Nature of BusinessInfluences in the Business Environment

Influences in the Business Environment

• 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

External Influences on

Business

EconomicFinancial

Geographic

Social

LegalPolitical

Institutional

Technological

Competitive Situation

Markets

Economic Cycles

The economic cycle refers to the changes in consumer and business spending over a period of time. It influences:• the level of employment and investment in an economy• the profitability of business• the amount of goods and services produced.

Economic Cycles cont’d

The Australian Government makes use of three key policies to

influence the level of economic activity in Australia:

• fiscal policy

• monetary policy

• microeconomic reform.

Economic Cycles cont’d• Fiscal policy is government actions, such as the use of taxation

(revenue) and expenditure, that are intended to influence the level of economic activity in Australia. It mainly operates through the Commonwealth Budget.

Economic Cycles cont’d• Monetary policy is actions taken by the Reserve Bank to

influence the level of interest rates in the Australian economy.

Economic Cycles cont’d• Microeconomic reforms are the policies developed by the

government to promote greater competition within a particular industry.

Financial Influences• The two main sources of finance for business are debt finance

and equity finance. Both of these are greatly influenced by the level of interest rates. As interest rates are the cost of borrowing money, increases in interest rate levels may reduce the amount of debt finance undertaken by a business.

Equity finance• Internal sources of finance; that is, finance provided by the

owners. The owners can give the business capital or can contribute cash by buying shares. Also refers to any net profit reinvested in the business.

Geographic influences

Geographic influences on Australia include:

• its location in the Asia-Pacific region

• population shifts from rural to urban areas

• population shifts from inland to coastal regions

• population shifts to warmer locations

Geographic influences (cont.)

• the increased average age of our population

• variations in the number of refugees and skilled migrants accepted into Australia

• the rapid economic growth of nearby Asian countries

• the increased international standing of Australian cities as hosts for international sports events.

Social Influences• Society expects businesses to contribute to the community’s

quality of life. Businesses can contribute to society by sponsoring sporting teams, making donations to worthy causes, assisting in community projects (such as local festivals) and allowing their facilities to be used by community groups. These activities often provide publicity for the businesses involved.

Social Influences cont’d• Businesses need to be aware of their community’s needs,

opinions and attitudes. They also need to respond to changes in their community groups’ fashions, tastes and culture to ensure that the goods and/ or services they provide meet the groups’ needs.

Social Influences cont’d• Society expects businesses to behave ethically and

responsibly. Examples include the disposal of chemicals, animals testing for products, exploitation of foreign workers and corrupt dealings.

• If a business can fulfil society’s expectations it will benefit from increased demand for its products and greater profits.

Legal Influences• In general, the aim of government regulation of business is to

promote fair conduct. These regulations include those covering environmental and consumer protection, competition, occupational health and safety, and industrial relations.

• In many industries regulations have been removed to enable firms to become more efficient and to reduce the number of restrictions hampering competition.

• At the same time, regulations have been extended by professional associations, such as the Institute of Chartered Accountants in Australia and the Law Society of New South Wales, through the establishment of codes of practice. These codes provide members with strict guidelines for acceptable professional behaviour.

Political Influences• The major political change that can result from an election

leads to business uncertainty or business confidence depending on the winning party’s policies. Political influences can affect competition in the market.

Institutional•Environment Protection Authority

•Australian Taxation Office

•Australian Securities and Investments Commission

•Australian Competition and Consumer Commission

•NSW Office of Fair Trading

•Trade Unions

•Employers Associations

•Australian Securities Exchange

•Consumer Associations

Environment Protection Authority

• The main role of the EPA is to enforce NSW Government laws regarding protection of the environment.

Australian Taxation Office• The Australian Taxation Office (ATO) was established in 1911.

Its primary role is to enforce and administer federal government taxation policies and laws.

Australian Securities and Investments Commission

• The Australian Securities and Investments Commission (ASIC) was established in 1991 by the federal government to regulate the financial conduct of companies under the Corporations Act 2001 (Cth).

• The primary role of ASIC is to monitor the operations of financial institutions, including banks, investment companies and stockbroking firms.

Australian Competition and Consumer Commission

• The Australian Competition and Consumer Commission (ACCC) was formed in 1995 and has as its primary role the administration and enforcement of the Competition and Consumer Act 2010 (Cth).

• The ACCC attempts to regulate the level of competition within a range of industries.

Australian Competition and Consumer Commission cont’d• It aims to promote fair and ethical behaviour by businesses

towards their competitors and allows businesses to lodge complaints against competitors regarding behaviour that they deem to be unfair and against the Act.

• The ACCC is also able to penalise businesses that engage in deceptive and misleading conduct and those that engage in price fixing with their competitors.

NSW Office of Fair Trading• The NSW Office of Fair Trading was established to protect the

rights of consumers. It enforces laws passed by the NSW Parliament in such areas as product safety, refunds, warranties, exchanges and the provision of faulty goods and inadequate services.

• The Office of Fair Trading also regulates the registration of business names and licensing applications.

Trade Unions• Trade unions are organisations that aim to protect and

promote the interests and working conditions of employees.

Employers Associations• Employer associations are organisations that aim to promote

the interests of employers. They lobby governments to develop policies that benefit employers.

