External Influences that Affect Businesses - Essay Example

External influences that affect businesses and organizations Economic factors These are the economic factors that affect businesses and organizations’ operations. These factors affect the customers and the producers. They directly or indirectly affect the purchasing power of the consumers and this causes a negative impact in the businesses. When the customer’s purchasing power is affected negatively, then they make less purchases while when it is affected positively, they increase their volume of purchases. When the interest rates rise, people reduce their borrowing rates leading to low sales while when the interest rates fall, the borrowing rates rise and people are able to borrow more; hence, people increase their rate of purchases which is an advantage to businesses. Economic growth also results to an increase in the sales volume because it makes commodities cheaper and hence affordable for more people (PEST Analysis 2007 pg 1). The rate of inflation also affects businesses; when inflation is high, fewer sales are made while when there is no inflation, more sales are made and hence more profits. The current economic meltdown affecting countries has led to many organisations registering losses (Jose 2009 pg 55). Technological factors Technology is changing and improving every other minute and at a very high rate. Organizations need to keep up with the rising technologies so as to be able to solve some of the problems that face the markets today. Technology makes organizations and structures of businesses and organizations easier to manage. With the current technology, it is very easy to detect errors which cannot be detected manually. It is cheaper and easy to manage and with modern technology, one does not necessarily have to be present for their businesses to run. They can coordinate them from other places, even in their houses. Technology also makes communication to workers and clients cheap and fast (Needle 2004 pg 239). Organisations that use modern technology to run businesses are at a lesser risk of making losses because it is easy to detect; businesses that don’t use technology are more prone to make losses because of errors that might be sometimes made. Organisations have access to all the information that they require and this may assist them in upgrading their services with immediate effect and without wasting a lot of resources in acquiring the information (Jose 2009 pg 56). Social factors These are the factors that affect the general needs of the customers. When the population is high, the level of sales tends to increase so as to meet the rising needs of the customers; the higher the population, the greater the sales and the lower the population, the lesser the sales. Areas that have a high population record greater sales than areas with a low population; this is the reason behind the changing market trends. The age distribution also determines the most effective business to put in an area. The preferences vary depending with the age of the population e.g. there are the fashions that are common with teenagers as well as fashions that are common with the older people(PEST Analysis 2007 pg 1). Age is therefore very important in determining the market of an area. Political factors These are the factors that are as a result of government policies. They include taxes; the higher the taxes, the lower the sales and the lower the taxes, the higher the sales. When countries are not stable, many organizations are affected negatively. This reduces the level of sales for businesses and it also destabilizes the organisations but so long as there is stability in the country, then businesses are also stable. World Economic problems This has also affected many businesses and organisations. An economic melt down is usually accompanied by many other problems that affect businesses e.g. financial problems among the people. It causes some companies that cannot contain themselves to collapse because it is a period that businesses face real economic problems. The level of sales usually goes down and at the same time, the prices of commodities rise leading to very low sales volumes for the period in question. Financial effects During an economic meltdown, the stock loses its market value and companies are faced with challenges in the sales of their products. This is because the prices have risen greatly and the products have lost their value leading to poor markets for the sellers. This leads to great losses in the organisations of which most of them are greatly affected. Most companies like Cisco were affected by the economic meltdown. The sales for their financial year greatly reduced as well as the profits which fell by almost half of the previous year. This economic melt down not only affected Cisco but it also affected other businesses and organizations around the world (Wendt 2009-10-2 pg 1). New products Most of the organisations responded by exploring other market avenues for their products. They worked by upgrading their products and producing other new commodities. Some organisations have done this and it has helped them to make more sales. These organizations do this in the hope of recovering at least a quarter of what they have lost within a specified time. They also make strategic plans of how to recover what they have lost through the economic melt down. They improve their products and use services such as the after sale services as a way of ensuring that they retain them (Needle 2004 pg 244). In such cases, managers should look for ways of advancing their products and improving them so that they can fit into the market (Wendt 2009-10-2). Businesses should be at a position of restructuring themselves after they are affected by such crises like the economic melt down or other economic factors. The North-western IT Company has developed many new products that never before existed in the markets. The products are unique and so they have been able to draw more customers as well as maintain the existing ones. Drawbacks of the structure The structure that Cisco uses is one which involves the manufacturers dealing directly with the customers; such that the customers don’t come into contact with the employees. The drawback of this structure is that it is too complicated. This is because the organization tends to concentrate more on the creation of a good and standard product and on the costs of producing those products that it tends to ignore the needs of the customers. The needs of customers should be given the first priority because if they are not met, then the business is likely to suffer customer losses. There is a need to recognize that different customers have different needs and that their needs should be met accordingly; otherwise, they may loose them in the name of improving their products (Jose 2009 pg 56). Reference: Needle 2004, Business in context: An introduction to business and its environment, 4th Edition, Thomson Learning. Armstrong 2006, A handbook of human resource management and practice, 10th Edition, FT/Pitman. Mullins 2005, Management and organizational behaviour, 7th edition, FT Prentice Hall. Braton and Gold 2007, Human resource management: Theory and practice, 4th Edition, Palgrave Macmillan, New York. Jose 2009, the world according to chambers, from the economist print Edition, California, retrieved on 2009-11-17 from http://www.economist.com/displaystory.cfm?story_id=14303574 . PEST Analysis 2007, Strategic Management, retrieved on 2009-11-17, from http://www.quickmba.com/strategy/pest/ . Wendt 2009-10-2, Lingering Effects of Economic Meltdown Continue to Drive Customers to and Innovation in Midrange Solutions, retrieved on 2009-11-17 from http://www.dciginc.com/2009/10/lingering-effects-economic-meltdown.html . Read More