Form 1 Business Notes : Business & It's Environment

CHAPTER TWO

BUSINESS AND ITS ENVIRONMENT

The main purpose of a business is to make profits. To achieve this, a business needs to

Satisfy customer needs

Reduce operating costs

Strive to survive by competing favorably

Types of business activities

Extraction – means obtaining goods from their natural setting e.g mining, farming, lumbering etc

Processing of raw materials – it is changing the form of goods without combining it with other goods

Manufacturing – combining different raw materials to come up with one final product e.g. table is made of wood, glue, nails and varnish

Construction – Rails, road and buildings

Distribution of goods – Spreading of goods from the manufacturers to the users. Done by distributors

Trade – Buying and selling of goods with the aim of making profits. Done by traders

Provision of services – Selling services to consumers e.g. hairstylist, car washers

Business environments and their effects

Internal and external

Internal environment

• May either be strengths or weaknesses of the business e.g. skilled man power.
• It is also called micro environment

They include :-

1. Business structure

This is the formal arrangement of the activities carried out at various levels of the organization. A well laid business structure would lead to success because:-

• Each employee knows what is expected
• No conflict or confusions
• Team work is enhanced
• Proper control – promotes efficiency

2. Resources

A resource is something that can be used to achieve an objective. The following are some of the resources to a business

1. Human resource

Employees in a business provide human resource. A business with qualified human resource is more likely to do well.

2. Financial resources

A business with adequate finances is more likely to do better than one lacking such aspects.

3. Physical resources

These are tangible facilities which belong to a business e.g. buildings, machinery, furniture and stock.

4. Technology

These are the skills and methods used in production. A business with the relevant technology is more likely to succeed.

3. Business culture

Business cultures arise from the combination of employees expectations, beliefs and values within the business. A culture of involving employees in decision making always does better.

4. Owner

He provides finances and makes decisions concerning operations of the business.

External Business Environment

• Also called macro environment – large in scale

They include:-

1. Economic environment

These are factors that affect the buyers’ ability to buy goods and services offered by a business e.g charges, taxes, rates etc

2. Demographic environment

• Includes factors in population change – size, distribution, age, density, birth and death rates
• A growing population provides market for goods and services
• Age and sex distribution shape the line of business while better education and jobs for consumers would improve their taste and demand for quality goods services

3. Legal – political environment

The government closely monitors and passes laws and policies to regulate activities. Traders may opt to invest in some areas because of lower taxes or nor taxes

Manufactures of foodstuffs are required to include expiry dates to their goods. Political stability also creates a conducive working business environment

4. Technological environment

Technology refers to level of know-how, efficient use of tools and equipments and other resources. Advancement in technology would lead to better quality of goods being produced.

5. Cultural environment

Culture is the norms that regulate the behavior of people in society. Includes customs, beliefs and values. Dictates how people live and products they consume e.g. Muslims and pork.

6. Competitive environment

Firms trying to outdo each other in their endeavors to maximize profits. Competition can ether be generic or enterprise.

Generic competition refers to competition where the products are used for the same purpose though the products are different. E.g. cinemas and discos are competing form of entertainment.

Enterprise competition is found were products are similar to those of the other firm. E.g a local shoe manufacturing company competing with imported shoes.

7. Physical environment

Includes factors such as climate and infrastructure e.g. roads, water supply, electricity, banks etc

Internal business environment

• These are factors within the business organization.
• They are either be business strength or weaknesses. They include:-

1. Objective of the business

A business lays strategies of attaining the set targets or goals. By studying the objectives of a business one is able to determine resources required such as money, physical facilities and staff.

2. Management policies

Business policies influence day-to-day operations of a business. Trade unions are formed to agitate for their rights. The activities of the business are determined by the form of goals provided.

3. Personal skills, knowledge and values

Employees are only useful if they have the necessary knowledge and skills to carry out assigned tasks. Productivity can be increased through training.

4. Financial and physical resources

For a business to provide goods and services it requires such resources as finance and equipment

5. Research and development

Market research generates new ideas, skills and better methods of doing things. Research assists in the development of new and unique goods and services that may attract new consumers or maintain the loyalty of the existing ones