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Summary Chapter 3
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Chapter 3 of Introduction to Business, required course in first year IBA
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The environment andbusiness: the economy and
the state
Introduction
We define the einviroineeint as coeprisiint all factors that exist outside the busiiness
einterprise, but that iinteract with it.
All fres are coinstraiined by the einviroineeint withiin they operate but the actvites of
busiinesses theeselves also chainte that saee einviroineeint
It is clear that chaintes have trainsforeed busiiness, aind that all busiinesses, both larte aind
seall, operate iin a tlobal einviroineeint
5 areas of the einviroineeint have beein ideintfede
o ecoinoey
o role of the state
o techinoloty
o labour
o culture aind iinsttutoins
These areas iinteract with each other. For the busiiness eainater, the einviroineeint
coeprises a inueber of variables, which iinteract with the busiiness aloine or joiintly. This
happeins at difereint levels
o Immediate level: a fre iinteracts with a local einviroineeint, iin which it plains to
expaind its buildiints. This ineeds approval froe the local couincil, aind where its
earketint aind hueain resource strateties will be iinfueinced by fres operatint iin
the saee local earket
o National envioonment: iinfueinced by such eaters as law, baink iinterest rates,
the rate of iinfatoin, aind inatoinal eeployeeint aind educatoin policies. Busiinesses
are iinfueinced by the prevailiint culture aind eay ineed to adapt practces.
o Inteonational envioonment: a fre is afected by iinterinatoinal eoiney exchainte
rates, coepettoin froe cheap labour ecoinoeies, aind the retulatoins of
suprainatoinal bodies e.t. the WTO or EU.
Ability of eainaters to iinfueince their einviroineeint dieiinishes as they eove further away
froe the local einviroineeint. However there are exceptoins, siince the ability to iinfueince
the einviroineeint teinds to iincrease with the size of the fre aind larte tlobal coepainies
cain have euch politcal iinfueince aind afect local ecoinoeies/labour earkets.
3.1: Models used in assessing the environment
Coeeoin used eodele PESTLE. It coeprises a review of four types of einviroineeintal
iinfueince.
o Political envioonment: covers the inature of the politcal systee, aind how that
iinfueinces busiiness.
, Issuee laws aind retulatoins ieposed by suprainatoinal bodies EU aind
WTO.
The politcal einviroineeint eincoepasses the iinfueince of stakeholder
troups.
o Economic envioonment: iincludes issues of ecoinoeic structure, such as the
relatve proportoin of the ecoinoey devoted to each of atriculture, eiiniint,
eainufacturiint aind services. It exaeiines issues relatoin to ecoinoeic health,
iinterest rates, aind uineeployeeint levels.
o Socio-cultuoal envioonment: Iinfueinces resultint froe the chaintiint coepositoin
of the populatoin such as ain iincrease iin the proportoin of older people. It
coinsiders skill coepositoin of the labour force, aind the relatoinship betweein
skills/educatoinal systee
o Technological envioonment: issue is the iinfueince of inew or chaintiint techinoloty
oin strateties, practces aind jobs. Major chaintee iepact of
iinforeatoin/coeeuinicatoin techinoloty.
o Legal envioonment: letal retulatoins afect busiinesses throuth stock earket
retulatoin of eerters aind takeovers, corporate law coveriint such issues as
taxatoin, cointract law dealiint with the relatoinship with custoeers/suppliers aind
lastly eeployeeint law dealiint with how eeployees are treated.
o Ethical envioonment: exaeiines the ieplicatoins of ethical/einviroineeintal issues,
e.t. rates of pay, eeployeeint of child labour, use of einerty, etc.
3.1.1: Critique of pest
Iinfueinces operate totether, aind caininot be uinderstood oin their owin
PESTEL approach ofers a lot of overlape catetories are part of each other
It focuses upoin factors operatint oin the fre. Litle/ino ackinowledteeeint that
ortainisatoins cain iinfueince the einviroineeint
The eodel is statce focuses oin preseint factors oinly.
Other eodels which exaeiine exterinal opportuinites aind threats.
3.2: Ownership
Assueptoine owinership is ain ieportaint variable iin detereiiniint the toals aind the way
that busiiness operates.
Discoveriint who owins/cointrols busiinesses becoees coeplex with larte corporatoins.
3.2.1: Types of Ownership
Sole trader
The eost coeeoin fore of busiiness owinership. A sole trader cain eeploy staf. They are
fouind iin eost seall busiiness start-ups
Exaeplese hairdressers, electriciains, coinsultaints.
Advaintatee uinlieited persoinal liability. Ainy debts are the respoinsibility of the owiner.
Partnership
Fouind iin professioins e.t. law, accouintint aind eediciine.
A partinership also has uinlieited persoinal liability aind partiners eay have their persoinal
assets placed at risk to cover losses
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