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Business environment basically comprises of a series of factors, conditions and events. The economic environment and its variables are the most important factors that impact the operations of a business organization. For every business manager, the first and foremost thing that they should be in tune with is the state of macroeconomics and microeconomics (McEachern, 2012). While normally all managers are trained to be attentive toward the latter, it is the former which can often catch them by surprise and spell doom for the business. The present research has been prepared with the view to demonstrate understanding about the micro-economic, macro-economic as well as international economic environment.
Micro-economics emphasizes on studying narrower picture which focuses on evaluating all the factors related to organization or industry. It has a huge impact on business decision making since it effects its operations and long term growth and development (Caravle, 2002). Factors that form part of micro-economic environment and their significance in the business unit are described below:
Market Size: Every industry has certain specific demand that represents its market size. It is one of an important element for business units. This is due to reason that an idea of market size for industry helps in deciding which market to enter (Paul, 2008). While stepping foot into some new market segment or industry; the business unit tends to identify its market size. It helps in selecting most profitable venture since industry with large market size offers high profitability and vice versa.
Demand and supply: These are the most important elements of micro-economic environment. It is the demand and supply situation of various products and services that determines organization's profits. If the business unit plans to enter into segment where high demand of product exists while supply is significantly lower; the scenario helps in gaining sufficient profits. However, on other hand, if there is huge supply of certain products with lower demand the business units are expected to incur losses (Lewis, 2013). The demand and supply situation helps the organization in analyzing level of profitability and growth potential of business sector. In order to gain high profits the business unit always strives to enter into segments with high demand.
Competitors: Level of competition existing within the industry also determines business’s success. Highly competitive industries tend to cease profit margins of the organization; whereas industries with lower competition help in generating sufficient profits. An overview of industry competition helps in determining ways through which the business unit can have a competitive edge. Most of the business units tend to restrict them from entering into highly crowded and competitive industry (Sorscher, 2013).
Suppliers: Another important element that effects business decision making is number of suppliers available within the industry. It is essential for the organization to share sound relationship with its suppliers. This in turn helps in acquiring all the resources and raw materials required for production easily (Kensler, 2007). The business unit needs to analyze easy availability of all resources required before entering into new market segment. Henceforth, the presence of suppliers and relationship with them also effects business operations.
Distribution chain: The business unit is entitled to maintain sound relationship with its distributors. The distribution channel prevailing within the industry also determines its success. The rationale behind same is that customers tends to finally purchase the product or services if they are available at ease. Henceforth, the organization always strives to make products available at customers' doorstep (Choudhury and Hoque, 2004). The business tends to enter into market segments where distribution channels are effectively developed. In modern era, the business unit is adopting new channels for distribution such as online portals and direct marketing.
The business objectives and its behavior in terms of economic context differ in comparison to top accounting context. The organization has following objectives as per economic context.
Profit and revenue maximization: Economist argues that business unit aims at maximizing its economic profit; that is the income earned above expected rate of return. Moreover, it is through capturing of large market share that the business unit is able to maximize its sales and revenues. In context of economics the business unit also considers opportunity cost that is cost of next best forgone alternative (Sloman, 2004). Henceforth, the organization always focuses towards at maximizing its economic profit.
Surviving economic downturn: The business unit in terms of economic context always strives to survive during hard times. This implies that the organization aims at achieving growth even during times of recession.
Ethical business considerations: Economists also suggest that business unit desires to provide suitable public services. Moreover, it aims at satisfying its corporate social responsibility that it tends to conduct its operations as per ethical considerations (Liu and Shrestha, 2008).
As per economist, the business behavior depends on various micro and macro environment factors. They argue that business decisions and strategies are formulated after analysis of all economic factors. The business unit tends to evaluate various economic factors before deciding its future course of action. Moreover, the organization strives to reduce marginal cost of production and increase marginal revenue (Alcidi and Gros, 2011). The companies also tend to allocate resources efficiently to various activities and unit of production. The business unit also behaves differently with change in microeconomic and macroeconomic environment factors. They emphasizes on increasing supply of commodities with higher demand and decreasing one with lower demand. Henceforth, it can be said that the business unit behaves differently in different economic scenario.
There are different market structures within which business units are operating and these structures also have impact on business profitability and its operations.
Perfectly competitive market structure: The market structure suggests that there are infinite numbers of small firms. It says no business unit has market power and each of the organization is price-taker. The business units in such cases do not possess power to set prices for its products (Shah, 2013).
Oligopoly market structure: This market structure has limited number of firms and high barriers to entry. The prices are fixed by way of formation of groups and their mutual consent.
Monopolistic competition market structure: Under this circumstance there are large numbers of sellers. The seller can charge different prices on the basis of product differentiation. Although there is a high competition but the organization can differentiate its products by including additional features (Dutta, 2006).
Monopoly market structure: This is the profitable market structure since only single seller exists. Moreover, the seller possesses high market power whereby they can control prices of commodities. It is very difficult for new firms to enter therefore the business unit can achieve higher profits.
The varied range of market structures affects the business operations and decisions. This is due to profitability and scenario prevailing within the industry that the organization plans its activities (Hudson, 2013).
International economic environment certainly offers series of benefits to organizations that are operating at this sphere. However, its influences is not restricted towards international player only, rather it aids in gaining benefit by local players also. This is a situation that are managed and run by various prominent international organizations like World Trade Organization (WTO), World Bank and other related. With the help of this institute, feature of free trade between various countries gets attained (Carmel and et.al. 2007). Also, it supported in reducing the restrictions that were imposed earlier over the trading companies and hence with this, benefits to different individuals also gets attained in terms of availability of variety of products, better quality products, high utility, competent price and others related. Additionally, it helps in making standardization in trading activities with the help of uniform foreign exchange methods and policies which support players in gaining high amount of benefits from it (Kennedy, 2011).
Apart from this, there are various regions that emerge as an international economic environment with a motive to attain sound benefits from it. In this regard, following are the areas along with features incorporated in it:
Organization that is operating in international business environment possesses different set of implication over their business activities and hence they have to manage these implications by engaging different strategies in this context. Multinational organizations have to cope up with local competition so that they able to make their own image in the market and gain high responses from target audiences. For this, they have to employ strategies with regards to understanding of cultural factors, needs and wants of customers, income level of consumers and other related (Liu and Shrestha, 2008). With this, they essentially able to attain high amount of benefits in terms of long term sustaining and gaining opportunities that lies in particular market segment. Also, they have to seek for emerging economies as these are the region that possess high caliber for entertaining new firm to operate in and with this, firma able to enhance their market share in a significant manner (Choudhury and Hoque, 2004). Also, international firms have to understand different set of economic system of different countries so that they are able to gain best out of it. This also helps them in developing strategies which is appropriate in different context. Beside this, they have to seek global competition, strategic foreign exchange issues, global collaboration of firm and other related so that effectual results can be attained through it (Carmel and et.al., 2007).
Hence, with the help of this report, it has been concludes that economic factors certainly play a key role in managing business operations of varied nature and also it makes an impact over it in different manner. Additionally, economic condition aids in identifying the market condition and requirement from which effective strategies can be developed in order to boost the competency of firm. Moreover, economic condition is highly responsible in offering different set of market opportunities and threats to organization of different nature from which better activities can be executed.
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