Economics and Business Environment Chapter 1

ECONOMICS AND BUSINESS ENVIRONMENT

1.1) Economic activity and economics (Pp. 14-16)

Prosperity: The ready availability of goods and services to fulfil needs.

Resources: Land, labour and capital.

Scarcity: The excess of human needs over what can be produced.

Economic activity: occurs when people (consumers, managers) make choices to maximise their prosperity using scarce resources.

The Science of Economics: is concerned with the study of economic activity. This field is complex, it is been divided in several sub disciplines. These can be roughly divided into two groups:

Internal Process
Financial accounting, management accounting.

External Process (relationship with the environment or the environment itself)
Marketing and Macroeconomics

Economic activity: in a country can be studied on various levels:

Industry Analysis
Macroeconomics
Monetary economics
International economic relations

Industry Analysis: is the study of the characteristics of markets and business sectors that companies come into contact with, the supply and demand of goods and the change that occur in supply and demand when prices change.

Macroeconomics: deals with economic activities at a national level, such as the total consumption, all company investment, company imports and exports and the government of that country.

Monetary Economics: is concerned with the phenomenon of money and the role that banks play in the economy. For example, the extent of lending and the interest rate are variables that monetary economics tries to explain.

International Economics: is the study of the international trade between countries, international capital flows and monetary relations between countries.

1.2) Business environment (page 16 to page 20)

Business environment: covers all the changes in the environment of a business that can have an effect on the company results. These effects can relate to buying, selling, market developments, competition, staff management and the like.

You can make a distinction between factors relating to the direct environment, indirect environment and macro-environment factors.

Direct environment: is made up of the buying or selling of markets on which the company operates.

Entrepreneurs: are in on-going contact with market players (suppliers, distributors and final customers), collecting information to effect as advantageous a quality-price ratio for their raw materials and products as they can. They keep collect information to improve their reliability of their delivery of products.

Sales Department: On of their on-going tasks is to try and obtain as much information about the sales as it can in order to improve on the effectiveness of advertising campaigns.

Nature of competition:
Every company has an incoming flow of goods and services, think of materials, labour and capital, each with their own buying market. And they also have an outgoing flow, these are the products or services that are supplied to the various sales markets.
Depending on what kind of company you have, these markets will have different characteristics in terms of nature of their competitors and their type of clients. This means that a company also constantly has to adapt to its approach.

When there are many companies of operating within the same business sector and competition is stiff, there will be less margin for specifying the price than in a situation where there is little competition.

The Indirect Environment: consists of employer and employee organisations, the government and cultural elements such as public opinion and the media. The company can exert little influence on the indirect environment, but the influence of the indirect environment on the company can be very great indeed.
The environment
Competition
Labour
Public opinion
The media
The social environment

Public Opinion: is getting bigger and bigger for companies. Public relations department or the public relations manager do these task. Media is a big factor how a public opinion can sway very easy. Public Opinion may have an immense influence on a company, whereas the effect that a company can have on public opinion is usually very small.

Social Environment: exerts a considerable influence on a company, as the following illustrates. Many companies have difficulty finding staff. For a long time a poor coordination between supply and demand on labour market was held responsible for this. It was thought that the education and mentality of the working population was insufficiently geared to the requirements of employers. It has now been shown that the company's working conditions can play an important role in how successful a company is on the labour market. Improvement of working conditions and the company's image can help to improve situation.

Technology: exerts a powerful influence on competition. Products are replaced at a rapid rate. A product life-cycle of a few months is no longer unusual in industrial markets. Technological advancement is accelerating, as are the associated risks.

The Macro-environment: belongs to the wider company environment. This environment takes in economic trends, variations in exchange rates and the price of raw materials and demographic developments. While these factors can have a major bearing on a company, individual companies cannot exert any influence on them: They are virtually uncontrollable.

Trade Cycle
Exchange Rate
Wage Prices
Energy Prices
Interest Rate

Read Chapter 1.2.2 at page 19 to 22.

All about The influence of economic variables on a company's results.

Glossary:

Business Environment:

The company environment that exerts influence on the results of a company. Three types of environment can be identified:
1. Direct environment
2. Indirect environment
3. Macro-environment

Economic Activity:

The quest for maximum prosperity using limited resources.

EMU:

The Economic and Monetary Union, consisting of those countries that have the euro as their currency.

Macroeconomics:

Sub-disciplines of economics, mainly concerned with the study of the connection between economic factors such as national income, employment, consumption, investments, inflation and the like.

Scarcity:

The excess of human needs over what can be produced given the limited availability of resources.