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Lesson#5
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Effect of Changes in Environment
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Effect of Changes in Environment
Business Environment
is defined as “all elements that exist outside the boundary of the business
(Organization) and have the potential to affect all or part of
the organization
5.1 Elements of Environment
It is a collective reference made to the following factors
•
Legal
•
Ethics
•
Economic
•
Social
•
Technological
5.1.1 Legal
Rules and Policies and Legal Laws established by government
effect the Business Environment
Change in tariff rate may increase or decrease operation of the
business.
Laws imposed to regulate business
o
Companies
Ordinance 1984:
It is the Law under
which a company performs its business
activities.
o
Import Export
regulations:
Government announces
Import & Export Policy at the time of
annual budget. Goods which are manufactured in the country is
encouraged by levying high
duties on imported goods and encouraged export.
o
International
trade agreements e.g.
o
European Union (EU): A
number of regional agreements have been signed by the EC and
Pakistan such as:
o
World Trade
Organization (WTO)
: The World Trade
Organization (WTO) is an
international, multilateral organization, which was created as a
result of the Uruguay round of
discussion in 1994 to harmonic world trade. Various agreements
between member countries
has resulted in lowering import tariffs, bringing down
protective trade barriers setting up anti
dumping procedures and settlement methods. However it has failed
to achieve any headway in
getting member countries to eliminate subsidies provided t other
agriculture sector by nearly all
member states. As a result the WTO is currently faced with the
threat of failure. The WTO
trade and services arrangements effectively replaced the general
Agreement on Trade Tariffs
(GATT).
o
South Asia Free
Trade Agreement (SAFTA)
: The South
Asia Free Trade Agreement
(SAFTA) was agreed to among the seven South Asia countries that
form the South Asian
Association for Regional Cooperation (SAARC): Bangladesh,
Bhutan, India, Maldives, Nepal,
Pakistan and Sri Lanka. SAFTA came into effect on 1 January
2006, with the aim of reducing
tariffs for intraregional trade among the seven SAARC members.
Pakistan and India are to
complete implementation by 2012, Sri Lanka by 2013 and
Bangladesh, Bhutan, Maldives and
Nepal by 2015.
5.1.2 Economic
To make a profit without raising prices, the company turned to
making simpler furniture
designs and increasing its technological efficiency.Developments
within the economy which
may affect the business environment
o
Inflation rates:
15
Inflation rate is an indicator of economic growth of a country.
Inflation rate in Pakistan is 6.1
percent.
o
Bank Interest Rate:
o
Availability of capital
in the capital, in the capital/money markets
Capital/ Money market is access able for an Entrepreneur who
starts business with his savings and
with equity from capital/ money markets on favourable interest
rate.
o
Foreign Exchange rates
between two currencies specifies how much one currency is worth in terms
of the other. For example an exchange rate of 120 Japanese Yen
to the Dollar means that ¥120 is
worth the same as $1. An exchange rate is also known as a
foreign exchange rate, or FX rate.
o
Consumer spending:
Patterns of spending give a good picture of consumer behavior, showing
various social, economic and marketplace trends at the household
level. Consumer behavior is also
revealed by decisions not to spend. For example, if enough
people are involved, boycotting a
company or a product (or even the threat of it) can be an
effective way for consumers to make their
opinions felt. Boycotting has brought about a number of changes
in companies' social and business
behavior, such as the development of certain voluntary codes. In
fact, any consumer decision to
stop buying a product can ultimately and substantially influence
corporate strategies. New trends in
the fast food industry's offerings are one example of the
marketplace's responsiveness to
consumers' willingness to walk away.
o
Employment
opportunities: Information Technology offers a variety of jobs. In the present
era
information technology is used in every field like, Banking,
Medicine, Laboratories, Textiles,
Scientific research etc.
5.1.3 Social
Changing demographic and social needs are impacting the business
world. Corporations must address
the issues pertaining to the changing needs and requirements to
retain and enhance market positions.
The internationalization of business brings greater pressure as
variety of cultures, customs and practices
need to be taken into account whilst conducting business. The
employees are today more aware of their
social needs whether these related to the work environment,
behaviour, children education health,
compensation or work hours. National interests and culture have
to be considered while offering a
particular product or service or exploiting the natural
resources of a particular country.
