economic environment of business mini project

Economic Environment of Business.

“A MINI PROJECT REPORT”

SRTMUN

SubCentre LATUR

PANKAJ KAPSE

MBA SY SemIII

Roll No 18

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DECLARATION

I PANKAJ KAPSE, the student of SRTMUN Sub Centre LATUR of Masters of

Business Administration (Semester-I) hereby declare that I have completed my

project / assignment, titled “Economic Environment of Business”, in the

Academic Year 2010-2011. The information submitted herein is

True and original to the best of my knowledge.

Signature of Student:

____________________

My Name.

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ACKNOWLEDGEMENT

This project report could not have been prepared, if not for the help and

encouragement from various people. Hence, for the same reason I would like to

thank my guide. It was for his support that I got proper guidelines for preparing

this project. There are many more people I would like to thank, which include

my class fellows who offers me their moral support ; specially the people living

in my society i.e. my friends and colleagues , they helped me with the questions

asked and the answers given by them were up to the mark, they were confident

with their answers.

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CRITICAL SUMMARY:

The topic under subject for my today assignment is the Role of Economic Environment

of Business. Firstly we have to understand that what this logic stands for. Below is the

proper definition for the subject is suitable in my opinion.

The effect of total or over all economic system of the economy on business, i.e., whether

Capitalist or Social system. Country's system of Economic Planning and Control, such as

Government's Fiscal or Monetary systems, Commercial and Industrial policies of the

Government, and Commercial and Industrial laws of the country are all important

elements of the economic environment. Every such element affects the functioning of the

business.”

Here we will discuss below the above points in the light of Practical Study of

Organization by implementing or being implemented the factors which may positively or

negatively affect the business.

On the other hand, we will also look upon the positive aspects of these factors which are

fruitful to the business or entrepreneur.

Possibility to avoid the business by the negative aspects of these factors will also be

discussed. An extra intelligence, expertise and experience would surely help a lot to

promote the business in the unseen circumstances.

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Table of Contents:-

Definition

Components of Economic Environment

Classifications of the Economic Environment

Factors Affecting the Economic Environment

Practical study or Implementation of Economic

Environment on Business.

Data Collection Methods.

SWOT Analysis

Conclusion

Recommendations.

References

DEFINITION:The economic environment is an incorporation of various economic

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factors, such as total employment, productivity, income, wealth,

inflation and interest rates. These factors influence the spending

patterns of individuals and firms.

Components of the Economic Environment

The economic environment comprises of:

Income and wealth: Income in an economy is measured by GDP,

GNP and per capita income. High values of these factors show a

progressive economic environment.

Employment levels: High employment represents a positive

picture of the economy. However, there are many forms of

unemployment, including partial employment and disguised

unemployment.

Productivity: This is the output generated from a given amount of

inputs. High levels of productivity support the economic environment

Classifications of the Economic Environment

The economic environment can be classified into:

Microeconomic environment : It includes the economic

environment of a particular industry, firm or household and is

primarily concerned with price determination of individual

factors. The main consideration from a microeconomic

perspective is the efficient allocation of resources. This is

necessary to maximize total output.

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Macroeconomic environment : It includes all the economic

factors in totality. The main consideration here is the

determination of the levels of income and employment in the

economy.

Over the course of the twentieth century, the focus has shifted from

cities and countries to the global economy being the chief economic

unit.

Factors Affecting the Economic Environment

The economic environment of a nation as well as the world is impacted

by:

Inflation and deflation: Inflationary and deflationary

pressures alter the purchasing power of money. This has a direct

impact on consumer spending, business investment,

employment rates, government programs and tax policies.

Interest rates: Interest rates determine the cost of borrowing

and the flow of money towards businesses.

Exchange rates : This impacts the price of imports, the

profits made by exporters and investors and employment levels

(also through the impact on the tourism industry).

Monetary and fiscal policy: This helps in attaining full

employment, price stability and economic growth.

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The economic environment is also influenced by various political, social

and technological factors. These include a change in government and

the development of new technology and business tools.

