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26.10.2015, 19:56 | |
ECONOMIC ENVIRONMENT The economy comprises millions of people and thousands of
firms as well as the government and local authorities, all taking decisions
about prices and wages, what to buy, sell, produce, export, import and many
other matters. All these organizations and the decisions they take play a
prominent part in shaping the business environment in which firms exist and
operate. The economy is complicated and difficult to control and
predict, but it is certainly important to all businesses. You should be aware
that there are times when businesses and individuals have plenty of funds to
spend and there are times when they have to cut back on their spending. This
can have enormous implications for business as a whole. When the economy is enjoying a boom, firms experience high
sales and general prosperity. At such times, unemployment is low and many firms
will be investing funds to enable them to produce more. They do this because
consumers have plenty of money to spend and firms expect high sales. It
naturally follows that the state of the economy is a major factor in the
success of firms. However, during periods when
people have less to spend many firms face hard times as their sales fall. Thus,
the economic environment alters as the economy moves into a recession. At that
time, total spending declines as income falls and unemployment rises. Consumers
will purchase cheaper items and cut expenditure on luxury items such as television
and cars. Changes in the state of the
economy affect all types of business, though the extent to which they are
affected varies. In the recession of the early 1990s the high street banks
suffered badly. Profits declined and, in some cases, losses were incurred. This
was because fewer people borrowed money from banks, thus denying them the
opportunity to earn interest on loans, and a rising proportion of those who did
borrow defaulted on repayment. These so-called "bad debts” cut profit margins substantially.
No individual firm has the
ability to control this aspect of its environment. Rather, it is the outcome of
the actions of all the groups who make up society as well as being influenced
by the actions of foreigners with whom the nation has dealings.
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