The significance of business environment is explained with the help of the following points: i Help to understand internal Environment: It is very much important for business enterprise to understand its internal environment, such as business policy, organisation structure etc. The export showed a positive sign of growth. Business would clearly favour an exceedingly trained and capable labour force, as this would make productivity and sales rise. The readers will be witnessing how intense is the competition between Coca Cola and Pepsi Cola. Bad weather in 2000 messed the sugar crop in Brazil, arguably the largest producer of sugar in the world. The use of a particular technology by a firm for its transformation process determines its competitive strength.
The trade policy was also liberalised and various support and incentive schemes such as cash compensatory support, duty drawback for export were withdrawn. The level of development of the financial system is having a crucial importance in business. This is due to changes in economic policy and philosophy in the economic system. By increasing the ratios, the commercial banks would be left with lesser volume of funds and so they can lend less. Many industries were reserved exclusively for investment and production by the public sector. Since new workers are recruited from outside the firm, demographic factors are considered as parts of external environment. This will definitely affect the businesses in that, the demand for the goods is directly dependent on its availability and its price.
The leisure and tourism industries grow as people are able to afford to spend money on the latest technology or on their holidays abroad etc. Mixed economies typically impose higher tax rates, spend more on social programs, and regulate executive compensation levels more aggressively than commonly seen in market economies. They can decide what they buy, for whom they work, and what they study in college. Besides, certain weather and climatic conditions also affect the location of certain business units. When we apply systems approach, studying the complex phenomenon by dividing it into its various components of activities comprising it, called sub-systems we are able to identify the following sub-system of a business firm. The bankruptcy of business giants such as Enron, World Com.
Private sector operations were limited mainly to the consumer goods industries. For example, a consumer protection firm in Delhi headed by Sunita Narain came out with an amazing fact that cold drinks such as Coca Cola, Pepsi Cola, Limca, Fanta had a higher contents of pesticides which posed threat to human health and life. Sorting through the fallout of the global credit crisis, societies debate the degree to which the state should regulate the market, stabilize panics, safeguard citizens, redistribute wealth, and sustain flagging demand. Centrally planned economies have telltale principles. The political philosophy of the government wields a great influence over business policies. Other things being equal, if labour is abundant and relatively cheaper than capital, business firms will prefer relatively labour-intensive techniques for production of goods.
Other taxes include value-added and property taxes. Communism is a model of a command economy. You can divide the economic environment into the microeconomic environment, which affects business decision making - such as individual actions of firms and consumers - and the macroeconomic environment, which affects an entire economy and all of its participants. Economic legislations may be of two types—facilitatory and restrictive. Technological Environment : The nature of technology used for production of goods and services is an important factor responsible for the success of a business firm. To overcome this situation, the government resorts to.
Factor 5 Quality of Human Resources: Quality of employees i. Unit 1 — Exploring Business Activity Assignment 3 — The impact of the economic environment on business Task 1 P5 The impact of the economic environment Introduction to the Economy Economics is known to be a science that studies human behaviour regarding their requirements and needs. For decades, capitalist critiques had rung true. Technically, a pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment; effectively, a pension is an investment fund built up during working life and then used to provide continuing income upon retirement. During , the government would redeem the bonds and so with more purchasing power, the economy would be able to revive. For example, when there is good monsoon in India causing increase in incomes of rural population dependent on agriculture, demand for industrial products greatly increases.
Privatization is an essential element of a market economy, not just for improving general efficiency but also because an unfettered private sector better regulates supply and demand, thereby leading to better production and consumption decisions. For instance, the value system of J. Now, Indian firms have to compete not only with each other but also with the foreign firms whose products can be imported. They do not have any permanent employment. The firms which use outdated technologies cannot compete globally. These traditions fade away as a society becomes more complex. Furthermore, a fair and just economy defends the weak by supporting low unemployment, helps the impoverished by promoting the equal distribution of wealth, stabilizes the system by responding to market failures, and protects society by limiting abuses of market power.
No matter who borrows money, they will end up having to pay interest charges — the cost of borrowing money. All these are fundamental to the growth of a business organization. Financial System: The economic environment of business is also influenced by the efficacy of the financial system. Social dimensions or environment The social dimension or environment of a nation determines the value system of the society which, in turn affects the functioning of the business. Economic systems are the means by which countries and governments distribute resources and trade goods and services.
A dislocation of this link will adversely affect the fortune of a company. In everyday terms, these production factors involve the employees and money a company has at its disposal, as well as access to entrepreneurs, the people who want to run companies or start their own businesses. Traditional The oldest form of an economic system is the traditional approach. These may be: Legal — new regulations and laws Fiscal — changes in government spending or taxation Monetary - changes in credit controls, interest rates and the amount of cash in the economy A few examples are: 1. Impact of a Slow Economy During an economic slowdown, many small businesses face a number of challenges. Every sub-system has its own system e. All resources are owned by private individuals.