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Business Environment

A business is an organization that sells goods or services to obtain profit. The prospect of making a profit, the difference between income and expenses, encourage people to open and grow businesses. Businesses produce most of the goods and services consumed by society and provide jobs for many people. Healthy business environment pave the way for innovation and contribution to quality of life and standards life of a society.



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Business External Environment

All businesses, whether in terms of size, location, or mission, operate within a wider external environment. This external environment consists of things that are outside the boundaries of the organization that may affect it. The main elements of the external environment that affect business today such as domestic business environment, global business environment, technology environment, legal-political environment, socio-cultural environment, and economic environment.

  • The domestic business environment is an environment in which companies operate and earn.
  • The global business environment is an international force affecting a business. In general, influencing global business environment i.e. international trade, economic conditions world, and world political instability.
  • The technological environment generally includes all the ways in which company to create value for its constitution. Technology that includes human knowledge, work methods, physical equipment, electronics, and telecommunications.
  • The legal-political environment that reflects the relationship between business and government, usually in the form of government regulations against business.
  • The sociocultural environment includes the habits, customs, values ​​and demographic characteristics of the people in which a particular organization belongs operate.
  • The economic environment refers to the relevant conditions that occur in economic system in the area in which an organization operates.



Economic System

The main difference between an economic system lies in the way it manages factors. factors of production, namely the resources used by firms firms in a country to produce goods and services. Economic system has its own way of managing the five factors of production:

  1. Workforce: people who work for businesses that provide labor which is sometimes also called human resources who contribute both physically and intellectually.
  2. Capital: to obtain and use labor and resources the financial resources needed to run a business.
  3. Entrepreneurs: entrepreneurs are individuals who see opportunities and willing to bear the risks arising from the creation and operation a new business.
  4. Physical resources: are tangible things that are used organization in conducting business. Physical resources include resources natural resources and raw materials, offices, production facilities and storage, computers and other equipment.
  5. Information Resources: data and other information used by business world, plays an important role. information resources used by the business world, among others, market forecasting, looking for people with special expertise, and economic data.



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Types of Economic Systems

An economic system based on how decisions are made on production and allocation as follows:

  • Guided economy: the two most basic forms of economy guided are communism and socialism. Communism is a system in which the government owns and operates all factors of production, the government also directs its citizens to work each of which, at the same time, owns all business activities and control business decisions.
  • Market Economy: the market is a mechanism for the exchange of goods and certain services between buyers and sellers. Also known as market economy with capitalism which allows private ownership of factors factors of production that encourage entrepreneurship by offering profit as an incentive. The economic basis of the market economy process is supply and demand mechanism.
  • Mixed market economy: most countries adhere to several a form of mixed market economy that has the characteristics of a market economy and a guided economy. In a semi-guided system called socialism, the government owns and operates certain industries. In a mixed market economy, government can control banking, transportation, or other industries industries that produce goods for the market.



Market System Competition

The decisions regarding what to buy and sell are determined by power demand and supply. Demand is willingness and ability consumers to buy a product or service. Offer is willingness and the ability of producers to offer a product or service for sale. The demand and supply mechanism shows the relationship between various The level of demand and supply intersect is the market price or equilibrium.
The market economy reflects the mechanism of the private enterprise system, namely a system that allows individuals to pursue their own interests without any restrictions from the government. Private companies require four elements:

  1. Private property rights
  2. Freedom to choose
  3. Profit
  4. Competition

There are four types of competition in private companies:
  1. Perfect competition: a market or industry characterized by small companies in large numbers that produce products that identical.
  2. Monopolistic competition: a market or industry characterized by many sellers who seek to differentiate their products from those of competitors.
  3. Oligopoly: a market or industry characterized by few sellers and has the power to influence the price of its products.
  4. Monopoly: a market or industry in which only one producer can set prices for their products.


Factors to evaluate the performance of an economic system

Economic indicators are statistical data that show whether a system the economy strengthens, weakens or stabilizes. Economic environmental health the entire economic system to which the organization is located. The two main goals of a country’s economic system are economic growth and development economic stability. Growth is assessed through aggregate output, i.e. the total quantity of goods and services generated by an economic system. Despite the increase in productivity can create growth, the trade balance, and the national debt can inhibit growth. Although growth is an important goal. Some countries are more concerned with economic stability . economic stability is the amount of money available in the economic system as well as the quantity of goods and services produced are growing at the same rate. There are two threats on stability:

  • Inflation: occurs when an economic system increases widespread price. Instability occurs when the money supply in a country’s economy exceeds the increase in its actual output.
  • Unemployment: is the percentage of people who are unemployed people who are actively looking for work in an economic system. When unemployment is low, there is a shortage of labor for the world business.
  • Recession and Depression: Recession is more accurately defined as the decline the amount of output as measured by real GDP. While depression is a severe and prolonged recession in an economy country.



The government manages the economy through two policies: fiscal policy, and monetary policy.

  • Fiscal policy is the management of the income and expenditure of a country. One of them is tax.
  • Monetary policy focuses more on controlling the amount of money that circulating (supply of money) of the country.


In short, fiscal policy and monetary policy create policy stability, namely government policies whose goal is to reduce fluctuations in output and unemployment and stabilize prices.

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