Understanding Business Environment

• A business environment consists of the surrounding conditions in which the business operates, and can be divided into external and internal categories.
• Successful business managers understand their environment, allowing them to positively respond to changes and prepare for their impact.

External Influences

• External influences are aspects outside of the control and operations of a business.
  • These include economy, finance, geography, society, the law, politics, institutions, technology, the competitive situation, and markets.
• Changes in the external environment necessitate adjustments to business operations by managers.
• New governmental regulations may force the business to make adjustments.
  • For example, carbon reduction schemes may require businesses to pay for the carbon pollution they generate, to reduce pollution and promote a sustainable economy.

Economic Influences

• Australian economy experiences economic cycles of booms (high employment and spending) and busts (low employment and spending).
• Economic activity influences the business operations.
• Changes in employment levels and consumer/business spending impact a business's ability to compete, consumer confidence, demand, investment, revenue, profitability, production, and workforce maintenance.
• The economy is affected by overseas trends.
  • Changes in trade, investment, and currency levels affect Australia’s economic activity.
  • China’s economic growth has benefited Australian businesses, increasing exports of raw materials, finished products, and quaternary services.
• Businesses can predict possible threats and opportunities using information on economic growth, inflation, earnings, consumer confidence, interest rates, spending, and unemployment.
• Economic forces influence a business’s capacity to compete and customer’s willingness and ability to spend.
• The Australian Government uses fiscal, monetary, and microeconomic policies to influence economic activity.
  • Fiscal policy involves taxation and government expenditure to achieve economic objectives.
    • Expansionary policies include increased government spending and decreased taxes.
    • Contractionary policies include increased taxes and decreased government spending.
  • Monetary policy involves actions by the Reserve Bank of Australia to influence interest rates in the Australian economy.
  • Microeconomic reform includes policies to promote competition within a particular industry.

Financial Influences

• Deregulation of the Australian financial system began in 1983, leading to a more flexible, market-oriented approach, new banking products, and increased competition.
• Globalisation allows large Australian businesses to use international financial institutions.
• Deregulation is the removal of government regulation from industry to increase efficiency and competition.
• Changes in the financial industry influence a business's willingness to take on debt and the source/type of finance.
• The main sources of finance are debt (external) and equity (internal), both influenced by interest rates.

Geographic Influences

• Australia’s location in the Asia Pacific region and economic growth in Asian nations provide opportunities for business expansion.
• Changes in Australia’s demographics, such as population shifts and changes in population size, age, sex, income, cultural background, and family size, influence business.
• Shifts may lead to changes in demand levels and the nature of products and services.
• The aging baby-boomer population has lead to skill shortages and an increased demand for age-related services.
• Population growth is linked to economic growth.
• Globalisation impacts business through:
  • Increased competition
  • Pressure to reduce prices
  • Need to standardize products
  • Expanded markets
  • Greater customer expectations
  • Economies of scale
  • Location flexibility
  • Cheaper materials
  • Diversification
  • Access to better labour
• Strategies to manage the impacts of globalization:
  • Create competitive advantage through differentiation
  • Undertake market research
  • Become more price competitive
  • Minimize expenses
  • Use global sourcing

Social Influences

• Rapid identification and response to changes in tastes, fashions, and culture can lead to sales and profit opportunities.
• Major social influences include growing environmental awareness, desire for family-friendly workplaces, and the belief that businesses must cater for workplace diversity.

Legal Influences

• Small to medium businesses face similar levels of regulation as large businesses.
• Compliance can be time-consuming and costly.
• The Competition and Consumer Act 2010 (Cwlth), administered by the ACCC, applies to businesses in Australia.

Political Influences

• Political change can lead to business uncertainty or confidence.
• Free trade policies, such as lowered tariff rates, impact businesses.

Institutional Influences

• Institutional influences come in the form of regulation, including government, regulatory bodies like the Office of Fair Trading and ASIC, trade unions, and employer associations.
• Regulations are rules, laws, or orders that businesses must follow.

Technological Influences

• Technological innovation has increased rapidly, revolutionizing the workplace.
• Businesses can increase efficiency and productivity, create new products, and improve quality with appropriate technology.
• Technological benefits include:
  • Improved communications technologies improve communication among suppliers and customers
  • Automation and robots improve production
  • Innovative technologies increase the gig economy
• Businesses that do not keep up with technology risk failure.

Competitive Situation Influences

• Competition can benefit the consumer and the business by providing more choice, a range of qualities, and varied prices.
• A sustainable competitive advantage ensures a business has an ‘edge’ over its competitors for a long period.

Market Influences

• Changes in financial/capital markets: Money moves more freely between countries due to expanded international financial flows.
• Changes in labor markets: Migration policies and the number of people legally working in Australia impact business.
• Changes in consumer markets: Growth in the trade market leads to more customers, while decline leads to fewer customers; increased online shopping impacts business.

Internal Influences

• Internal influences are factors within the business itself.
  • These include products, location, resources, management, business culture, and stakeholders.

Products

• Products affect internal structures and operations.
• The type of goods and services produced impacts the internal operations of a business.
• The range of goods and services produced will have a greater internal impact, requiring expanded operations.
• The product influence will impact the type of business (service, manufacturer, or retailer).
• The size of the business will be based on the range/type of goods and services produced, the level of technology utilized, and the volume of goods and services produced.

Location

• Location impacts business success, impacting sales and running costs.
• Location-dependent rules and regulations affect online and home-based businesses.
• High flow of people can impact sales.
• Locating near complementary businesses may attract more customers.

Resources

• The main resources available to a business:
  • Human resources: employees of the business.
  • Information resources: knowledge and data, such as market research, sales reports, forecasts, and legal advice.
  • Physical resources: equipment, machinery, buildings, and raw materials.
  • Financial resources: funds used to meet obligations.

Management

• Rapid advances in technology and increased competition have resulted in businesses flattening their structures.
• Collaborative workplaces allow for a more cohesive and inclusive business culture.
• Management style depends on business size and activity.

Business Culture

• Business culture includes the values, ideas, expectations, and beliefs shared by staff and managers.
• Elements of business culture:
  • Values: Basic beliefs shared among employees.
  • Symbols: Events or objects representing business beliefs.
  • Rituals, rites, and celebrations: Routine behavior patterns.
  • Heroes: Successful employees who reflect business values.

Stakeholders

• Stakeholders are the people and groups that interact with the business and have a vested interest in its activities.
• Businesses are expected to be resourceful, comply with the law, and be socially just and ecologically sustainable.
• They are expected to practice ethical management in the interests of all stakeholders.
• Employees influence the product through their skills.
• Satisfied and valued employees perform better.
• Managers influence decision-making to produce profit for shareholders.
• Society expects businesses to show concern for the environment.
• Consumers expect ethical and responsible businesses.
• Stakeholders include:
  • Management-Approach impacts culture and operations.
  • Shareholders- Influence major decisions; expect profitable organization.
  • Society-Pressure for ecologically sustainable practices.
  • Consumers- They expect business to be ethical and responsible.