Impact of Environment on Business – Essay

This article provides information about the Impact of Environment on Business:

Business is highly influenced by its environment, and at times tries to influence the environment also. Individual firm is normally not in a position to influence the environment (though as an exception Lloyd’s of London can be mentioned to influence maritime insurance market), but collectively they do through industry associations, like Federation of Indian Chambers of Commerce and Industry, Confederation of Indian Industry, ASSOCHAM.

The kinds of environments aggregated in STEEPLE impacts upon business in the following manner:

Social environment:

Social environment is also discussed as cultural or socio-cultural environment. Social environment includes cultural aspects as well. Culture includes language, religion, values and attitudes, manners and customs, material elements, aesthetics, education, and social institutions as its important elements.

Language, a powerful tool of communication, is an expression of a culture. What language business is to adopt depends upon the market it serves. Many North Indian businessmen speak very good Tamil, Malyalam, Kannad, and Telgu as they have to do business in those markets. Religion is a great source of values and reason of being.

Muslims religion does not permit taking or giving interest, hence there is great scope for Islamic Banking. Muslims do not use Jhatka; hence McDonald’s does not use Jhatka meat in Pakistan. It does not use beef in India and pork in Pakistan.

Different colours are used for IPL teams’ dresses – Chennai Super Kings uses colour yellow, because it is the favourite colour of Tamil Nadu. Many car dealers procure particular numbers for cars, because they may be attractive or favourable to individual buyers. What a company produces?

How it produces? And how it sells, all depend on the culture. Companies now include kids in the ads for cars, because they dominate the buying decisions. Education is a big opportunity, because of social pressures.

We may also include the demographic factors in social environment. The size, growth rate, age composition, gender distribution, ethnic composition, spatial distribution of population, family size, life cycle, etc do influence business.

In Europe and Japan ageing population offers opportunities for medicines, telemarketing, nursing, etc; but threat to schooling, entertainment, fund mobilising organisations and other industries. Increasing younger population in developing countries bring them population dividend and is opportunity for employment agencies.

Increasing number of working women offers an opportunity to eateries, day care centres, ready-to-cook food, and tutors. Break-up of joint families offers an opportunity for small houses builders and maid-servants providers but a threat for bulk size providers. Rural people demand things differently than the urban people.

Technological Environment:

Technology is a vital component of development. In fact, it has been at the heart of human progress since times immemorial. Technology is a double-edged sword for the environment.

It can amplify as well as alleviate the impact of human activities. Technology is sometimes referred to in the narrow sense as machines. But it is not so.

Technology is the practical and methodical application of knowledge and use of techniques which supports/enables application of science, existing resources and human know-how in productive activities and contributes in development.

It brings change, for firms as well as for nations, it brings competitiveness and sustainability. Application of the science of basic invention and discovery to practical issues results into new technologies.

Technological environment consists of the inventions, techniques, and the vast store of organised knowledge of ways of doing things. Information Technology has added a new dimension to technology, innovation and its diffusion.

Information and telecom technology through computers, laptops, mobile phones, internet, tablets, etc have revolutionised the business world. Cost of logistics has come down because of technology. Everyday new products are introduced and new media are used to promote them – all because of technology.

Economic Environment:

Economic environment includes the economic system of the country (capitalist, command or mixed economy), economic policies (fiscal, monetary and commercial), level of development (developed, developing, or underdeveloped), sector wise conditions (agriculture, industry, and services), foreign trade and balance of payments, economic growth (GDP), foreign exchange reserves, distribution of income and assets, competition, etc.

Increasing growth rate is an opportunity for other countries to invest here; increasing per capita income is an opportunity for branded products and services and a threat for generic products and services.

Increased positive balance of payment has been an opportunity for China to invest heavily in US securities; and increasing income means additions to middle class consumers who often say ‘yeh dil mange more’.

Increased taxation is a threat to business. Lowering import duties mean opportunities for foreign exporters and a threat for desi material providers. Growing competition is a threat for monopolists, but an opportunity for multinational enterprises.

Ecological Environment:

The Earth is warming up due to global warming. Biodiversity is to be protected. Of late the governments, consumers, individuals and the non-governmental organisations have become more aware and interested in ecological environment issues. This has led to an increased demand for environmental friendly products.

Previously the price often determined if a customer would buy a product or not. The other aspect is that the NGOs are having a check over businesses to see that they do not indulge into polluting the environment – land, air, water, acoustic; and not unduly depleting the world non-renewable resources.

Political Environment:

From time immemorial, politics and business have been inextricably linked. Political environment refers to political system followed by the country (democracy or totalitarianism) the ideology of the ruling party, the political stability, the political players, and the public opinion. The political instability is a big threat for the business.

Tata Motors had to shift its NANO car project from West Bengal to Gujarat. Recent political unrest in the Middle-East was an opportunity for the non-Middle-East country petroleum producers, but a threat for the Middle-East producers.

The decision of Dubai Ports Company’s decision to sell their US affiliate to some American firm to manage American sea ports was a politically sensitive decision. Government of India’s initial decision to not to allow the Chinese Company Huwawei was a political decision.

Legal Environment:

Whenever human activity is organized, there will be rules of law, as expressed in the ancient adage ubi societas, ibi jus. Law is a complex set of rules and institutions. It consists not only of the formal rules enshrined in the constitutions, statutes, or precedents, but includes the legal practices that may or may not follow the formal law.

Ignorance of law is no excuse to not to follow the legal dictates. The legal environment refers to the framework of laws, regulations, and court decisions intended to encourage, guide and control business activities.

The laws relate to consumers, workers, firms, and communities. Others relate to enforcement of contracts; and product, pricing, channels of Distribution, promotion, sale of Goods and services, market entry laws, etc.

When the Supreme Court of India made a decision that no diesel driven city buses will play in Delhi, it was an opportunity for gas kit manufacturers and the gas-based bus manufacturers and a threat for the Delhi Transport Corporation, which had a big fleet of diesel buses.

When the Government of Delhi decided to do away with polythene bags, it was an opportunity for jute and paper bag makers and a threat for the polythene bag makers and also for those whose costs were bound to increase.

When the Reserve bank of India increased the repo and reverse repo rates, the banks had no option, but to increase interest rates on loans. Government of India’s decision to ban sachets for gutka manufacturers, it is a threat for them.

Ethical Environment:

Business ethics refer to the moral principles and standards that guide business action and emphasises what is regarded as right, or wrong or otherwise unacceptable behaviour.

Though firms never declare that they behave unethically or irresponsibly, but today, the recognition of requirement to behave responsibly is high on their agenda.

It is so because – reputation is an important asset for a firm as an employer, supplier, buyer and a marketer, it is also believed that firms following ethics make bigger profits, consumers and investors both have turned ethical.

To ethical end, the firm must go for fair trading and investing some part of the profit for the betterment of the society, a source of resources to the firm. Many Indian firms and corporate entities are taking up many welfare projects for the downtrodden members of the society and their employees.