An organization performs an economic activity in order to achieve set targets related to profits, production, and others. For the business to attain these set targets, it requires some kind or resources and the business environment. The environment is what surrounds an individual or organization and its direction cannot be controlled by an individual or organization. A business environment is a combination of all external factors that have both direct and indirect impact on business engagements. The external factors may include; government, legal, economic, social-cultural, demographic, and other factors. Naturally, these factors cannot be controlled and affect the decisions of a firm. In this paper, I will explain the meaning of a successful business environment using the economic model, the main players in the creation of a successful business environment, compare the role of government and the private sector in assistance or creation of a successful business environment, examples on where the government has played a positive role in creating successful business environment, highlight the main parts of government that are concerned with business environment, and finally explain the governments influence on the business environment.
A successful business environment refers to the ability of a firm to cope with its existing environment. This means that it is the ability of a firm to properly design and adjust internal factors to exploit the opportunities and to confront the environmental threats. There are several criteria’s for classifying successful business environments. In this paper, I will limit the explanation on the meaning of successful business environment on external environment classification criteria.
Understanding the business environment around you is very important for several reasons which include; first, being aware of changes happening in the environment enables the firm to adjust accordingly in order to cope. Two, environmental awareness enables a firm to remain alert and dynamic to be competitive. Three, the success of any business organization in most cases depends on the environmental awareness. Four, business organizations can only undertake expansion only when favorable changes happen in the environment. Therefore, any neglect of environmental changes can be costly to a firm. Five, if at some point a firm realizes that the environment is getting unfavorable, it can singly or along with other firms make efforts to make the environment favorable to suit the business (Naveen, p. 16). The firm’s business plans have to carefully factor the pressures of the external forces to influence the activities of the business. These factors should be included in the business missions, goals and strategy. The external business forces or environment include a number of factors that influence business activities such as; macro-economic, political, regulatory, legal, and many others. The government is the dominant external environmental factor that influences the success of the business. Government shapes the environment within which the business operates in a significant way. It does this by providing the rules and regulations for businesses to operate smoothly.
There are many players that are involved in the creation of a successful business environment. These players can therefore be put in to two major categories, that is, the internal environment and the external environment. Just to mention, the internal environment is constituted by; the goals and objectives of the business, the management structure adopted, the physical assets owned by the business, the capabilities of the business in terms of technology and the human resources and the financial and marketing resources at the business’ disposal (Prankash, p. 3).
The external environment, are the factors influencing the business from outside. The external environment can further be subdivided, into top micro and microenvironments. The microenvironment players have a direct influence on the business’ production and the selling of goods. The players under this class include; One, customers, who are the buyers of the products. Customers are very important to the business and therefore a firm ought to create and sustain their customer base to continue to exist. Furthermore, firms should critically choose their customers considering relative profitability, demand stability, growth prospects and the extent of competition. Two, suppliers; are charged with the responsibility of delivering the raw materials and components for the smooth function of the business. It is safer for the business to maintain multiple suppliers to avoid disruptions in production. Three, the marketing intermediaries; who are agents and middlemen responsible for carrying out promotion and selling of products to the buyers. Four, the competitors; who influence the pricing and demand of the products. Last but not least, the public who are, the, would be buyers and ones who influence the demand of the commodities (Prankash, p. 6).
The macroeconomic factors influence the business undertakings in general. It is these factors that determine the opportunities that a business venture can have. They include; the economic policies of the government, countries economic system, legal framework applied in the country, the political system, cultural values of the people, the level of technological advances applied in the country, demographic composition of the population in terms of sex age and many others. It is eminent that the macro environment may yield positive or negative results to the business (Prankash, p. 9).
