Economic Influences on Business

Influences on Business - Economic and Financial

• Successful business managers understand their business environment.
• Understanding the environment allows business managers to respond positively to changes and prepare for their impacts.

Understanding the Business Environment

• The business environment refers to the surrounding conditions.
• The conditions can be divided into external and internal.

External and Internal Environments

• The external environment includes factors beyond a business's control:
  • Government policy
  • Technology
  • Economic conditions
  • Social attitudes
• The internal environment includes factors the business has some control over:
  • Products
  • Location
  • Resources
  • Management
  • Business culture

Economic Influences

• Economic forces greatly impact businesses and customers by influencing:
  • A businesss capacity to compete
  • A customer's willingness to spend
  • A customer's ability to spend

Economic or Business Cycle Phases

• Recovery
• Peak
• Recession
• Trough

Key Features of Economic Cycle Phases

• Recovery:
  • Increased consumer spending
  • Increasingly optimistic business expectations
  • Increasing business investment
  • Rising sales and profits
  • Falling unemployment
• Peak:
  • High wages and salaries
  • Businesses operating at full capacity
  • Highest sales and profits
  • Low unemployment
  • Potential increase in inflation
  • An increase in consumer spending
• Recession:
  • Decreasing consumer spending
  • Increasingly pessimistic business expectations
  • Decreasing business investment
  • Falling sales and profits
  • Rising unemployment
• Trough:
  • Low wages and salaries
  • Businesses operating below full capacity
  • Lowest sales and profits
  • Lowest consumer spending
  • High unemployment
  • Stable or falling inflation

Economic Impact

• The state of the economy has a substantial impact on business.
• Government policies aim to maintain steady economic growth without inflationary pressure.
• Overseas trends impact the economy through trade, investment, and currency level changes.
• Consumer behavior shifts during economic uncertainty, with consumers becoming more cautious.
  • Resulting in businesses cutting costs, potentially through retrenchment.
• Economic growth leads to restored consumer confidence, increased spending, and improved business profits.
• Not all businesses are equally affected by economic cycles; consumer/luxury goods are susceptible to downturns.

Financial Influences

• Global financial markets have transformed significantly over the last 30 years.
• Deregulation of Australia's financial system started in 1983, resulting in a more adaptable, market-oriented financial sector.
• Deregulation has facilitated greater competition and new banking products.
• A primary source of finance for businesses is debt finance.
• Debt finance is highly sensitive to interest rates; businesses become cautious when rates increase and more inclined to borrow when rates decrease.
• Globalisation allows Australian businesses to access finance from global sources.
• Technological advancements in communications have enabled global financial transactions.
• Global financial speculators can easily execute transactions across the globe.