‘Business’ and Its ‘Environment’

Topics: Economics, Private sector, Environment Pages: 12 (2402 words) Published: March 18, 2011
‘Business’ and Its ‘Environment’

 Every business organization has to interact and transact with its „environment‟.  The effectiveness of interaction of an enterprise with its environment primarily determines the success or failure of a business.

 The environment imposes several „constraints‟ on an enterprise and has a considerable impact and influence on the scope and direction of its activities. The enterprise, on the other hand, has very little control over its environment.  The business environment presents two challenges to the enterprise, viz., the challenge to combat the environmental threats (such as intensification of competition, declining market etc.) and to exploit the business opportunities.  The basic job of the enterprise, therefore, is to identify with the environment in which it operates and to formulate its policies in accordance with the forces which operate in its environment.

What is business?
 Business is a way of dealing with the problem of scarcity. Businesses act as mediators between households who supply labour for production and share out the resulting goods and services.  Scarcity creates the problem of how to allocate available resources of all kinds between competing wants which can’t all be satisfied at once.

 Business can be defined in terms of the activity of production:  involves the transformation of inputs (‘factors of production’) into outputs (goods & services) to meet particular needs or wants of people in society (consumers)

What is business? (cont.)
 This is a broad definition of business  We often equate business with the private sector. However this is a narrow conception of business.  Production can be organised in different ways, e.g. the public sector (involved in production of some key services, such as healthcare and education services).  Boundaries between public and private sectors are not fixed, but can, and do, largely as a result of political decisions (privatization; disinvestment)  Societies have to choose the balance between the public and private sectors

The private sector
 In capitalist market systems most business is in the private sector – private ownership is the dominant principle  The private sector is characterised by production of commodities for sale, in a competitive environment, with the prime objective of making a profit  Competition and the profit motive are the two key drivers of business behaviour

 The profit motive means that businesses produce only goods and services that consumers are willing to pay for at prices that yield a profit

The private sector (cont.)
 Competition & the profit motive produce important benefits to society  E.g. they encourage firms to be responsive to consumers and to improve efficiency

 But there is a downside
 E.g. firms are not interested in you unless you have money in your pocket, firms may cut costs by polluting the environment, firms may produce harmful products  These problems have stimulated debates about corporate social responsibility (CSR) and the role of government and the public sector

The public and voluntary sectors
 Public sector and voluntary organisations provide an alternative mechanism for dealing with scarcity

 There are significant advantages to society from providing some goods and services on a „not-forprofit basis‟  E.g. as a society we may decide that access to health care should be on the basis for equal treatment for equal need rather than whether a person can afford to pay for treatment  The public-private mix is a focus of political controversy

The environment of business
Business organisations interact with the external environments in which they operate This interaction can be seen in terms of the Procurement of „inputs‟ e.g. raw materials, components, labour Supply of „outputs‟ – goods & services

In the private sector firms are affected by market conditions and competitive forces

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