THE GENERAL OR CONTECTUAL ENVIRONMENT

Whilst the external factors referred to above form the subject matter of the rest of the book, it is useful at this point to gain an overview of the business environment by highlighting some of the key environmental influences on business activity. In keeping with the distinction made between general and more immediate influences, these are discussed separately below.

The political environment

A number of aspects of the political environment clearly impinge on business activity. These range from general questions concering the nature of the political system and its institutions and processes, to the more specific questions relating to government involvement in the working of the economy and its attempts to influence market structure and behavior. Government activities, both directly and indirectly, influences business activity and government can be seen as the biggest business enterprise at national or local level. Given the trend toward globalizations of markets and the existence of international trading organizations and blocs, international politico-economic influences on business activity represent one key feature of the business environment. Another is the influence of public, as well as political, opinion in area such as environmental policy and corporate responsibility.

The economics environment

The distinction made between the political and economic environment – and, for that matter, the legal environment- is somewhat arbitrary. Government, as indicated above, plays a major role in the economy at both national and local level and it activities help to influence both the demand and supply side. Nevertheless there are a number of other economics aspects related to business activity which are worthy of consideration. These include various structural aspects of both firms and markets and a comparison of economics theory and practice.

The legal environment

Business operate within a framework of law which has a significant impact on various aspects of their existence. Laws usually govern, amongst other things, the status of the organitation, its relationship with is customers and suppliers and certain internal procedures and activities. They may also influence market structures and behavior. Since laws emanate from government (include supranational government) and from the judgments of the courts, some understanding of the relevant institutions and processes is desirable.

The socio-cultural environment

Both demand and supply are influenced by social and cultural factors. Cultural factors, for example, may affect the type of products being produced or sold, the markets they are sold in, the price at which they are sold and a range of other variable. People are a key organizational resource and a fundamental part of the market for goods and services. Accordingly, socio-cultural influence and developments have an important effect on business operations, as do demographic changes.

The technological environment   

Technology is bith an input and output of business organizations as well as being an environmental influence on them. Investment in technology and innovations is frequenly seen as a key to the success of an enterprise and has been used to explain differences in the relative competitiveness of different countries. It has also been responsible for significant development in the internal organization of businesses in the markets for economic resources.