It is important to note that both government and the private sector play a major role in creating and establishing a successful business environment for businesses (Porter, p. 199). The government plays the following major roles in ensuring successful business environments are established and sustained; one, it facilitates the establishment of stable and predictable external environmental influences such as macro-economic, political, legal, social-cultural influences among others. Two, it assists in improving business environmental infrastructure, institutions, and inputs to enhance quality and efficiency. Three, it sets overall business rules, regulations, and incentives that guides competition in order to encourage business productivity. Four, it convenes and supports actively the long term process of upgrading the economy which mobilizes government and private sector at all levels. Five, the government also influences business activities through levying of taxes and spending though laws, directives, and regulation by encouraging business activities through subsidy and support, and providing business advice and support (Coade, p. 1).
The policies of government and its actions affect conditions that can help the growth of business. The decisions and processes initiated by government greatly influence and shapes business environment (Truit, p. 3). The government also decides policies that determine whether businesses can venture into export, specialize, or concentrate on an economic activity. Consumers and business firms are able to transact confidently because government facilitates trade by creating an enabling environment for them. Last but not least, the social environment within which firms operate is influenced by government for instance; by assisting businesses create a culture that celebrates success and innovation (Coade, p. 1).
Similarly, the private sector plays vital role in business success particularly in wealth creation and the development of the business. The private sector makes the bulk as a major source of employment creation. It is also central in generating investments, and financing for development. The central government assists the private sector through facilitations such as; setting sound policies and investments that propel sustained growth in the economy, promoting small and medium size firms, formulating relevant and competent educational and training programs to generate a competent workforce in the labor market, and offer deliberate policies to stimulate the private sector (Porter, p. 199).
It is beyond doubt that the government plays the central role in ensuring a successful business environment for firms to operate. There are a number of examples where the government has played a positive role in ensuring that the business environment enhanced and sustained, These examples includes; first, appropriate employment policies which are key in stimulating the creation of jobs by firms. For instance, the government of UK has a deliberate policy which encourages efficiency in business, that is, encourages businesses to use their resources carefully to ensure that the UK businesses are competitive in the global market and also create jobs. Through the employment policy, the government of the United Kingdom has also made designed programs that enhance competence and abilities of individuals in order to enable businesses meet their obligations. Second, through inflation policy, the government is able to control the sudden general rises in prices called inflation. This brings about stability in the business environment. The government is able to regulate this through the monetary policy, interest rates, and exchange rates for her to control economic problems. Three, through government taxation policies, businesses pay taxes which the government utilizes in turn to upgrade the infrastructure such as; roads, airports, and others for business to operate smoothly. Four, through education and training policy the government is able offer appropriate education and training that is relevant to the business environment to flourish. Five, another significant example where the government has played a positive role in ensuring successful business environment, is through the international policy. In this policy, the government promotes trade, encourages international exports, and others on behalf of the business people. Last but not least, the regulatory policy which provides uniform guidelines on how people in business and businesses should conduct themselves (Truit, p. 3).
In conclusion, understanding of successful business environment within an organization is important in order to exploit opportunities otherwise hidden in the business environment. Some of the examples of a firm might gain might be governments concessions on exports, new markets for goods, availability of latest technology, and skilled labor. Second, a successful business environment allows the firm to know legal or regulatory factors. This makes the organization to operate within the law to avoid costly litigations. Third, Successful business environments ensures that the firm is competitive and registers higher profits. This happens especially when the firm understands better business environmental factors such as competition and technology. Fourth, a successful business environment allows assists a firm in ensuring that it survives a midst unpredictable business environment. The role of government in business environment is far and wide. It has deep influence on every aspect of business environment not just in terms of economics. This is because government regulates many aspects in business environments such as, legal, political, socio-cultural, technological, environmental, and many other through policy formulations and implementations.
- Coade, N. Managing International Business. London: Cengage Learning EMEA, 1997.
- Naveen, K. Economic Envi. Of Business. New Delhi: Anmol Publications. N.d
- Prankash, v. Business Environment. New Delhi: Anmol Publications.2007.
- Porter, M, On Competition. Harvard: Harvard Business Press. 1998.
- Truit, W. What Entrepreneurs Need to Know a bout Government: A Guide to Rules and Regulations. Westport, CT: Greenwood Publishing. 2004