Change in Business Environments: External and Internal Factors - Term Paper Example

?Change in Business Environments (External and Internal Factors) Introduction The business environments are continually changing as new things come into play. Therefore, it is very crucial for managers to understand the environments within which their businesses operate in order to adapt to the changing environment and remain competitive (Fernando 2011, p.41). However, since the business environment influences greatly every aspect of the business such as the location of the business, nature, pricing decisions, personnel policies and distribution system, it is crucial to have a clear understanding of the various components of the business environment. This paper discusses the external and internal factors that impact a business. External Environment Economy The economic condition of a country plays a big role in determining how successful a business may be. In this regard, it is very crucial for a manager to determine the economic state of a country when making business decisions. The economic factors that must be analyzed here includes the country’s gross domestic product, its per capita income, exchange rates, inflation, capital market strength, goods and service market among others. Understanding these economic aspects is very crucial because they determine they improve the speed of economic growth, which determines business success (Fernando 2011, p.42). Managers also need to consider the economic policies adopted by a country in making business decisions. This based on the fact economic policies adopted by a country have a direct influence on the operation of every business venture. The policies also keep changing from time to time, meaning the managers must be vigilant to adapt to the changes as and when they are made. The economic policies managers need to consider when making business decisions include policy of the industry, fiscal policy, monetary policy, export and import policy and country’s foreign investment policy (Fernando 2011, p.42). Oman, for instance, is considered an economically viable country to invest in because of its growing economy. Research indicated that Oman has high economic freedom, which ranks at 68.1, thus becoming the 45th freest country. With a population of barely 3 million, the country GNI per capita is about $23,315 according to 2012 economic index. Oman also has a very strong monetary policy, which has kept its inflation rates to less than 3.5%. The country also has a favorable fiscal programme that has ensured that duty on products is kept low, no personal income tax charged, as well as establishing a moderate corporate tax to encourage investment (Oxford Business Group 2009, p.9). Social environment The social environment of a country also influences the operation of a business. The social environment consists of the social factors such as beliefs, values, customs, traditions, poverty level and the life expectancy rates among others. In this regard, findings have shown that the social structures that a society cherishes impacts hugely on the operation of a business. For instance, the increase in literacy level has made consumers more conscious of the quality and type of products they consume. In addition, the changing family composition has seen an increase in the nuclear family concept thereby increasing demand for different types of products and services. Nevertheless, the social environment varies from one social and cultural structure to another and from one country to another. Managers, therefore, must study the social trends and make rational and informed decision to that effect (Kumar and Sharma 1998, p.81). Political environment The political environment of a country also determines whether a business in likely to be successful or not. The political factors include the attitudes and policies of the government towards the business community. The strategic decisions of a company depend hugely on these aspects. A country’s political stability also impacts on the operation of a business greatly. A stable government usually sends good signal, which encourages investment since it builds investor confidence. Unstable, government, on the other hand, scares away investment because of the uncertainties created by the instability (Stonehouse et al. 2007, p.54). Oman, for example, is a good country for doing business because of its political stability. Legal environment The legal environment also has a profound influence on the operation of a business in a country, therefore, must be taken into consideration by managers. The legal factors in this care are the laws and regulations that impact on the business operation. Every country has its set of laws that determine how firms operate in the country. Therefore, it is a requirement that business organizations must abide by these laws and operate within the legal framework (Cant, Strydom, and Jooste 2009, p.21). For instance, any business set in Oman must abide by the set of laws and regulations such as the Oman’s Company Act, Industrial Dispute Act, Trade Mark Acts, and Foreign Exchange Management Act among others. Technological Environment Technological environment that influences business operation includes the techniques, approaches and methods adopted in the production of products and services and its distribution method (Leadley and Forsyth 2004, p.8). Different countries have differing levels of technological advancements. These technological environments heavily influence how countries manufacture and distribute their