Académique Documents
Professionnel Documents
Culture Documents
Introduction
1 | Page
Business Environment
Table of Content
2 | Page
Business Environment
When explaining about the purpose of an organization, it may differ from one organization to
another. Therefore we can say that, there are organizations that work towards its Profit and
organizations that do not work towards its Profit which are also known as NGOs.
When talking about the organization ownership, it can be divided mainly into three types.
They are;
Sole Proprietorship/ Sole Trader
Partnership
Companies / Corporations
Sole Proprietorship / Sole Trader
Sole Proprietorship or Sole Trader is a business that is owned and usually managed by one
person. It is the most common form. It is not a must that we must register the business. The
advantages and disadvantages in Sole Trader are as follows;
Advantages
o
o
o
Business Environment
o
o
o
Disadvantages
o
o
o
o
o
o
o
Unlimited Liability
Limited Financial Resources
Management Difficulty
Time Commitment
Few Fringe Benefits
Limited Growth
Limited Life Span
Typical Sole Traders include tradesman such as plumbers, electricians, television repairing
people etc. Now a days many people are setting up their own businesses by creating small
web based companies working from home.
Partnership
Partnership is a legal form of business with two or more owners. Partnership can be divided
into two forms. They are;
o
o
General Partnership
Limited Partnership
General Partnership
General Partnership is a partnership in which all owners share in operating the business
and in assuming liability for the businesss debt.
A General Partner is an owner (partner) who has unlimited liability and is active in
managing the firm.
Limited Partnership
Limited Partnership is a partnership with one or more general partners and one or more
limited partners.
A Limited Partner is an owner who invests money in the business but does not have any
management responsibility on liability for loses beyond the investment.
In unlimited partnership all the partners are liable for any third party, even from their
private assets. For example if partnership at the time of dissolving and the partnership
has no money to settle the loans taken from the third party, partners should settle such
loans from their personal assets.
The partnership is not considered as an entity by law. Partnerships are typically found in
professional services such as Accountants, Solicitors, Doctors and Dentist where the
partners can share expertise and skills. They can also share the workload, organizing
work rotas to allow for time off and holiday. Partners also pool their capital.
4 | Page
Business Environment
Partnershi
p
Limited
Liabilit
y
Unlimited
Liability
More
General
Partners
One or More
Limited
Partners
Invests
Money
(Limited
Liability)
Companies
Companies are owned by Shareholders that each contributes a stock of money into a central
pool. This pool of capital is used to provide a core sum of finance which is added to by
borrowing and other forms of finance. Directors run the company on behalf of Shareholders
who receive a share of the profit as Dividends.
A company should be registered under the companies act No 07 of 2007. When a company
is registered under the companies it is registered by law as a person. It is separate and
distinct from the Shareholders who own the company. Shareholders can change from time to
time but will continue to exist till liquidization.
The characteristic of a company is as follows;
Legal Personality
Ease of Finance
Limited Liability
Formal
Incorporation
Limited Liability is the liability of shareholders f a company is limited only to the extent of the
nominal value of shares that those who own the amount guaranteed. The Advantages and
Disadvantages of a company is as follows:
Advantages
o
o
o
Limited Liability
More money for investment
Size
5 | Page
Business Environment
o
o
o
o
Perpetual life
Ease of ownership change
Ease of drawing talented employees
Separation of ownership and management
Disadvantages
o
o
o
o
Extensive paperwork
Double Taxation
Two Tax Returns
Conflicts with stock holder and Board
6 | Page
Business Environment
Macro Environment:
Under Macro Environment we can categorise stakeholders as external stakeholders.
They are :
Community
Government
Pressure Groups
7 | Page
Business Environment
Micro Environment:
In Micro Environment, stakeholders can be divided into two categories. They are:
Internal Stakeholders
Employees and Management are considered as Internal Stakeholders
Connected Stakeholders
Shareholders, Customers, Suppliers and Financiers are considered as Connected
Stakeholders.
Shareholders
There main interests are Profit growth, Share price growth and dividends.
Election of Directors is their main power and influence.
Banks and other Lenders
Their main interests are interest and principal to be repaid and to maintain credit
rating.
Can enforce loan covenants and withdrawal of banking facilities is their main power
and influence.
Directors and managers
Salary, Share options, Job satisfaction and status are their main interests.
Making decisions having detailed information are their power and influence.
Employees
Salaries and wages, Job security, Job satisfaction and motivation are their main
interests.
