BUSINESS ENVIRONMENT

                 

 BUSINESS ENVIRONMENT

 Meaning of Environment 

After understanding the features of business and the key principles of capitalism, we are now in a position to analyze the environmental factors that affects a business. When a business decides to lunch a new product or a person decides to start a new business, his/her idea is affected by the presence of various factors in the market. These factors or forces are required to be studied and planned by the person before practically starting a business. These factors are categorized in two ways:  internal factors and external factor. The internal factors include all those issue which have an effect on the business operations from within the organization. These issues include employees, culture, capital, management, sales team etc.

                                                                               Secondly there are external environmental factors which also have an impact on the performance of the business. These are further classified in two categories: micro factors and macro factors. The micro external factors include the number of firms in competition with the business, suppliers, customers, agents, dealers etc.The success of a business depends on a good relationship with these factors.

   The macro external environmental factors include the political system of country, the economic development  of a country and the social issues that can affect the business operations. All business operate within the boundaries of particular countries. 

         The governments in different countries have made laws for the monitoring of business activities. Further, a business increase its profit, if it is working in an economically develop country. 

  

   Interaction of Business and Environment

The above mentioned internal and external environmental factors affect the performance of a business. An analysis of the effects of the environmental factors is necessary because it helps to correctly understanding the market conditions which in turn guides toward producing a good quality product.

    There are many ways in which the factors operating in the internal environment affect the business activities. For example, any change in the management of a business may have dramatic effects on its performance. Similarly, if a business has constructed a new building with state-of-the art facilities, it may also improve the level of hardworking of employees.

    The micro-external environmental factors also affect the performance of the business. For example. the selection of a supplier who provides low quality raw material for making a product may negatively affect the sales of a business. Likewise, any positive or advertising practice may also increase the sales of a business.

   In addition to all these factors, the macro-external environmental forces also play their role in shaping the results of a business.For example, any change in the government in a country may lead towards higher tax rate for the business resulting in lower profit margins for the business.Similarly, any change in the social habits also leads towards making adjustments in the design and packing of the product to satisfy the consumers.

 ADVANTAGES & DISADVANTAGES  OF CAPITALISM:

The advantages are:

 1. Choice 

                 - Individuals choose the type of products to consume and this choice brings more competition and better products in the market.

 2. Efficiency

                   - Goods and services produced by observing the market demand create incentives to lower costs and avoid waste. The efficiency production of goods enables the producers to supply good at lower rates to the consumers.

 3. Growth 

                 - Capitalism increases the Gross Domestic Product (GDP) that improves living standards. The overall economy gains more by the expansion and starting of new business.

 4. Motivation : 

Entrepreneurs are more motivated to produce more as the ownership of resources is held by them All the profits belong to the owners so they work hard to produce good quality products.

 5. Innovation :

 The competition in the markets in capitalism encourages businesses to produce the new product ensuring the better quality for the consumers. 

The disadvantages are:

 1. Monopolies

                     - Firms with monopoly power ( when a particular person or enterprise is the only supplier of a specific  commodity in the market) can abuse their position by imposing higher prices.

 2. Inequality

                      - A capitalist society is based inherently on the right to pass wealth down to future generations. If a group of people hold all the wealth and that wealth continues to be passed down to the same group of people, inequality and social division can occur.

 3.Recession and unemployment 

                       - An economy based on the capitalism invariably going to experience growth and decline.  This decline is inherent in the nature of capitalism.

 4. Advertisement:

 The needs and wants for a product created in the minds of people through advertisement affecting their  independence ability to think on what is better for them.

 5. Human Values :

 The capitalism places more trust on the profits and business growth than on preserving the human values.

    

Principles/Characteristics/Features of Capitalism

This most outstanding characteristic of capitalism is the freedom.Three basic freedoms of rights of capitalism are discussed below:

1. Private Property

     This means that individual a and business firms have the right to purchase, own, and sell property of all kinds, including land, building, machinery and equipment. The ownership of resources does not belong to the government.

2. Private Enterprise

     This means that businesses are owned and managed by the individuals who have invested their own funds in the business of their own choice from the operation of which they hope realize gains/ profits for themselves. Any person wishing to do legal business has right to form a company or partnership firm to start its activities.

3. Freedom of Choice

     It means that everyone has freedom of choice in his economic actions. A person may start any business of his choice within the legal boundaries. Thus the businessman is free to choose the land, capital, and management as he sees fit in order to achieve the highest degree of profit.

