Business Environment may act as stimulant or as a constraint for business management
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The existing business environment may act either as a stimulant or as a constraint for business engagement. If the prevailing environment is favorable to business growth and prosperity, the the management feels happy and responds positively. Small business owners, for example, are often encouraged to produce more when the government pays them subsidy. On the other hand, when the prevailing environment is unfavorable, it acts as a disincentive. For example, when the government tries to impose a high tax rate on corporate profits, many business concerns try to evade tax by under-reporting their profits. It is interesting to note that the same environment may act both as stimulant and as a constraint - stipulating for some and constraining for others. Reconsider the last example. A high tax rate increases the propensity to evade taxes; it induces tile corporate tax-payer to restrict his output, sales or profits. At the same time, this very situation provides an opportunity to the tax consultant for a thriving business.