Main power and influence are Staff turnover, Industrial action and service quality.
Suppliers
Long term contracts, Prompt payment, Growth of purchasing are their main their
main interests
Power and influence is Pricing, Quality, Product availability.
8 | Page
Business Environment
Customers
Reliable quality, Value of money, Product availability and Customer service are their
main interests.
Revenue/ repeat business, word of mouth recommendation are their power and
influence.
Community
Their main interests are Environment, Local jobs and Local impact.
Their main power and influence is indirect via local planning and opinion leaders.
Government
To operate legally, Tax receipts, Jobs are their main interests.
Main power and influence are Regulation, Subsidies, Taxation and planning.
Business Environment
In an organization there many different types of responsibilities. Mainly there are two types.
They are:
Legal Responsibility
Ethical and Moral Responsibility
Legal Responsibility
Legal Responsibility is enforced by the law. Rules and regulations that are governed by law
and can be enforced in the event of breaking the law. (breech of law)
Ethical and Moral Responsibility
Enforced only by the strength of the societys approval or disapproval.
For example Womens rights in Saudi Arabia are defined by Islam and tribal customs. All
women, regardless of age, are required to have a male guardian. If you employ a women,
then you are expected to allow a guardian. (usually husband or brother to accompany her at
the companys expense)
Other major responsibilities of an organization
Social responsibility
Environment responsibility
Ethics and Business code
Management Responsibility
Public relation and Corporate image
10 | P a g e
Business Environment
Social Responsibility
Balance profit
11 | P a g e
Business Environment
12 | P a g e
Business Environment
Alternative economic systems
There are four types of economics systems. They are;
Market system all production decisions are taken based on the price and freedom
of decision making exist.
Command systems economic behaviour and decisions are determined by the
central authority, centralisation in decision making can be observed.
Mixed systems more realistic system where application of planned and market
systems are observable.
Traditional system behaviour of the members of the society decided by the
traditions, customs, habits. Activities such a fishing, hunting, farmingetc.
13 | P a g e
Business Environment
In the Resource Market (top part of the model)
14 | P a g e
Business Environment
Business Environment
within the organisation. This can effectively be done by having a team in charge of
the specific task to develop, implement, maintain, and review the strategy.
16 | P a g e
Business Environment
Monetary Policy can be made to act as a subsidiary support to fiscal policy and
demand management, since fiscal budgets are an yearly event, a government uses
non-fiscal measures to control and balance the economy.
Contractionary Monetary Policy
Contractionary Monetary Policy may be used to reduce price inflation by increasing
the interest rate, because banks have to pay more to borrow from the Central Bank,
they will increase the interest rates they charge their own customers for loans to
recover the increased cost..
Banks will also raise interest rates to encourage people to say more in bank deposit
accounts, so that they can reduce their own borrowing from their Central Bank.
As interest raise rise, customers may save more and borrow less to spend on goods
and services.
Firms may also reduce the amount of money they borrow to invest in new equipment.
A reduction and capital investment by firms will reduce their ability to increase output
in the future.
Higher interest rates may therefore reduce economic growth and increase
unemployment.
Increasing a demand can push up prices and may increase consumer spending on
imported goods and services.
17 | P a g e
Business Environment
Cartel members may agree on such matters as price fixing, total industry output,
market shares, allocation of customers, allocation of territories, bid rigging,
establishment of common sales agencies, and the division of profits or
combination of these.
The aim of such collusion (also called the cartel agreement) is to increase
individual members' profits by reducing competition.
Market Liberalisation
o
18 | P a g e
Business Environment
State Aid control
o
Merger control
o
This involves the investigation of mergers and take-over between firms (e.g. a
merger between two large groups which would result in their dominating the
market).
Explain about the Sri Lankan Competition Policy and other regulatory
mechanisms which affect to the business organisation activities.
Economic liberalization and the privatization program.
The liberalization policy, aimed at promoting sustainable economic growth in a
market friendly environment where the private sector was perceived as the engine of
growth.
In 1987, privatization was announced as a government policy with a view to improve
economic efficiency, profitability and accountability as well as to generate revenue
and reduce the financial burden of state owned enterprises (SOEs)
In Sri Lanka, competition law was introduced in 1987, with the enactment of the Fair
Trading Commission Act (FTCA)
The wide scope of the FTCA covers
o The power to control monopolies
o Mergers and anti-competitive practices
o Formulation and implementation of a national price policy
The implementation of the Act is entrusted to the Fair Trading Commission (FTC),
which is a quasi-judicial body that comes under the Ministry of Commerce and
Consumer Affairs.
