The significance of understanding business environment is as follows
(i) Helps in formulating strategy and future planning
(ii) Enables to identity the opportunities available
(iii) Environment scanning
(iv) Business aids
(v) Public image
Internal factors affecting business:
(a) Values system:
The values of the founder/owner of the business, percolates down to the entire organization and has a profound effect on the organisation.
(b) Vision and objectives:
The vision and objectives of a business guides its operations and strategic decisions.
(c) Management structure and nature:
The structure of management/board and their style of functioning, the level of professionalism of management and the composition of the board are the various factors which affects the decision making.
(d) Internal power relations:
This refers to the internal power relations that exist in an organisation.
(e) Human resources : 
The success of an enterprise is solely dependent on its manpower. Therefore the quality, skill competency, right attitude and commitment of its human resources is essential for the success of an organisation.
(f) Company image:
The image of an organisation plays an important role in introducing new products, selecting agents and dealers for distribution, forging alliances with suppliers, expanding and entering new markets both domestic and international, raising finance etc.

Micro environment rcfers to th0se factors which are in the imncdiate environment of businessaffecting itsperformance. "These includes the following:
(i) Suppliers:In any organisation the suppliers ofraw materials and other inputs play a very vital rolc. Timely procurement of materiáls from suppliers enables continuity in production and reduces the cost ofmaintaining stock/ inventory.
(ii) Customers : The aim of any business is to satisfy the needs of its customers. The customer is the king and the fulcrum around which thebusiness revolves.
(iii) Competitors:All organisationsface competition at all levels such as local, national and global. Itis important for a business to understand its competitors and modify their business strategies in the face of competition.
(iv) Financiers :The financiers of a business which includes the debenture holders and financial institutions play a significant part in the running of a business. Their financial capability, policies strategies, attitude towards risk and ability to give non-financial assistance are all important to a business.
(v)Marketing Channel members:The marketing inter-mediaries serve as a connecting link between the business and its customers. The middlemen like dealers, wholesalers and retailers ensure transfer of product to customers. Insurance firm is another marketing intermediary which provides coverage for risk in business.
(vi) Public: This refers to any group like media group, citizen action group and local public which has an impact on the business. Many companies had to face closure due to actions by local public.

Economic environment:
The business is an integral part ofthe economic system prevalent in a nation. The multiple variables in the macro environment system which has a bearing on a business include
(i) The nature of economy based on the stage of development:
1. The countries across the globe can be categorised on the basis of growth and per capita income as developed nations, developing nations and under developed nations.
2. The USA, Japan, Germany, Canada and Australia developed economies generally have high degree of technological advancement, very strong and robust industrial base, and high standard of living.
3. Many of these developed nations have successtully integrated the computer based technologies with their existing business.
4. Developing nations like India, China, Brazil Mexico are middle income economies are characterised by low to moderate industrial growth, the inequality in the distribution of income, high population, a low standard living and slow absorption of technology.
5. Under developed nations are low income economies with a very low degree of technology adoption and a very poor standard of living.
(ii) The nature of economic systenm: The economic systems can be classified as Capitalistic, Socialistic and Mixed economy. Capitalistic economy is a free enterprise market where individual ownership of wealth is predominant. Socialistic economy is a state controlled with a lot of restrictions on private sector. Mixed economy is a combination of both state owned and private sector ownership.
(iii) The econonmic policies of a nation: Monetary policy, fiscal policy, Export-import policy, Industrial policy. Trade policy, Foreign exchange policy etc., are part of the economic environment.
(iv) Economic indices: The Economic indices like GDP, GNP national income, per-capita income, balance of payments, rate of savings and investments etc., form an important part of economic environment.
(v) Development of financial market: The organisation and development of money market, capital market, securities market and the banking system has a greater impact.
(vi) Economic structure: The Economic structure includes capital formation, investment pattern, composition of trade balance, occupational distribution of workforce and the structure of national output.

.The macro environment factors are as follows:
(1) Economic environment: The business is an integral part of the econonnic systenn prevalent in a nation. The nmultiple variables in the macro environnnent system include:
(a) he nature of economy baned on the stage of development.
(b) lhe nature ofcconomie system.
(c) he economic pollckes of he natlon.
(d) he cconomtic indlces.
(e) Developmentof financial market.
(f) he economicstructure.
(ii) Socio-Cultural environment: Social environment refers to the sunm total of factors of the society inwhich the business is located. It is dynamic and includes the behaviour of individuals, the role and inmportance of family, customs, traditions, beliefs and values, religion and languages, thc ethical values.
(iii) Political and Legal environment : The framework for running a business is given by the political and legal environment. The success of a business lies in its ability to adapt and sustain to political and legal changes.
(iv) Geo-physical environment : Thenatural, geographical and ecological factors have a bearing onthe business. These are as follows :
(a) the availability of natural resources
(b) the weather and climatic conditions
(c) topographical factors
(d) ecological factors
(e) location of certain industries
(f) availability of natural harbours.
(v) Technological environment:  The development in the IT and telecommunications has created a global market. Technology is widely used in conducting market research for understanding the special needs ofthe customer..