4. Voluntary Exchange 

     The buyers and sellers in capitalism are free to exchange the products in markets are the prices they think reasonable. Price is the amount of money for which a goods or service is exchange or sold. It is determined by demand and supply of various types of goods and services in the market. The government has no role in fixing the price of any product in the market.

5. Competition

     This means that the organizations in each line of business compete with each other in the sale of their products or services. Competition is the basic characteristics of capitalistic system. the level competition in a market can be high with many business trying to sell the similar type of products or it can low with only one or two businesses making that product.

6. Risk

     It refer to the chance of success or failure of a particular type of product in the market. The examples of risk are chances for loss through changes in prices level, changes in style and fashion, the appearance of similar products in the market. In capitalism, a person faces the risk of success or failure of a product.

7. Profit

     It is the excess of income of an enterprise over the cost of its operation. When, however, the income of a business is insufficient to cover its cost, there is loss. And entrepreneur accepts the risk of loss when he enters the business to earn profits. All the profit of a business is belong to its owners.

 Capitalism

 -  What is Capitalism?

After understanding business and its features, we need to understanding the overall economic environment in which a business operates. The three types of economic systems are described in the previous section of the unit. Among them, capitalism is the most business friendly system as it regards the business activities as the fundamental to the economic benefits of the society. The capitalism is an economic system in which the resources of a nation are owned by the persons. 

                      The United states, Canada, Australia and England are the examples of the capitalist system, but with some elements of the command system in government regulation and public ownership of some production facilities,such as public utilities and powder dams. The main task for the business organizations in capitalism is to arrange the factor of production and apply them to make the products. A brief description of these factors is given below:

 Factor of Production: (Inputs)

 Factor of production refer to the inputs which are required for making any product. The task of a business organization is to arrange a suitable quantity of these factor of production and then performing business processes to make a finished good. For examples, a person wants to make biscuits for which will require the following inputs:

 1. Capital

      It refer to the monetary and physical resources which a business requires to start its operations. It includes the initial amount invested by the owners of the business and the plant & machinery required for starting the production. It also includes any loan take from the purpose of investment in the business.

 2. Labour

      It  refers to the people working in a business to make different goods. The human being are required for the efficient operations of the business. The people working in a business organization are called employees.The owners of business provided wages to the employees.

 3. Land 

     It is defined as God-gifted resources which a business is required for performing its activities. These natural resources include land, water, air, trees, minerals etc. Land is given reward in the shape of rent.

4. Organization (Enterprise)

      This fourth factor that brings together the other three factor of production is called organization. The task of an organization is to arrange the required factors of production and then apply them in a correct balance to make the products. In capitalism, the organization is the main driver of the economic activities because it takes risk and generates the business idea for a particular product. Organization gets reward in the shape of profit. 

                           

Types of Economic Systems

The business all over the world exists in different countries that have separate economies. These economies are run through different policies. these policies determine the form and shape of businesses in those countries. For example, a country may allow private companies to establish bank while another country may decided to allow only government institutions to form the banks. These differences in the different countries exist due to the presence of different economic systems in these countries. There are various economic systemic being used throughout the world. These are discussed below:

a) The Command System: (Socialism)

     In this type of system, the ownership and management of business is in the hands of a central authority, or the government. The allocation and use of resources is determined by political decision making and is under bureaucratic control is usually exercised over the whole range of economic needs in the nation, including military. This system predominates in the communist countries such as Russia and china. In a Pakistan, this system works in the shape of corporations such as National Fertilizer Corporation, Pakistan National Shipping Corporation, Utility Stores Corporation of Pakistan, Pakistan 

Petroleum Limited etc. This system traces its origins to the socialism and communism which emphasized the role of state in the economic activities.

b) Market System: (Capitalism)

     In contrast to the command system, this system ignores the role of central control of planning, government regulation, or public enterprises. The nation's business resources are employed and managed by private enterprises. The individual decisions of business owner and managers influence the prices, wages and costs in a competitive market. Competition in free market serves as an automatic regulator of regulator of supply and demand. Most of the English-speaking countries, European Union, Japan and developing countries in Asia and Africa have this type of system. This system is derived from the capitalism which encourages the role of individuals in deciding the economic activities.

c) Mixed System:

   In 21st century, all business systems are a mixture of command and market systems. They mix private enterprises and social control in varying degrees, with one or the other predominating, various types of mixes business systems. This type of system is basically a mixture of capitalism and communism where private businesses are involved in markets along with some government run corporation. Almost, all developing countries have some form of mixed economic systems.In Pakistan, private businesses are allowed in many sectors of economy where private firms are working as per market conditions to supply the required goods and services to the consumers. However, some government organizations are also working in some economic sectors i.e. defense, air aviation, shipping, mining etc.  

