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What are the three dimensions of business environment ? Give an example of each.
Answers
Economic Environment consists of factors like inflation rates, interest rates, consumers’ incomes, economic policies, market conditions etc. which affect the performance of a business firm.
(a) Interest Rates:
Changes in the interest rates greatly affect the demand for goods and services. For example, low long term rates on home loans are beneficial for banks and consumers both.
(b) Consumer Income:
Increase in the incomes of the consumers leads to increase in their purchasing power. Hence, demand for goods and services rises.
(c) Inflation Rate:
High inflation rate increases the cost of production and hence puts constraints on firms.
Answer:
Generally, it is agreed that there are five dimensions to the business environment that influence performance. These dimensions are: a) Economic b) Social c) Technological d) Political and e) Legal. Most obviously, the economic environment consists of the conditions under which any given business finds itself within the market that corresponds to the service provided. These economic conditions include economic policies, interest rates, inflation rates, and consumer incomes. However, as previously stated, the business environment is not limited purely to economic concerns, for businesses are also affected by social and technological influences. Put simply, the social environment is the underlying societal structure within which the business operates. This structure would include things like literacy rates, traditions, educational levels, etc. The technological environment, on the other hand, relates to the technological advances that arise at any given point in time. This includes innovations in medicine, bio tech, telecommunication, etc. But businesses aren't purely limited to these influences, for there are political and legal dimensions to the business environment as well. Political dimensions consist of factors like the current government's attitude toward various industries, and in America, political lobbies are a big example of the often intertwined relationship of politics and business. Other factors include major political parties and the beliefs and practices that correspond to those parties. Finally, the last dimension of the business environment is the legal environment, and this consists of the rules and regulations under which a business must operate. This dimension is somewhat related to the political dimension since it includes the laws drafted by the government in power, but more specifically, this dimension is largely controlled by the three levels of government that affect business: central, state, and local. The legal environment is largely geared toward protecting consumers' interests, such as the mandatory inclusion of health warnings on packaged cigarettes.