Security Conditions: This helps in developing business and

its activities.

The better the security conditions, the better will be the business

environment. Customers feel secure and willing to purchase.

Govt. Taxes: Government taxes are the most important issue

in developing the business activity. It has a direct relationship

with the purchasing power of the customer. A Low Government

tax raises the purchasing power of customer. High Govt. Taxes

then lower will be purchasing power of the customer.

Unknown Catastrophe Situations:

Unknown catastrophic situations mean unknown disasters in the

country. If an earthquake comes with some disasters, heavily

rain caused floods; a storm arose in the sea etc. Any such

situation which disturbs economic and social life of individuals

and businesses. For example, recent flood in Pakistan changes

completely the picture of economy and social life of common

human being.

ractical study or Implementation of Economic

Environment on Business.

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Now, practically we are going to implement the Factors of Economic

Environment on Business. The business which I choose for my Practical

Study is It was developed in the year 1996. Their first office was in

Islamabad which now grows into a huge company. It has now two new

branches at Lahore and Karachi. The main theme of the business is to

Import Items from various foreign countries and sells it to their

customers. The components of economic environment and factors are

discussed below:

Components of Economic Environment in K.M. Enterprises:

Income and Wealth:

Income and wealth relevant to this specific organization is

that as this company is classified as a sole proprietorship. The

initial investment in this organization was 15 Million Pakistani

Rupees which now exceeds more than the more than 100

Millions Pak Rs.. This shows a very positive economic activity

in business.

Employment Levels :

Initially this company has 10 employees at only its head

office. Now it has more than 25 employees in its three offices

which include Lahore and Karachi. The numbers of employee

show that economic environment is positively affecting the

business.

Productivity:

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As this company is not relevant to production. But it only

imports items and has a great supply chain of machines and its

spares parts to the local production sectors.

FACTORS AFFECTING BUSINESS ENVIRONEMNT:

Inflation and Deflation:

Inflation decreases the purchasing power of the individuals and

businesses. The GDP and GNP of the national economy also fall.

The company under discussed is also affected by inflation and

has a direct relationship with the sales and purchase of this

company.

On the other hand, deflation also affects the business activity.

Company suffers loss when deflation occurs. In Pakistan during

the few last years, deflation rarely seems. Each and every

product price rises more than 100%.

Interest Rates:

Most of the businesses in the world including Pakistan, has a

very powerful relationship with Interest Rates. Most of the

Companies borrows money and securities from the Govt. or

Commercial Banks. If the Central Bank i.e. State Bank of

Pakistan rises the Interest Rates ratio across the country,

which affects the Businesses. Company’s profit margin

decreases which affects in low employment rates.

Exchange Rates:

Exchange Rates have a very great and un-broken relationship

with K.M. Enterprises. Higher the exchange rate in Dollar or

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Euros the higher will be foreign purchase. Higher will be taxes

on its purchase. Low will be profit and company will suffer a

loss.

Monetary and Fiscal Policy:

The Monetary & Fiscal Policy launches by the Government.

Any new monetary & fiscal policy is developed by the current

situation throughout the country. But sometimes its fruitful to

some businesses and disaster for some businesses also. New

taxes have been implemented e.g. GST goes to 17% instead

of 16%. Income tax goes to 4% instead of 2%. VAT now will

also be launched as 17% at actual on each and every product.

A new flood relief tax amounted to 10% will be implemented

to every purchase of the buyer.

As the above structure of taxes and duties launched by the

Government, surely reduces the purchase power of the

individuals and businesses.

Unknown Catastrophe Situations

Flood run in the last few days ago across the country which

affects directly to the individuals and businesses. This loss

effects Govt. and civilians both. Government imposes a new

tax as flood tax for amounted 10% at actual on each and

every purchase for one time. These types of catastrophe

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situations prevent the investors to invest and economy of the

country and business surely effects.

Security Conditions:

Security conditions are very poor in last few years in Pakistan

which restricts foreign investments across the country.

Foreign investor prefers India instead of Pakistan. That’s why

Pakistan economy is decreasing continuously.