Australian Securities Exchange

• The Australian Securities Exchange (ASX) is the organisation responsible for acting as a market where investors may buy and sell shares in public companies. The ASX has developed a series of guidelines on how businesses can be listed on the exchange and, in doing so, become public companies. It is the responsibility of public companies to advise the ASX of any factors that may cause a significant change to their share price and ensure that people who have access to confidential financial information do not use this knowledge for their own financial gain.

Consumer Associations• Consumer associations are organisations that are developed

to provide informative opinions to consumers on a wide range of issues, such as product quality and pricing. These organisations are independent and are not affiliated with profit-based businesses.

Technology• Developments in technology result in increased efficiency and

productivity. They create opportunities for the invention of new products and innovation of existing products. Essentially, technological change should mean increased availability of goods and services along with improved quality and cheaper prices, enabling consumers to achieve greater satisfaction of their needs and wants.

• These changes may be in product design, production methods or even marketing concepts.

Technology Cont’d• Increased awareness of what other countries and societies

develop has resulted in changes to consumer demand, production methods, and the governments’ rules and regulations.

• Businesses must take these changes into account.• Not all technological changes are advantageous to business

and several may pose threats to their growth or even survival.• Management must be aware of these changes and ensure that

the business has a plan to deal with their impacts.

Competitive Situation• Number of competitors• Oligopoly• Monopoly

• Ease of entry• Cost of establishing the business• Access to materials• Changing nature of markets

Markets• The changing nature of markets impacts upon the business

through changes in consumer preferences, levels of competition and the degree of foreign competition.

• Things that have impacted upon markets are:• Deregulation• Australia’s movement towards free trade agreements• Rapid improvements in transport and communication systems• Availability of goods due to imports and exports

• These impacts on markets have put pressure on Australian firms to become more competitive which has in turn changed the way firms operate.

Markets• Two changes that Australian firms are endeavouring to make

are:• Increasing productivity of machinery and labour• Reduction in costs

• Australian firms are endeavouring to do this by:• Downsizing• outsourcing

Markets• Another change to markets in Australia is that the consumer

has changed. The consumer has changed due to:• An increasing average age of the population• A decrease in the birth rate• An increase in life expectancy• A greater proportion of the population being over 45

years of age• More single-parent families• Fewer marriages• Our society being far more multicultural

• These factors have all had an impact on consumer tastes and individual preferences for goods.

Internal Influences in the Business Environment

• Changes can also arise from inside the business itself. Internal changes occur because the business wants to develop new and improved ways of doing things.

Internal Influences

Internal Influences in the Business Environment

Products

Location

ResourcesManagement

Business Culture

Products

Product influences affect a range of internal structures and operations within the business. The main product influences on a business are as follows.1. The type of goods and services produced will affect the internal operations of a business. If the goods are physically large or require many raw material inputs, there will need to be structures in place to organise and monitor the processes involved in production. In contrast, a service may be delivered by a home-based business or a franchise business, such as Jim’s Mowing, and will influence the internal structures or processes differently.The range of goods and services refers to the number produced by the business. The larger the number, the more internal impact it will have on the business as it will need to expand operations and internal structures to accommodate the changes. Companies such as Coca-Cola have continually expanded their product range over the last 20 years, and this has meant that internal changes to operations and management have been necessary to allow this expansion to occur

Products

2. Product influence will be reflected in the type of business (service, manufacturer or retailer). Internally, a service provider will be structured differently to a manufacturer or retailer, and the influences will vary. Some goods or services require extensive preparation, while others are merely deliverers. Consider the difference between the product influences of a clothing manufacturer and that of a clothing retailer.

Products

3. The size of the business, as previously mentioned, will be based on the range and type of goods and services produced, the level of technology utilised, and the volume of goods and services produced. The larger the business the more goods and services being produced, which will in turn influence the internal structures and operations of the business. A café will operate at a different scale to a club bistro and therefore the influence on business functions will be relative.

Location

LOCATION FACTORS

Visibility

Cost

Proximity to

suppliers

Proximity to

customers

Proximity to support

services

Prime location = Customer convenience + Visibility

Resource Influences• The four main resources available to a business are:• Human resources. These are the employees of the business and

are generally its most important asset.• Information resources. These resources include the knowledge

and data required by the business such as market research, sales reports, economic forecasts, technical material and legal advice.

• Physical resources include equipment, machinery, buildings and raw materials.

• Financial resources are the funds the business uses to meet its obligations to various creditors.

Resource Influences

Business Resources

Human Resources

Players, Equipment managers, Cleaners,

Comperes, Ushers

Informational Resources

Musicals Scores,

Orchestra and cast selection

reports, Musician cast reports, Ticket sales reports

Physical Resources

Musical instruments, Sound equipment, Lighting equipment, Costumes, Props and sets

Financial Resources

Budget from the school, Grant from

local business

Management

Rapid advances in technology, coupled with the significant pressures on businesses from increased competition due to forces of globalisation, have resulted in businesses flattening their structures. This means that there are fewer levels of management. Such businesses can adapt quickly to meet changing consumer needs and market conditions because there are fewer managers who need to approve decisions.

Business Culture• Business culture can be seen in the unwritten or informal rules

that guide how people in the organisation behave,

STAKEHOLDERS• Stakeholders are people and/or organisation who are affected

by the decisions or actions of a business.