1.1 BACKGROUND OF STUDY

There is controversy that small and medium scale business in any country where they operate play important role in the economic growth and development of that country or nation and it improves the quality of life of individuals (Ohanemu, 2006).

Business organizations anywhere in the world operates within environments which according to Adidu & Olanye (2006) is an aggregate of all conditions, events, circumstances and influences that surround and effect the business organization.

In management, the term “Environment” does not necessarily mean physical surroundings but, it is used as a total forces, factors and influences that surround and affect business organizations as a separate entity as well as other business organizations. This means that business organizations must interact with those forces that influence its decisions, directions, actions, size, health, profitability and performance of the organization as a whole.

Ukaegbu (2004) stated that the contemporary environment is becoming dynamic and competitive and since business organizations do not operate in vacuum, they affect and are affected by environment conditions. Therefore, business organizations irrespective of their objectives must take into consideration, these environmental opportunities and constraints. Businesses affect the environment by providing the required goods and services thereby contributing to the development of the business by presenting opportunities and threats. One thing to be emphasized at this point is that, the extent to which managers could identify, evaluate and react to the environmental forces will have considerable impact on organizational performances.

Kuye, (2004), emphasized that the need to study business environments is very important considering the fact that business organizations do not operate in vacuum and an effective management in complex and dynamic society requires the assessment of strengths and weaknesses of the organization and the opportunities and threats provided by the challenges of the external environment, hence for survival and growth, organizations must cope and adopt to these challenges posed by the ever changing environment (internal & external) in which managers operate means that mangers must not only be aware of what constitutes the elements of their business environment but also should be able to respond to the forces of the environment which inevitably impinges on the operations of the business organization.

Ukaegbu (2006) further stated that the relationship between a business organization and its host environment can be examined from three strategic ways.  

Firstly, the organization can be viewed as importing various kinds of inputs (resources), such as human resources, capital, managerial and technical inputs. These inputs are then transformed to provoke output which takes the form of goods and services. A second approach is the study of the relationship between the organization and the society. It focuses on the demands and legitimate rights of different claimants such as employees, consumers, suppliers, stakeholders, government and the community. A third approach is to view the organization as operating in an external environment of opportunities and constraints. Thus no single approach is sufficient for all times and in all circumstances. They are complementary. The elements external to the organization affects its performance as well as those elements within the organizations.