Internal Factors Affecting Business Environment

Topics: Balance of payments, Balance sheet, Macroeconomics Pages: 13 (4186 words) Published: December 21, 2012
Q1: (a) INTERNAL FACTORS AFFECTING BUSINESS ENVIRONMENT: Companies must endure economic recessions, competing businesses stealing their market share and dips in their stock price. However, these external factors are not the only problems businesses face. Companies must deal with internal factors as well. Internal issues can create just as many problems as external ones. Sometimes, the two types of factors are linked. Employees : The caliber, attitude and work ethic of a company's employees are internal issues. Finding people qualified for the job and training them appropriately are other employment-related issues. The quality of employees affects the company's ability to innovate, customer satisfaction, productivity and efficiency. Employees also are significant cost considerations. Companies spend considerable resources to hire, train and replace staff members. Capital: A small pizza restaurant would love to install the most expensive, cutting-edge wood oven to create quality pies. Like all businesses, though, the restaurant must temper its wants with its available resources. A significant internal factor businesses must consider is the quality of their capital with respect to their available money. A company's capital, such as equipment, land and factories, can either limit or enhance its ability to compete with other businesses. For instance, Wal-Mart's large amounts of capital enable it to offer lower prices on its merchandise than the prices offered by small, local shops. Cash Flow: How well a company allocates its cash is an internal business issue. Cash flow refers to a company's ability to generate income and pay its bills as they come due. Businesses can jeopardize their cash flow by investing too much money in operations. A company also can mismanage its cash by accumulating too much of it and not investing it back into the business. Maintaining a steady cash flow is a balancing act. Considerations : External factors influence the company's well-being internally. For example, a steep recession could lower the company's profits and compel the business to issue layoffs. Similarly, the external threat of a competitor could cause the business to grow concerned about an impending hostile takeover. In this case, the business must take internal precautions and address its shareholders' concerns. Q1 (B) PROBLEMS FACED BY SMALL SCALE INDUSTRIES: Small entrepreneurs face the following types of problems: (1) Problem of raw materials: A major problem that the small entrepreneurs face is the procurement of raw materials. They have to confront with numerous problems like; i. Availability of inadequate quantity

ii. Poor quality of materials
iii. High cost of raw materials etc
All these factors adversely affect the proper functioning of small units. (2) Problem of finance: Finance is one of the most important problems faced by small entrepreneurs. As finance is the life blood of a business organization and no business organization can function properly in the absence of adequate funds. The problem of finance in small sector is mainly due to two reasons i.e. (i) Scarcity of capital in the country as a whole.

(ii) Weal credit-worthiness of small units in the country. Due to their weak economic base, they find it difficult to take financial assistance from the commercial banks and financial institutions. Therefore, small entrepreneurs have to obtain credit from the money lenders on a very high rate of interest. (3) Problem of marketing: One of the major problems faced by small entrepreneurs is in the field of marketing. They are not in a position to get first hand information about the market i.e. information about completion, taste, liking disliking of consumers. Therefore, they are not able to upgrade their products according to the changing business environment. These small units acceding to the changing business environment. These small units often do not process any marketing organization. As a consequence, their product...
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