This includes
o
Demographic changes
leading to changes in needs:
o
Age Composition:
o
Gender:
o
Occupations
o
Social norms
o
Changing attitudes and
perceptions
o
Lifestyle
o
Prosperity
o
Availability of foreign
brands/products
5.1.4 Technological
The most overwhelming change in the technology sector is rapid
expansion of the internet as a place
for doing business. The World Wide Web and other advances in
information technology have changed
the whole face of business.
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o
To produce
desired products,
It is necessary for
a business to stay in market to produce the
goods according to the desire of the consumers. Due to the
change in technology day by day
innovations has been taken place. Competitors by using the
technology reducing the cost and
improving the quality.
o
To solve a
problem,:
There are varieties of
problems facing a business in the contemporary world.
Information technology is being used to overcome the business
issues like, Marketing, Brand of the
product, Quality of the product, Cost control, Organizational
internal and external issues etc.
o
To fulfill a
need:
Information system must fulfill
the needs of the business. An organization
needs information of its customers, product, market trend,
employee information, payroll,
manufacturing cost etc. In time information helps the
organization launch its product in time to
maximize profit.
o
The way products are
developed and offered to the customers keeps changing thus affecting the
business environment in which the organization works
Pressures/Challenges
The changes in business environment pose challenges on the
organizations which need to be responded
to. Following are the pressures
•
Competition for
cheaper factors of production
Cheaper factor of production is a challenge for the survival of
a company in competitive market.
Factors of production are basic elements of reducing
manufacturing cost. Cheap and skilled labour
Availability of raw material, infrastructure.
•
Changing
workforces
Lack of availability of skilled and experience force in market
is a challenge for an organization.
Continue change in work force is harmful for an organization.
•
Enhanced
customer quality
For the enhancement customer quality consistently provide
innovative products, with outstanding
customer service and help their customers achieve operational
excellence. An Organization ability to
provide outstanding product quality, service support, and their
ability to enhance product quality,
achieve shorter delivery times, reduce scrap, rework and reduced
life cycle costs
•
Technological
Obsolescence
Technological obsolescence is the result of the evolution of
technology: as newer technologies appear,
older ones cease to be used. For example, new media for storing
digital information rapidly replace older
media and reading devices for these older media become no longer
available. Newer versions of software
constantly render older versions obsolete and the hardware
required by this software also changes over
time. Consequently, information which relies on obsolete
technologies becomes inaccessible. Currently, it
seems that the lifetime of digital storage media generally
exceeds the life of the technology that supports
it.
•
Information
overload
In recent decades, technology has so enhanced our ability to
gather data that the sheer volume of data
now outstrips our capacity to deal with it. Informatics is
taking this seemingly unmanageable flood of data
and transforming it into information that helps solve key
problems in fields like medicine, genetics,
chemistry, Internet security and engineering
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5.1.5 Corporate social responsibility
Corporate social responsibility (CSR) is an expression used to
describe what some see as a company’s
obligation to be sensitive to the needs of not only all of the
stakeholders in its business operations but
more importantly the community at large. It has been defined as:
“The continuing commitment by business to behave ethically and
contribute to economic development
while improving the quality of life of the workforce and their
families as well as the local community and
society as large.”
Businesses are now seen as partners of the communities in which
they may be located rather than simply
as a profit making set up serving the needs of their stake
holders.
Corporate social responsibility incorporates the principle of
sustainable development along with “triple
bottom line reporting” reflecting not only financial results but
also social and environmental impact of
the business.
The CSR may be looked after by an independent department
reporting directly to the board or may be a
part of the business development or human resource department.
5.1.6 Ethics
Corporate or business ethics have attained vital importance in
today’s world. The issue not only
addresses matters such as how those charged with governance and
managing businesses take decisions
but importantly the employee conduct and behaviour the
corporations responsibility in terms of its
image, product, branding, trade, business practices and
compliance with not only national and regional
but also international laws.
The huge number of financial and corporate scandals has moved
the regulators to take suitable action. In
Pakistan all listed companies particularly are required to
follow the code of corporate governance. |
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