external factors influenced strategic decision makings, and subsequently affected the organization performance. Mangers made strategic decision-makings 4 of 10 1) Dr. UTTAMKUMAR KINANGE, Professor 2) Mr. NIKHIL PATIL, Research Scholar, Kousali Institute of Management Studies (KIMS), Karnatak University Dharwad (KUD), KARNATAKA – INDIA  “BUSINESS ENVIRONMENT: The Concept and A Literature Review" _____________________________________________________________________________________ based on the external factors that affect their decisions (Hamzeh M. Alhawamdeh et al., 2019). For organizations to continually survive and to achieve retention, the strategic decision-making process of that organization must be aligned with external environments and any hesitation to do this may result in strategic drift (O'Keefe and Wright, 2010). The environment in which decision is to be taking is important (Adeoye Abayomi Olaewaju, 2012). The decision makers need to have a perfect understanding, acquire and equally interpret or screen information from their environment in order for them to make and implement strategic decisions and when there is the presence of too many issues with uncertain and unstable potential results, the decision outcome are uncertain (Arendt et al., 2005; Siggelkow and Rivkin, 2005; Rahman and de Feis, 2009). It has been argued that account should be taken of both contingency variables and environmental characteristics when examining the effects of process variables on strategic decision-making effectiveness (Elbanna and Child, Feb 2007). Daniel Nascimento-e-Silva et al. (2019) says that the impacts of external factors are uncontrollable but can be mitigated. The main problem of organizations is the impacts that external factors may have on it, causing its performance and competitiveness to diminish. Knowing that these factors cannot be controlled, there must be enough structure and mechanisms to receive them in order to mitigate their damage, so that the complications of these sets of factors have little influence on decision making within the organization. Sets of external factors can negatively or positively impact the organization's processes (Daniel Nascimento-e-Silva et al., 2019). Some problems require a better understanding of the current scenario in order to reduce the impacts of negative factors on the operation of the company's system, so that the production system is not interrupted by special causes. Understanding these sets of factors can be quite significant to broaden the manager's view of the subject, making planning for improvement more efficient. Adverse conditions to the organization are a major problem for its growth, as they are uncontrollable (Daniel Nascimento-e-Silva et al., 2019). Organizations are inserted in an environment where extra organizational problems are the cause of many disorders, managers seek 5 of 10 1) Dr. UTTAMKUMAR KINANGE, Professor 2) Mr. NIKHIL PATIL, Research Scholar, Kousali Institute of Management Studies (KIMS), Karnatak University Dharwad (KUD), KARNATAKA – INDIA  “BUSINESS ENVIRONMENT: The Concept and A Literature Review" _____________________________________________________________________________________ to plan so that the impacts of these factors do not affect company performance. These conditions are beyond the internal domain of organizations, but can be foreseen, thus avoiding unforeseen events that are no longer calculated, which may help to adjust the new conditions that are required. Porter in 1979, created five forces that explained the environmental factors, which affect managers’ strategic decision-making (Pearce and Robinson, 1997). The organization must deal with an environment that is determined by the strategic decisions of top management. Apart from that, also listed external environment factors that has an impact on decision making such as Porter’s “five-forces,” regulatory pressures, emergent technologies, and economic conditions (Provan, 1989). In addition to the Internal factors are the most important factors that influence the process of strategy formulation because it focuses on the goal, and to look at the strengths and weaknesses within the organization (Provan, 1989). (Crook et al., 2003) stated that the Company analysis needs to be considered in the process of strategic decision-making. Most decision makers or managers made a choice of strategies based on their organizational internal and external environment and specifically, managers made an evaluation of their external environment circumstances first before examining their internal resources (Brouthers et al., 2000). Elbanna and Child (June 2007) argued that environmental characteristics is having prominent influence on the degree of the rational behavior of managers in making decisions and that actions behind making strategic decisions that are either motivated or encouraged by environmental threats will be more rational than those that are made in response to environmental opportunities. Environmental stability is one of the determinant factors of how managers or CEO can contribute to strategic decision making. Environmental stability simply refers to the extent to which an organisation's competitive environment is complex, uncertain and can easily adapt or prone to strategic changes and it is highly emphasized that such stability is a major determinant of the strategic issues confronting an organization and its top management (Carpenter and Westphal, 2001). It was submitted that the organization in a stable environment will compete primarily through better implementation of existing strategies (rather than locating new strategies to fit into changing environment), related board ties should improve managers ability to contribute to 6 of 10 1) Dr. UTTAMKUMAR KINANGE, Professor 2) Mr. NIKHIL PATIL, Research Scholar, Kousali Institute of Management Studies (KIMS), Karnatak University Dharwad (KUD), KARNATAKA – INDIA  “BUSINESS ENVIRONMENT: The Concept and A Literature Review" _____________________________________________________________________________________ strategic decision making in a stable environment through monitoring activities and their interactions through their advice (Carpenter and Westphal, 2001). F. RESEARCH METHOD The methodology followed in this research study paper is conceptual in nature and the Literature in the area of “Business Environment (BE)” are reviewed as part of this Paper. This conceptual study paper is the outcome of the knowledge acquired through review of various existing literatures from Research documents, Journals and Articles. G. RESULTS From the above reviewed literature, we understand that "Business Environment (BE)" plays a very vital role in the strategic decision making of Business enterprise management. Also understand that the concept of "Business Environment" is been studied from two sections of the Business Environment – Internal Environment and External Environment which helps for the future holistic study of the concept of Business Environment. Limitations and Future research directions As this is a Conceptual Research study paper, this paper is the result of the review of the literatures in the areas of “Business Environment (BE)”, which inherently has a limitation of not having any Empirical evidence other than the available Literatures. Considering this nature of limitation, future studies can be made where researcher can empirically study the importance of “Business Environment (BE)” and their relevance in the Business and Management World. Researcher can also perform the empirical study pertaining to different Industries/Businesses to deeply understand the concept of “Business Environment (BE)”. H. MANAGERIAL IMPLICATIONS AND CONCLUSIONS This conceptual research study paper is a reference to the basic concept of “Business Environment (BE)”, also this conceptual study paper has a Managerial Implications which a practicing Manager can refer to understand the topic of Business Environment (BE) as a holistic concept and its importance in the area of Business and Management research studies. 7 of 10 1) Dr. UTTAMKUMAR KINANGE, Professor 2) Mr. NIKHIL PATIL, Research Scholar, Kousali Institute of Management Studies (KIMS), Karnatak University Dharwad (KUD), KARNATAKA – INDIA  “BUSINESS ENVIRONMENT: The Concept and A Literature Review" _____________________________________________________________________________________ I. REFERENCES Abimbola, O. H., & Agboola, G. M. (2011). Environmental Factors and Entrepreneurship Development in Nigeria. Journal of Sustainable Development in Africa, 13(4), 166–176. Adeoye Abayomi Olaewaju, (2012). 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