The FTC was dormant from its inception and has not been able to make a visible
impact on the behavior of firms in the market or attract legitimacy in the eyes of
players in the market or of consumers.
The law has sometimes been found ambiguous and weak in terms of penalties for
contravention.
Exclusion of several areas such as banking, conduct of professionals etc. from the
scope of the competition law has further complicated matters.
The FTC's position vis a vis institutions such as the Public Enterprise Reform
Commission (PERC) and the Board of Investment (BOI) is not clear and questions
have arisen as to whether monopolies granted to firms by these institutions come
within the scope of the FTC.
19 | P a g e
Business Environment
Further complications have arisen due to the lack of demarcation of boundaries
between the FTC and sector specific regulatory authorities such as the Telecom
Regulatory Commission and the National Transport Commission.
Legislations :
o Consumer Protection Act No. l of 1979
o Fair Trading Commission Act No. 1 of 1987
o Industrial Promotions Act No. 46 of 1990
o Intellectual Property Act No. 52 of 1979
o Consumer Protection Authority Bill
20 | P a g e
Business Environment
Business Environment
o
and
22 | P a g e
Business Environment
23 | P a g e
Business Environment
24 | P a g e
Business Environment
Demand for
Vaccinations
When price rises to $21 per barrel,
world demand falls to 9.9 million
barrels per day (point B).
25 | P a g e
Business Environment
26 | P a g e
Business Environment
Elasticity of Supply
The price elasticity of supply is a measure of the responsiveness of the quantity of
a good supplied to the price of that good. It is the ratio of the percent change in the
quantity supplied to the percent change in the price as we move along the supply
curve.
27 | P a g e
Business Environment
28 | P a g e
Business Environment
8.9
1.00
10.0
0.75
11.5
0.50
14.2
29 | P a g e
Business Environment
$2.00
11.6
1.75
11.5
1.50
11.2
1.25
10.7
1.00
10.0
0.75
9.1
0.50
8.0
30 | P a g e
Business Environment
Supply curve, S
Equilibrium
Equilibrium in a competitive market; when the quantity demanded of a good equals
the quantity supplied of that good
The price at which it takes place is the equilibrium price.
o Every buyer finds it seller and vice versa.
o The quantity of the good bought and sold at the price is the equilibrium
quantity.
31 | P a g e
Business Environment
Equilibrium quantity
32 | P a g e
Business Environment
National culture, in turn, is the culture that exists outside the organisation at the level
of a society or country. National culture is made up of the societal values and belief
system of a country and is influenced by several factors, including its languages,
religions, gender roles, age profiles of its population, socio-economic groups and
government policy.
33 | P a g e
Business Environment
Business Environment
35 | P a g e
Business Environment
36 | P a g e
Business Environment
o
The policies of these organizations are only aimed at trade human rights
and environmental concerns are often ignored.
Internationalization
On the other hand increased links between nations states with respect to trade and
the movements of the resources.
Regionalism
Regionalism and regional trade agreements are important for the Globalization and
internationalization.
o Eg; European Union
The main difference is that with internationalization is the nation state remains
important whereas the process of globalization breaks down the barriers between
nations.
Inflation
Too much money in the economy and not enough goods and services to purchase.
Application of Inflation
Inflation is measured using the Consumer Price index(CPI).
The CPI is a market basket of goods and services that consumers regularly buy.
As the prices of these goods and services rise, so do the Consumer Price Index and
all prices in general.
37 | P a g e
Business Environment
Recession
If there are two consecutive quarters of decline in economic activity as measured by
a decrease in GDP, the economy is said to be in a recession.
During a recession, prices fall, consumers don't buy as many products (especially
high-priced items), and businesses begin to fail.
A recession has severe consequences for the economy, highlighted by high
unemployment and an overall drop in living standards. When the fear of a recession
begins to surface, government expends considerable effort to change the course of
activities.
Deflation
The opposite of inflation, deflation means that prices are going down.
The CPI goes down because the prices of the goods and services that are used to
measure it are in general decline.
Deflation often follows inflation but normally is shorter in length and of a lesser
magnitude
38 | P a g e
Business Environment
39 | P a g e
Business Environment
40 | P a g e
Business Environment
Conclusion
41 | P a g e
Business Environment
Reference List
42 | P a g e