Lesson 3 of 28
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Influences in the Business Environment

Overview

  • External influences – economic, financial, geographic, social, legal, political, institutional, technological, competitive situation, markets
  • Internal influences – products, location, resources, management and business culture
  • Stakeholders

External Influences

Markets

  • Labour Market: Flow of capital/workers between countries (human capital). Can be domestic and international.
  • Financial Market: Heavily impacted by changes to interest rates. Higher rates make it more expensive to borrow.
  • Consumer Market: People buying products.

Competitive Situation

  • Monopoly: No competitors, e.g. Sydney Waters, Australia Post
  • Oligopoly: Small number of large firms that dominate the market, e.g. banks, supermarket chains.
  • Monopolistic Competition: Large numbers of buyers and sellers sold by differentiating, e.g. cafes, clothing labels
  • Perfect Competition: Large number of small businesses selling the same product, competing with price and quality, e.g. fruit and vegetable growers

Politics

Governments impose regulations on businesses to standardise and protect dealings with consumers and competitors.

They can also introduce laws which affect certain industries or business models. For example, mandatory health warnings on cigarette packaging influences the appeal of that product type.

  • Federal Government: Payment of taxes, provision of employee superannuation
  • State Government: Payment of payroll tax, relevant state legislation
  • Local Government: Fire regulations, parking regulations
  • Regulating Body: Established to monitor and review actions of businesses, e.g. ACCC, ASIC and the Office of Fair Trading

Other External Influences

  • Geographic: A business’s location to other markets influences its ability to sell and complete. Globalisation has removed many challenges for international trade and allows for streamlined global trade.
  • Social: The current social climate, as well as changes in social climate, influence a business’s social appeal and ability to sell. A business must practise awareness of social culture and trends.
  • Legal: There are many laws and regulations by which a business must operate and which can restrict their activity.
  • Economic: Fluctuations in the economy will influence consumer spending and thus business sales. Business is often strongest with a strong economy.
  • Technological: Advances in technology increase communication capabilities and create opportunities for innovation. However, these advantages can also create redundancies and render products obsolete.

Internal Influences

Products

Product influences include the type of good or service sold, demand and quality for the product, and the product’s price.

Location

Location influences include visibility, proximity to supplies and customers, and local availability of support services.

Selecting an appropriate business location positions it for success by appealing to both customer and supply convenience.

Management

Businesses have moved towards a ‘flatter’ structure due to rapidly-changing technology, increased competition and globalisation.

Business Culture

Cultural influences include values, ideas, expectations and beliefs shared by organisation members. Culture directly impacts the relationship between management and employees.

Resources

Resource influences include human, information, physical and financial influences.

Stakeholders

Stakeholders are any groups or individuals who have an interest in, or are affect by the activities of a business.

  • Society: Businesses should be concerned with social responsibility and the environment.
  • Managers: They influence organisation policies and employee productivity.
  • Customers: A business should consider the needs and wants of customers. This develops a positive consumer experience and drives sales.
  • Employees: They influence the quality and delivery of a product or service.
  • Shareholders: In companies, voting rights on major decisions are assigned to shareholders. This gives them direct influence on the decisions within a company.