Types of Business

                           

  Types of Business

  There are many forms of business which exists all over the world. A brief description of these forms of business is described below:

 - Manufacturing Business:

  Manufacturing refers to those businesses which take raw material from other business and process it to make a finished good. Examples of such industries include cement factories, car producing factories, food processing units, shoe manufacturing companies etc. Manufacturing businesses can be classified into the following categories:

  a)  Extractive Units:

        Extractive units is concerned with supplying commodities, which are extracted from earth like as oil and metals. The products of these industries are generally used by manufacturing and constructive industries for making sale able products.

  b)  Genetic Units:

        Genetic units refers to industry under which plants and animals are grown for the purpose of sale to the consumers such as fishing, poultry and cattle forms etc.

  c)   Conversion Units:

         Conversion units refers to those business which are working by converting the raw material through defined processes into the finished goods.

    ( THE FOOD PRODUCT CHAIN )

At first step the milk is collected in a dairy form from the cows. At second step the milk is boiled in a factory and packed. At third step, the milk is distributed through trucks to the retailers and the restaurants. At fourth step, the the consumers buy milk from the retailers and use it in their homes or served to the consumers in restaurants with tea or coffee.

 

   

- Services Business:

    It refers to all those types of businesses which provide various useful services to the people. The service sector businesses include banks, insurance companies, law firms, doctor, engineers, advertising agencies, television, radio channels etc.

Services can be divided into three following categories:

a.   Recreational Services:

      Recreational service refer to the services provided by a business for the entertainment purposes. These include movies, theater, tourism, telecom etc.

b.   Personal Services:

      Personal service include the services provided by a business for meeting various individuals needs. These include restaurant, retailing, doctors clinic etc.

c.   Professional Services:

      Professional service refer to the different services for supporting other business activities. these include lawyers, charted accountants,tax practitioners etc.

       

        ( DIFFERENT SERVICE BRAND OF TELECOM BUSINESS IN WORLD )

 - Trading Business:

    It refers to the exchange or buying and selling of commodities; especially the exchange of merchandises on a large scale, between different places or communities; extended trade or traffic includes all those activities which help directly or indirectly in the distribution of goods to the end users. It is also called merchandising. Trading activities can be classified into the following categories:

a)  Domestic Trade:

     Domestic trade refers to those business which are involved in the buying and selling of goods within the boundaries of a country.

b)  Foreign Trade:

     Foreign trade refers to those businesses which are involved in the buying and selling of goods outside the boundaries of a country and is generally called exporting.

c)  Retail Trade:

     Retail trade refers to those business involved in buying and selling of goods to the general consumers for the purpose of consumption. the business carrying out such activities are called retailers.

d)  Wholesales Trade:

     Wholesales trade refers to the buying and selling of goods usually in bulk quantities to the retailers.

Features/Characteristics of Business

Business Introduction

The growth and development of an economy depends on the nature of business operating in it. A business in board terms may include an activity performed to earn income or profits. In this unit, we shall study the business and its nature, types of different businesses and their role in an economy. If we learn how a business is organized and operated, we can start our own business or become a part of a running business and may contribute in the economic growth of the country.

Features/Characteristics of Business

Following are some important characteristics of business:

  - Earning Motive

    The basic purpose and function of the business is to earn profit. The profit is the return to the owners of a business who have invested their capital in the business. A business exists to maximize its profits by selling the product to the customers.

  - Legal Activities

    All business needs to register with the government, otherwise their activities are regarded as illegal. Further, business that does not include illegal activities such as smuggling, bribery, and robbery or the like illegal activities is not covered under the business.

 - Satisfaction of Human Needs and Wants 

    The business exist in the markets to fulfill the different economic needs and wants of the customers. These wants are served through the provision of many products in the markets. The good quality of product of product help a business to grow and get more customers.

  - Benefits for Society

    The motive business concept is to serve society in terms of providing good and services, providing high quality employment opportunities & saving time of customers by providing high quality of goods.

  - Innovation

    This means to include new and advanced features in the production of goods and services. For example, adding a camera in a cellular phone, including memory card facility and video features etc are categorized as innovation in the business processes.

  - Employment opportunities

    Business provides employment to oneself and society. In this way, higher living standards and social progress are archived. The people are engaged in different professions through the conduct of business. It  impacts positively upon national income growth, economic development and employment level.