Economic Environment of Business.

“A MINI PROJECT REPORT”

SRTMUN
SubCentre LATUR

PANKAJ KAPSE
MBA SY SemIII
Roll No 18

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 Economic Environment of Business.

DECLARATION

I PANKAJ KAPSE, the student of SRTMUN Sub Centre LATUR of Masters of

Business Administration (Semester-I) hereby declare that I have completed my
project / assignment, titled “Economic Environment of Business”, in the

Academic Year 2010-2011. The information submitted herein is

True and original to the best of my knowledge.

Signature of Student:

____________________

My Name.

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 Economic Environment of Business.

ACKNOWLEDGEMENT
This project report could not have been prepared, if not for the help and
encouragement from various people. Hence, for the same reason I would like to
thank my guide. It was for his support that I got proper guidelines for preparing
this project. There are many more people I would like to thank, which include
my class fellows who offers me their moral support ; specially the people living
in my society i.e. my friends and colleagues , they helped me with the questions
asked and the answers given by them were up to the mark, they were confident
with their answers.

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 Economic Environment of Business.

CRITICAL SUMMARY:

The topic under subject for my today assignment is the Role of Economic Environment
of Business. Firstly we have to understand that what this logic stands for. Below is the
proper definition for the subject is suitable in my opinion.

The effect of total or over all economic system of the economy on business, i.e., whether
Capitalist or Social system. Country's system of Economic Planning and Control, such as
Government's Fiscal or Monetary systems, Commercial and Industrial policies of the
Government, and Commercial and Industrial laws of the country are all important
elements of the economic environment. Every such element affects the functioning of the
business.”

Here we will discuss below the above points in the light of Practical Study of
Organization by implementing or being implemented the factors which may positively or
negatively affect the business.

On the other hand, we will also look upon the positive aspects of these factors which are
fruitful to the business or entrepreneur.

Possibility to avoid the business by the negative aspects of these factors will also be
discussed. An extra intelligence, expertise and experience would surely help a lot to
promote the business in the unseen circumstances.

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 Economic Environment of Business.

Table of Contents:-

 Definition

 Components of Economic Environment

 Classifications of the Economic Environment

 Factors Affecting the Economic Environment

 Practical study or Implementation of Economic

Environment on Business.

 Data Collection Methods.

 SWOT Analysis

 Conclusion

 Recommendations.

 References

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 Economic Environment of Business.

DEFINITION:
The economic environment is an incorporation of various economic
factors, such as total employment, productivity, income, wealth,
inflation and interest rates. These factors influence the spending
patterns of individuals and firms.

Components of the Economic Environment

The economic environment comprises of:

 Income and wealth: Income in an economy is measured by

GDP, GNP and per capita income. High values of these factors show a
progressive economic environment.

 Employment levels: High employment represents a positive

picture of the economy. However, there are many forms of
unemployment, including partial employment and disguised
unemployment.

 Productivity: This is the output generated from a given amount

of inputs. High levels of productivity support the economic
environment

Classifications of the Economic Environment

The economic environment can be classified into:

 Microeconomic environment: It includes the economic

environment of a particular industry, firm or household and is
primarily concerned with price determination of individual
factors. The main consideration from a microeconomic

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perspective is the efficient allocation of resources. This is

necessary to maximize total output.

 Macroeconomic environment: It includes all the economic

factors in totality. The main consideration here is the
determination of the levels of income and employment in the
economy.

Over the course of the twentieth century, the focus has shifted from
cities and countries to the global economy being the chief economic
unit.

Factors Affecting the Economic Environment

The economic environment of a nation as well as the world is impacted

by:

 Inflation and deflation: Inflationary and deflationary

pressures alter the purchasing power of money. This has a direct
impact on consumer spending, business investment,
employment rates, government programs and tax policies.

 Interest rates: Interest rates determine the cost of borrowing

and the flow of money towards businesses.

 Exchange rates

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: This impacts the price of imports, the profits made by

exporters and investors and employment levels (also through
the impact on the tourism industry).

 Monetary and fiscal policy: This helps in attaining full

employment, price stability and economic growth.

The economic environment is also influenced by various political, social

and technological factors. These include a change in government and
the development of new technology and business tools.

 Security Conditions: This helps in developing business and

its activities.

The better the security conditions, the better will be the business
environment. Customers feel secure and willing to purchase.

 Govt. Taxes: Government taxes are the most important issue

in developing the business activity. It has a direct relationship
with the purchasing power of the customer. A Low Government
tax raises the purchasing power of customer. High Govt. Taxes
then lower will be purchasing power of the customer.

 Unknown Catastrophe Situations:

Unknown catastrophic situations mean unknown disasters in the

country. If an earthquake comes with some disasters, heavily
rain caused floods; a storm arose in the sea etc. Any such
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situation which disturbs economic and social life of individuals

and businesses. For example, recent flood in Pakistan changes
completely the picture of economy and social life of common
human being.
 ractical study or Implementation of Economic

Environment on Business.

Now, practically we are going to implement the Factors of Economic

Environment on Business. The business which I choose for my
Practical Study is It was developed in the year 1996. Their first office
was in Islamabad which now grows into a huge company. It has now
two new branches at Lahore and Karachi. The main theme of the
business is to Import Items from various foreign countries and sells it
to their customers. The components of economic environment and
factors are discussed below:

 Components of Economic Environment in K.M.

Enterprises:

 Income and Wealth:

Income and wealth relevant to this specific organization is

that as this company is classified as a sole proprietorship. The
initial investment in this organization was 15 Million Pakistani
Rupees which now exceeds more than the more than 100
Millions Pak Rs.. This shows a very positive economic activity
in business.

 Employment Levels:

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Initially this company has 10 employees at only its head

office. Now it has more than 25 employees in its three offices
which include Lahore and Karachi. The numbers of employee
show that economic environment is positively affecting the
business.

