External Influences in the Business Environment PDF

External Influences In The Business Environment The Economic Influence In The Business Environment The economic influence in the business environment refers to the impact of economic booms and recessions on businesses. During economic booms, business production and sales revenue increase, as consume...

External Influences In The Business Environment The Economic Influence In The Business Environment The economic influence in the business environment refers to the impact of economic booms and recessions on businesses. During economic booms, business production and sales revenue increase, as consumers have economic and financial confidence and spend more; furthermore, there is a decrease in unemployment during booms. In recessions, however, this cycle is flipped, as due to consumers spending less, sales revenue decreases, and businesses have to slow production and often dismiss employees, leading to higher unemployment rates. The Financial Influence In The Business Environment Financial influence in the business environment has two main sectors; debt finance, and equity finance. Debt finance refers to increase in funds as a result of borrowing loans, whereas equity finance refers to monetary gains as a result of selling shares of a company. Both these concepts are related in that each of them are largely affected by interest rates. In the scenario where interest rates are high, debt finance is generally the financial method preferred by businesses as the business will then have a smaller amount of money to pay back, while the owners or shareholders of the company are able to retain full ownership. When interest rates are high, however, it is generally preferred by businesses to sell shares on the Australian Securities Exchange (or ASX) rather than use debt finance as, although they lose some ownership, they do not have to pay back money to banks. The Geographic Influence In The Business Environment Geographic influence in the Australian business environment is impacted largely by three main factors: the location of Australia within the Asia-Pacific region, the changes in demographics, and globalisation. Australia’s location within the Asia-Pacific region influences the business environment in Australia as it impacts Australia’s trading and exportation with other countries. Economy growth is numerous Asian countries, such as China, impacts Australia as Australia has an increasing amount of its products imported from there. Additionally, the changes in Australian demographics, such as urbanisation and an increase of the elderly population, influence the Australian business environment as businesses in rural areas are less likely to have a high profitability, as the majority of the consumers are located in cities. Furthermore, the business environment in Australia is impacted by globalisation in regards to economies of scale and increased competition, as well as several other factors. Globalisation also increases the consumer base of a company as, as the country spreads across the globe, their consumer base will expand accordingly. The Social Influence In The Business Environment Social influence in the business environment refers to the impact that social factors have on the business environment, mostly in reference to the growing awareness of environmental changes, and the growing desirability of family-friendly, diverse workplaces. These factors can influence areas such as employee productivity and efficiency, as well as affect how individuals outside the business perceive the business. Social influence has a distinct connection with reputation; for example, a business that is seen as socially responsible may be perceived more positively by customers, and, as a result, increase the consumer base of the business. The Legal Influence In The Business Environment The legal influence on the business environment refers to the laws and regulations applied to businesses which dictate matters from how businesses compete with each other to setting standards for employee treatment and workplace safety. Businesses must comply with these laws and regulations as failure to do so can result in consequences such as fines. Furthermore, the legal influence affect businesses as there are aspects which protect them and their own interests. An example of the legal influence in the business environment is the Fair Work Act. The Fair Work Act outlines how businesses and employers must treat employees; a business’s failure to comply with this legislation results in legal consequences, taking the form of a fine or, in some circumstances, criminal charges. The Political Influence In The Business Environment The political influence in the business environment refers to political stability and circumstances, and how that, in turn, affects business uncertainty and confidence. More specifically, as a positive, political stability can enhance and benefit business growth as businesses are able to predict the market, however, as a negative, political turbulence can create business uncertainty as businesses cannot predict the market. Furthermore, a change in government can affect businesses as a new political leader may change factors which themselves affect the business environment, such as taxation, environmental management regulations and labor market reforms. The Institutional Influence In The Business Environment The institutional influence in the business environment refers to the institutions which enforce legislation, such as the Australian Competition & Consumer Commission (the ACCC) and Fair Work, who enforce the Australian Competition and Consumer Act 2010 and the Fair Work Act 2009, respectively. These affect businesses as they provide consequences if a business doesn’t adhere to relevant laws and regulations. The Technological Influence In The Business Environment Technological influence has had a significant influence on the business environment, particularly in reference to the efficiency and productivity in manufacturing processes and automation, as well as facilitating the growth of global trade and exportation which consequently increase both the consumer base of businesses and the choice of customers. Developments in technology have influenced businesses in how they are able to manufacture goods as, through innovation and invention, businesses are able to develop advanced machinery and infrastructure specific to the goods they need. Furthermore, this consequently affects efficiency and productivity as machines are more often than not able to produce goods of high quality at a speed much faster than humans, and with less waste of resources. However, the technological influence has, in some aspects, had a negative impact on the business environment, mostly in regards to unemployment. Due to automation of services, many workers have lost their jobs, being replaced by more efficient machinery, which consequently lead to a decrease in the labour force and a rise in unemployment rates. The Competitive Situation Influence In The Business Environment The competitive situation influence in the business environment refers to the competition between businesses selling similar or the same goods and/or services for their portion of the market share. When there are high levels of competition, businesses are required to place more funds in marketing, whereas where there are low levels of competition, businesses are able to have more control over pricing and marketing power. Furthermore, the competitive situation is also linked to ease of entry into a market. For example, markets with an oligopoly have a low ease of entry whereas markets with a perfect competition have higher ease of entry. The Markets Influence In The Business Environment Market influence in the business environment refers to the behaviours of both businesses and consumers. For a business to remain profitable, it must be aware of market shifts and trends, as well as the activities of its competitors. Additionally, market influence refers to supply and demand. In order to minimise waste and satisfy the needs and wants of consumers, a business must remain informed of current consumer wants and needs, as well as preferences.