FACTORS AFFECTING THE BUSINESS EVNIRONMENT Principles of Business Briefing

Factors Impacting businesses  Businesses don’t exist in isolation; they are impacted by factors beyond their control.  Can you identify some examples?  Legal issues  Global environment  Economic conditions  Technological factors

Factors Impacting businesses  Legal issues:  Government Requirements  Laws  Taxes  Licensing

Factors Impacting businesses  Global environment:  Off-shoring (Out Sourcing)  Social Unrest  Political Change  Social and cultural factors:  Diverse Workplace,  Ethnic Diversity of Customers,  Language Barriers,  Different Ways of Doing Business

Factors Impacting Businesses  Economic conditions:  During prosperous times: Low Unemployment Rates, Increased Investments By Individuals, Increased Spending  During adverse conditions: High Unemployment Rates, Decreased Spending, Decreased Saving

Factors Impacting Businesses  Technological factors:  New Equipment  Faster Computers  Smartphone Development  New Software/Hardware

Business Ethics  Examples of good business ethics:  1. Warranties on products  2. Supporting your advertising promises  3. Telling customers the truth  Examples of poor business ethics:  1. Poor or Faulty Products  2. Environmental Pollution  3. Fraudulent Contracts

Environmental Scan

The Environmental Scan  Additional issues to consider when conducting an environmental scan.  Business ethics Defined as the moral or ethical problems that can arise in a business setting Any special duties or obligations that apply to people who are engaged in business.  Business trends Defined as the general tendency or direction in a market or industry.

The Environmental Scan  Relationship between government and business  In the U.S. economy, the government’s role is to protect consumers, businesses, and society. This role has evolved over time.  Can you think of how it has changed and is currently changing?

Conducting an Environmental Scan  What is an environmental scan  An analysis and evaluation process that businesses use to understand their current environment  Why do businesses conduct environmental scans  The aim is to identify trends, gaps, events, developments, and issues that will impact the business.

The Environmental Scan  What does an Environmental Scan look like?  Factors impacting business  Analysis of markets and competitors  Economic analysis  Political analysis  Why is environmental scanning important?  Aids in anticipating changes  Answers the question, “Where are we now?”  Provides a starting point for a business’s planning of its goals, objectives, and actions that answer the question, “Where do we want to be?”

Conducting an Environmental Scan  What is the current external environment?  What are the implications of these issues for the business?  What key forces in the business’s environment need to be addressed and which ones are less important?  What is the impact of the trends on the business?

Conducting an Environmental Scan  How might the environment change in the future?  How will the business’s decisions and actions influence this environment?  What trends and issues are affecting similar businesses?  How do customers, interest groups, community organizations, agencies or governments impact the environment?

Conducting an Environmental Scan  What factors are within the business’s control and which are beyond its influence?  What could the business do to affect the impact of these factors?

Identify Sources  Interviews with company officers, owners, managers  Comments made by company officers, owners, managers  National and local newspapers  Trade publications  Business magazines

Identify Sources  Websites     

Other Sources of Information  Observations  Research findings  Input from professional organizations

Global Trade  Domestic Trade - the making, buying and selling of goods and services within a country.  International Trade - includes all of the business activities necessary for creating, shipping, and selling goods and services across national borders. Also called “foreign or world trade”.

Global Trade

 IMPORTS: things we buy from other countries.  Why buy from other countries if we have it or can make it in the U.S.?  Some resources must be imported before products can be made. This adds COST.  Labor prices in other countries may be lower (China, Taiwan, Korea, Vietnam, etc.)

Why import Products?  Some consumers purchase goods at higher prices because they perceive the quality to be better.  Consumers may simply enjoy a foreign made product. Examples include French perfumes, Italian leather goods, Swiss made watches, rugs and wines.

Exports  Exports - the goods and services we sell to other countries  Farm and factory equipment, airplanes, tanks, movies, television channels such as CNN, MSNBC, ESPN, etc., chemicals, plastics, medicines

Why engage in international trade  To obtain needed resources  Examples:  Access to raw materials  Up-to-date technology  Specialized labor force

Absolute and Comparative Advantage  Absolute advantage:  when a country can produce a good or service at a lower cost than other countries  Comparative advantage:  when a country has an absolute advantage in more than one area. It must decide how to maximize its economic wealth.

