Introduction
Regardless of whether they are public or private, large or small, all
business enterprises must consider elements that comprise their
environment. Business enterprises secure inputs (people, material,
information, money) from their surrounding environment and in turn
produce goods and services that they send to the same environment. A
business’ performance is often dependent on how well the enterprise
influences and is influenced by its environment. A business is affected
by both internal and external environment factors that entrepreneurs
must understand. The internal environment is often referred as the
industry environment and consists of employees, shareholders,
competitors, customers, suppliers, financial institutions, labor unions,
etc.
Internal Environment
Internal environment consist of forces that affect business directly and
include competition, employees, financial institutions, suppliers,
shareholders etc.
- Competitors: market competition is the cornerstone of managerial
capitalism. Businesses that do not compete effectively are often
confronted with the uncomfortable prospect of either changing or being
eliminated. Kenyans telephone users are benefiting greatly from
competition of Safaricom, Airtel, Orange/Telkom and the newly introduced
Yu. There are five forces that shape the degree of market competition
operating within an enterprise environment (as given by Michael Porter)
these include:
- Rivalry among the existing enterprises: This is jockeying for
position among the enterprises competing in a particular market. The
key issues here are the number of competitors, their competitiveness
and the nature of market exit barriers. Competition helps to improve
a firm’s position, acts as a motivator and often helps to reduce
cost. If the rivalry is high then the degree of competition is also
said to be high. E.g. in tooth paste industry. - Relative power of customers: the major issue here is whether the
customers can exert influence by forcing down the prices, bargain
for more services and higher quality or play enterprises off against
one another. Customer is said to be powerful if the business is
selling to only one customer here the customer can influence the
price down and the degree of competition is said to be high. - Relative power of suppliers can the suppliers exert influences by threatening to raise price or by reducing the quality? When one supplier is supplying the business then he can have great power and the degree of competition is high unlike where are many suppliers to choose.
- Threat of new entrants: new enterprises in a market place generally
increase product supply, seek to gain market share and often possess
substantial resources. They are likely to force market prices down
which will have negative impact in firms. If the barriers to entry
are low then the threat of new entrants is high and so is the degree
of competition. - Threat of substitutes: substitutes that are of equal quality offered
at a lower price can have a devastating effect on sales and thus in
increased competition. Substitutes can make an enterprise product
obsolete. Where there is great number of substitute’s then the
degree of competition is high.
- Customers: all enterprises rely on customers for existence. Consumer
groups are becoming an important force in the business. A customer could
be an individual, an institution, a government or another firm. The
manager must understand his customers and find ways of maintaining
customer relationships.
Suppliers: organizations are dependent upon suppliers of materials and
labor and will try to take advantage of competition among suppliers to
obtain lower prices, better-quality work and faster deliveries. Many
organizations will try to reduce suppliers to reduce costs. A favorable
supplier relationship leads to better shipping arrangements, early
warning of major changes and advanced information about technological or
marketing developments.
- Financial institutions: An enterprise depends on a variety of
financial institutions such as commercial banks, investment banks,
insurance firms etc for supply of long-term and short-term loans.
Because effective working relationships with financial institutions are
so vital, establishing and maintaining these relations is the work of
finance officer and CEO of the organization. Some organizations
incorporate a banker in their board of directors to enhance the
relationship. - Employees: all enterprises their objectives through the action of
their employees. For their part, employees work to meet their own
personal, social and economic needs. Management has to design and
influence leadership in a way that employees view their contributions as
supportive and consistent with their sense of personal importance. The
challenge is to create a situation in which both employer and employee
achieve their goals. Management must maintain sound relationships with
the unions for effective running of their organizations. - Owner/shareholder: they are technically the owners of organizations
through stock ownership. Some shareholders have ability to influence the
running of their organization. They exercise their powers through voting
in general meeting, special general meetings or even in selling their
shares. Task environment responds to organization through networks &
coalitions and multiples roles while management tries to keep the
relationship between stakeholders and organization.
External/Macro-Environment
Business operate in an external environment where they not only need to
be concerned with competition from rivals business but also take into
account the legal, political, social and economic influences, commonly
referred to as SLEPT factors. Business planners often carry out an
analysis of these factors, which enables them to develop more informed
strategies (long-term goals).
- Social factors: these relates to changes in society and demographics
structures to which the business is exposed. Demographics are the characteristics of the population such
as average age, birth rate, level of education. A consumer preference
changes over time given changes in the environment. The advancement in
technology has seen so many changes in consumer preferences. Kenyans are
no longer buying cassette tapes with the advent of CDs, DVDs, and USBss.
(Madura 2007) - Legal factors: these relates to changes in laws and regulations.
Business must be careful to keep the law and anticipate ways in which
change in laws will affect the way they do business e.gtobacco bill,
media bill. - Political factors: these relate to ways in which changes in
government and government policies can influence business. In a country
where there is political turmoil business is threatened too, since
stability is necessary for every business operations. Business may
influence the government actions through lobby groups and/illegal
actions as well as in some countries to fund their preferred candidate
or party to form the next government. - Economic factors: this relates to changes in the wider economy.
Country’s economy goes through; decline, recession and recovery. A
growing economy provides greater opportunities for business to make
profits, like banks, and cement industry in Kenya a few years after NARC
to power. (Kibera, 1998) - Technological factors: change in technology can have positive or
devastating effects on business. Managers need to be aware of the
changes in technology that is taking place in the environment so as to
update themselves and their organization. Technological
changes provide opportunities for business to adopt new breakthroughs,
innovations and inventions to cut costs and develop new products. Other
factors include: pressure groups such as environmentalists, special
interest groups.
The Role of Government in Business
Government is the center of political authority having the power to
govern the people it serves. It maintains and regulates orderly
relationship among its citizens. The roles of the government in business
include:
As a regulator: Government regulates business through policies and
legislations that are enforced by its agencies. There is need to
regulate business in order to conserve and protect environment, unfair
practices or harmful products that may harm the public. Also it is the
government that is concerned with registering copyrights, trademarks and
patents to protect business from other business or unscrupulous
individuals. Government is also responsible for maintenance of sound
monetary system necessary for conducting transactions
Tax-gatherer: Government collects billions of shillings each year from
its citizens and business fraternity to funds its programmes. Tax and
subsidies can be used to discourage or encourage business establishment
in a country.
As owners: There some companies that are owned by the government, in
most cases they hails from the sectors that need heavy investment or
don’t attract private investor but are necessary to the public. These
are called parastatals. The business ownership by the government is
diminishing through a process that is called privatization that was
initiated by donors via structural adjustment programmes.
As provider: The converse of tax-gatherer is that government provides
goods and services and to the public and provides infrastructure to the
business community to enhance business environment this includes roads,
power, security etc.
Summary
Business does not operate in a vacuum; there are various components that
interact with the business. There is the internal environment, which the
immediate stakeholders