goods and services (Farrell, Lilford, and Ellis 2008, p.32). Oman, for instance, has experienced faster growth in technology, which has changed the way it designs its products and services. Therefore, for a business to compete favourably in Oman, it must keep pace with the technological changes going on in the country. Therefore, it is not worthwhile for an organization to stick to the antiquated technologies. Natural Environment The natural environment also has a huge impact on the business operation. Natural environment consist of the ecological and geographical factors that have a direct impact on the business operation. It consists of weather and climatic conditions, natural resources, topographical factors and location aspects among others. For example, a tea factory is normally located only in areas where tea is grown. Additionally, managers must take into consideration the policies set by the government as to how the national environment is to be utilized so as to strike an ecological balance (Blythe 2010, p.98). International The international regulations also affect the business operation. International factors include laws and regulations that impact on the way businesses are conducted. For instance, the international community has established laws on greenhouse emissions. According to the law, companies are given the ceiling greenhouse emission beyond which a fine is imposed. Therefore, it is crucial for businesses to abide by the international laws and regulation in order to do business and become competitive (Banhegyi S 2007, p.67). As earlier stated, the business environment is also influenced by the micro environmental factors consisting of customers, suppliers, competitors and the labour market. Customers A customer is the greatest asset of any business venture. These people purchase products and services of a company. Therefore, in order for a company to become competitive and service, managers must strive to satisfy customers’ needs. This is achievable through the provision of quality products and services, in a timely and efficient manner. Failure to satisfy the needs of customers is a business strategy failure (Stonehouse et al. 2007, p.59). Suppliers Businesses depend a lot on suppliers for supply of materials used in the manufacture of goods and services. Therefore, to become competitive, a business must build a close relationship with its suppliers. This will ensure a constant supply of raw materials at reasonable prices, which enables a company build a competitive edge over others in the industry. Failure to do so is disastrous because it may result in lack of supplies, which might bring a business to a halt (Goodman et al. 2005, p.12). Competitors Competition is one of the biggest threats businesses face in the world today. Therefore, it is very crucial that managers understand the competitive environment where the business operates. This is because any move made by a competitor such as price reduction might impact hugely on the business strategy. Failure to understand the competition environment might result in business failure (Leadley and Forsyth 2004, p.14). Labour Market The labour market of a country also impacts hugely on the performance of a business organization. The labour market must be understood in terms of the working population, aging trend and the availability of expertise capable of doing the job the business intend to venture. Understanding the labour market enables an organization know whether it can easily recruit without a problem from the experts available in a country or whether it might need to outsource labour (Goodman et al. 2005, p.14). Conclusions The business environment consists of micro and macro economic factors that impact the operation of the business. Macro environment consists of factors beyond the control of the business. This includes the economic factors, technological factors, socio-cultural factors, political factors, demographic factors, natural factors and international factors, just to name but a few. The business environment also consists of the internal business environment, which comprises of the internal factors that are within the business control. Some of the internal factors include customers, suppliers, competitors, labour market, partners, distributors’, and shareholders among others. References Banhegyi, S 2007, Fresh perspectives: management. Pearson South Africa, Johannesburg, South Africa. Blythe, J 2010, Principles and practice of marketing. Cengage Learning EMEA, London, U.K. Cant, M. C., Strydom, J. W., Jooste, C. J 2009, Marketing management. Juta and Company Ltd, New York, NY. Farrell, D., Lilford, N., & Ellis, M 2008, Operations and management principles for contact centres. Juta and Company Ltd, New York, NY. Fernando, A. C 2011, Business environment. Pearson Education India, New Delhi, India. Goodman, S., Ladzani, W., Bates, B., de Vries, C., & Botha, S. 2005. Fresh perspectives: business management. Pearson South Africa, Johannesburg, South Africa. Jain, T., Trehan, M., & Trehan, R 2010, Business environment. FK Publications, London, U.K. Kumar, A., & Sharma, R 1998, Managerial economics. Atlantic Publishers & Dist., Oxford, U.K. Leadley, P. J., & Forsyth, P 2004, Marketing: essential principles, new realities. Kogan Page Publishers, Manson, Ohio. Oxford Business Group 2009, The report: Oman 2009. Oxford Business Group, Oxford, U.K. Stonehouse, G., Campbell, D., Hamill, J., & Purdie, T. 2007. Global and transnational business: strategy and management. John Wiley & Sons, Hoboken, New Jersey. Read More