Business Environment refers to the surrounding conditions of the business operation. These conditions can be externally or internally.
External environment influences are factors which the business has limited control. Such as: tax laws, interest rates, consumer behaviour.
Economic
Economic Cycle or Business Cycle are periods of economic growth (boom) and recession (bust) due to the fluctuations of economic activities.
- Higher employment as businesses are willing to hire more staff
- Higher chance of wage rise
- Increase consumption due to increase consumer confidence (higher wage growth, easier to get a job) and better job security.
- Increase level of inflation (general increase in the price of goods and services). With more consumer spending, businesses will increase their price to maximise profit.
In periods of economic recession (2 consecutive quarters of negative economic growth), characteristics include:
- Higher unemployment as businesses are less likely to hire more staff due to decrease in sales.
- Lower chance of wage rise.
- Decrease consumption due to lower consumer confidence (slower wage growth, harder to get a job) and lower job security.
- Stable or lower level of inflation. With less consumer spending, businesses will be less likely to increase their price.
Apart from domestic economic influences, foreign economic factors can also affect the business cycle. Eg. increase in Chinese demand of Australian resources, GFC in 2008-9, recession, supply chain issues, free trade agreements, currency level etc.
There are some businesses that might thrive even better in recessions (eg. $2 shop as consumers are more likely to shop at a lower price.)
Geographic
The location of Australia is close to Asia-Pacific countries which have consistent economic growth.
Australia has shifted from its original major trading partners US & Europe to China & other Asian countries due to proximity (reduced freight costs)
The demography (particular features of population, eg. age, sex, cultural background, income level) can affect the demand of goods and services of a business. Such as trendy electronic gadgets would not appeal to the older population.
Hence, effective marketing plans and the right target market is needed as a response to the geographical influences on the business.
Social
Relates to change is society and social structures, such as changes in consumer lifestyles and behaviour that affect buying patterns.
Businesses should identify changes to consumer culture and taste in order to increase in sales and hence profit.
Laws and regulations
There are certain activities which might be illegal (eg. dumping, tax evasion, advertising).
Also, for certain industries, there are specific compliance (eg. banking, hospitality, education) which needs to be followed.
Technological
With innovative technology, businesses can improve efficiency in their production precess, innovations and the quality and range of goods and services.
Technology has also increased the speed and volume of communications. Businesses should use the most recent and appropriate technology in order to maximise sales and grow.
Competitive situation
More competition means more consumer choices on a range of quality goods and services.
Businesses are influenced by the level of completion such that they have to develop strategies to ensure they have an edge of the competitors.
Market concentration
- Monopoly - complete concentration by one firm in the industry, eg. Australia Post
Ethics
Businesses will use various strategies to achieve their business goals (eg. maximise Profits). However these strategies can be unethical:
- Excessive wastage and pollutions from operations
- Misleading advertisement
- Invasion of privacy
- Products that may damage consumer’s health
- Cheap labour
Ethical decision making is when businesses go beyond minimum legal requirements. Businesses need to consider Corporate Social Responsibility.