Political instability in Pakistan is also a major issue even from

the existence of Pakistan. Political stability is a major factor

for the investor to invest in our country.

DATA COLLECTION METHODS

Data collected from this assignment is mainly from the Internet and my

course books.

The data collected for organization is verbally collected by interview

with Mr. Khawaja Aleem Ahmed who is the Finance Manager from 5

years in this organization.

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SWOT Analysis

(An Overview)

SWOT analysis is a simple framework for generating strategic

alternatives from a situation analysis. It is applicable to either the

corporate level or the business unit level and frequently appears in

marketing plans. SWOT (sometimes referred to as TOWS) stands for

Strengths, Weaknesses, Opportunities, and Threats. It concentrates on

the issues that potentially have the most impact; the SWOT analysis is

useful when a very limited amount of time is available to address a

complex strategic situation.

Situation Analysis

Internal Analysis External Analysis

Strengths Weaknesses Opportunities Threats

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SWOT Profile

The internal and external situation analysis can produce a large

amount of information, much of which may not be highly relevant. The

SWOT analysis can serve as an interpretative filter to reduce the

information to a manageable quantity of key issues. The SWOT

analysis classifies the internal aspects of the company as strengths or

weaknesses and the external situational factors as opportunities or

threats. Strengths can serve as a foundation for building a competitive

advantage, and weaknesses may hinder it. By understanding these

four aspects of its situation, a firm can better leverage its strengths,

correct its weaknesses, capitalize on golden opportunities, and deter

potentially devastating threats.

Internal Analysis

The internal analysis is a comprehensive evaluation of the internal

environment's potential strengths and weaknesses. Factors should be

evaluated across the organization in areas such as:

Company culture

Company image

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Organizational structure

Key staff

Position on the experience curve

Operational efficiency

Operational capacity

Brand awareness

Market share

Financial resources

Exclusive contracts

Patents and trade secrets

The SWOT analysis summarizes the internal factors of the firm as a list

of strengths and weaknesses.

External Analysis

An opportunity is the chance to introduce a new product or service that

can generate superior returns. Opportunities can arise when changes

occur in the external environment. Many of these changes can be

perceived as threats to the market position of existing products and

may necessitate a change in product specifications or the development

of new products in order for the firm to remain competitive. Changes in

the external environment may be related to:

Customers

Competitors

Market trends

Suppliers

Partners

Social changes

New technology

Economic environment

Political and regulatory environment

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The SWOT analysis summarizes the external environmental factors as

a list of opportunities and threats.

When the analysis has been completed, a SWOT profile can be

generated and used as the basis of goal setting, strategy formulation,

and implementation.

CONCLUSION

Finally, it’s the conclusion to summarize my whole assignment. The

main purpose for this assignment is to create a concept of Economic

Environment that exists in business and non business organization.

The economic environment develops an understanding that economics

involves in the individuals and businesses.

Every factor of economic environment has correlation with each other.

Every factor has its importance in way that each factor can increase

productivity and profits of some organization.

Change in every factor changes the life of individual as well as

organizations.

RECOMMENDATIONS

Companies should evaluate its resources and try to

implement those policies which should fruitful to the

running business.

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Business should have strong rules and regulations which

don’t contradict with Government policies i.e. monetary

policies and policies launch by Federal Board of Revenue.

Business should not rely on the credits from the Banks and

other links to run their business to avoid the circumstances

occurred by Interest Rates.

Businesses dealing with Exchange rates should have to

deal their businesses with currency which is involved in

their purchases.

Experience staff should be hired who can face unseen

circumstances with their experience with ease.

Employee motivational programs should be launched.

On job trainings should be there to meet the current

attitudes of business.

Planning Division should be launched or consultancy should

be hired which analyses monthly the current situation of

business with the current economy to prevent business

from loss.

References:

www.mindtools.com

www.coursework4you.co.uk

www.netamba.com

www.businessdictionary.com

www.yahoo.answers.com

Www.wikipedia.com

www.sbp.com.pk

www.fbr.gov.com.pk

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economic environment of business mini project

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