Benefits of international trade  Increased variety of products  Access and availability of scarce resources  Lower prices for products due to increased competition  Possible exchange of ideas and technology among countries  Increased income for the shipping and/or airline industries due to increased shipping and tourism

International Trade Issues  Identify ways that a nation’s balance of payment affects its balance of trade.  Components of a nation’s balance of payments include: Exports Imports foreign aid business investment abroad money spent by tourists.

Trade surplus/deficit occur.  The difference between a country’s total exports and total imports is called Balance of Trade.  If a country exports (sells) more than it imports (buys), it has a trade surplus.  This is known as a favorable trade position.  If it imports more than it exports, it has a trade deficit and its trade position is unfavorable.  trade/statistics/highlights/top/top0908yr.html trade/statistics/highlights/top/top0908yr.html

Currency Values  The variety of currencies in the world: Even with Europe forming the European Market and making the official currency the Euro, there are still over 150 different currencies in the market.  The process of exchanging one currency for another occurs in the foreign exchange market; consisting of banks that buy and sell different currencies. Most large banks are involved and provide currency services for business and consumers.

Controlling international trade.  techniques (protectionism) used to control trade  Tariffs (tax)  Quotas  Licenses  Product standards  Embargoes (usually for political reasons)

Currency Exchange:  Did you know that the foreign exchange market (also known as FX or forex) is the largest market in the world? In fact, more than $3 trillion is traded in the currency markets on a daily basis as of 2009.forex  some exchange rates fluctuate while others do not  Why?

Exchange Rates  What Is an Exchange Rate? An exchange rate is the rate at which one currency can be exchanged for another. In other words, it is the value of another country's currency compared to that of your ownexchange ratecurrency

Fixed Exchange Rates  Fixed Exchange Rates There are two ways the price of a currency can be determined against another. A fixed, or pegged, rate is a rate the government (central bank) sets and maintains as the official exchange rate. A set price will be determined against a major world currency (usually the U.S. dollar, but also other major currencies such as the euro, the yen or a basket of currencies). In order to maintain the local exchange rate, the central bank buys and sells its own currency on the foreign exchange market in return for the currency to which it is pegged.fixedcentral bank

Central Bank in the US  The central banking system in the U.S. is known as the Federal Reserve System (commonly known as "the Fed"), which is composed of 12 regional Federal Reserve Banks located in major cities throughout the country. The main tasks of the Federal Reserve are to supervise and regulate banks, implement monetary policy by buying and selling U.S. Treasury bonds and steer interest rates. Ben Bernanke currently serves as the chairman of the Board of Governors of the Federal Reserve.

Central Bank in the US  The central bank has been described as "the lender of last resort", which means that it is responsible for providing its economy with funds when commercial banks cannot cover a supply shortage. In other words, the central bank prevents the country's banking system from failing. However, the primary goal of central banks is to provide their countries' currencies with price stability by controlling inflation.central bank currenciesinflation

Floating Exchange Rates  Unlike the fixed rate, a floating exchange rate is determined by the private market through supply and demand. A floating rate is often termed "self- correcting", as any differences in supply and demand will automatically be corrected in the market.floating exchange rate

Floating exchange Rates  if demand for a currency is low, its value will decrease, thus making imported goods more expensive and stimulating demand for local goods and services. This in turn will generate more jobs, causing an auto-correction in the market. A floating exchange rate is constantly changing.

Methods used to Support Trade  Organizations:  The European Union: Unifies European countries for trading power  World Trade Organization: Handles disputes and facilitates negotiations

Methods used to Support Trade  Trade agreements to reduce trade barriers  North American Free Trade Agreement (NAFTA)  General Agreement on Tariffs and Trade (GATT)  Central American Free Trade Agreement (CAFTA)  Other:  Trade centers  Trade missions  Trade talks

Multinational Corporations  Why multinational corporations (MNCs) engage in international trade and how they facilitate it.  Lower labor costs  Geographic location  Natural resources  Hold influence in host countries