 Productivity:

As this company is not relevant to production. But it only

imports items and has a great supply chain of machines and its
spares parts to the local production sectors.

 FACTORS AFFECTING BUSINESS ENVIRONEMNT:

 Inflation and Deflation:

Inflation decreases the purchasing power of the individuals and
businesses. The GDP and GNP of the national economy also fall.
The company under discussed is also affected by inflation and
has a direct relationship with the sales and purchase of this
company.

On the other hand, deflation also affects the business activity.

Company suffers loss when deflation occurs. In Pakistan during
the few last years, deflation rarely seems. Each and every
product price rises more than 100%.

 Interest Rates:
Most of the businesses in the world including Pakistan, has a
very powerful relationship with Interest Rates. Most of the
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Companies borrows money and securities from the Govt. or

Commercial Banks. If the Central Bank i.e. State Bank of
Pakistan rises the Interest Rates ratio across the country,
which affects the Businesses. Company’s profit margin
decreases which affects in low employment rates.

 Exchange Rates:
Exchange Rates have a very great and un-broken relationship
with K.M. Enterprises. Higher the exchange rate in Dollar or
Euros the higher will be foreign purchase. Higher will be taxes
on its purchase. Low will be profit and company will suffer a
loss.

 Monetary and Fiscal Policy:

The Monetary & Fiscal Policy launches by the Government.
Any new monetary & fiscal policy is developed by the current
situation throughout the country. But sometimes its fruitful to
some businesses and disaster for some businesses also. New
taxes have been implemented e.g. GST goes to 17% instead
of 16%. Income tax goes to 4% instead of 2%. VAT now will
also be launched as 17% at actual on each and every
product.

A new flood relief tax amounted to 10% will be implemented

to every purchase of the buyer.

As the above structure of taxes and duties launched by the

Government, surely reduces the purchase power of the
individuals and businesses.

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 Unknown Catastrophe Situations

Flood run in the last few days ago across the country which
affects directly to the individuals and businesses. This loss
effects Govt. and civilians both. Government imposes a new
tax as flood tax for amounted 10% at actual on each and
every purchase for one time. These types of catastrophe
situations prevent the investors to invest and economy of the
country and business surely effects.

Security Conditions:
Security conditions are very poor in last few years in Pakistan
which restricts foreign investments across the country.
Foreign investor prefers India instead of Pakistan. That’s why
Pakistan economy is decreasing continuously.

Political instability in Pakistan is also a major issue even from

the existence of Pakistan. Political stability is a major factor
for the investor to invest in our country.

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DATA COLLECTION METHODS

Data collected from this assignment is mainly from the Internet and
my course books.
The data collected for organization is verbally collected by interview
with Mr. Khawaja Aleem Ahmed who is the Finance Manager from 5
years in this organization.

SWOT Analysis
(An Overview)

SWOT analysis is a simple framework for generating strategic

alternatives from a situation analysis. It is applicable to either the
corporate level or the business unit level and frequently appears in
marketing plans. SWOT (sometimes referred to as TOWS) stands for
Strengths, Weaknesses, Opportunities, and Threats. It concentrates on
the issues that potentially have the most impact; the SWOT analysis is
useful when a very limited amount of time is available to address a
complex strategic situation.

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Situation Analysis

      

Internal Analysis    External Analysis 

   

Strengths    Weaknesses    Opportunities  Threats

SWOT Profile

The internal and external situation analysis can produce a large

amount of information, much of which may not be highly relevant. The
SWOT analysis can serve as an interpretative filter to reduce the
information to a manageable quantity of key issues. The SWOT
analysis classifies the internal aspects of the company as strengths or
weaknesses and the external situational factors as opportunities or

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threats. Strengths can serve as a foundation for building a competitive

advantage, and weaknesses may hinder it. By understanding these
four aspects of its situation, a firm can better leverage its strengths,
correct its weaknesses, capitalize on golden opportunities, and deter
potentially devastating threats.

Internal Analysis

The internal analysis is a comprehensive evaluation of the internal

environment's potential strengths and weaknesses. Factors should be
evaluated across the organization in areas such as:

 Company culture
 Company image
 Organizational structure
 Key staff
 Position on the experience curve
 Operational efficiency
 Operational capacity
 Brand awareness
 Market share
 Financial resources
 Exclusive contracts
 Patents and trade secrets

The SWOT analysis summarizes the internal factors of the firm as a list
of strengths and weaknesses.

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External Analysis

An opportunity is the chance to introduce a new product or service

that can generate superior returns. Opportunities can arise when
changes occur in the external environment. Many of these changes can
be perceived as threats to the market position of existing products and
may necessitate a change in product specifications or the development
of new products in order for the firm to remain competitive. Changes
in the external environment may be related to:

 Customers
 Competitors
 Market trends
 Suppliers
 Partners
 Social changes
 New technology
 Economic environment
 Political and regulatory environment

The SWOT analysis summarizes the external environmental factors as

a list of opportunities and threats.

When the analysis has been completed, a SWOT profile can be

generated and used as the basis of goal setting, strategy formulation,
and implementation.

CONCLUSION

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Finally, it’s the conclusion to summarize my whole assignment. The

main purpose for this assignment is to create a concept of Economic
Environment that exists in business and non business organization.
The economic environment develops an understanding that economics
involves in the individuals and businesses.

Every factor of economic environment has correlation with each other.

Every factor has its importance in way that each factor can increase
productivity and profits of some organization.

Change in every factor changes the life of individual as well as

organizations.

RECOMMENDATIONS

 Companies should evaluate its resources and try to

implement those policies which should fruitful to the
running business.

 Business should have strong rules and regulations which

don’t contradict with Government policies i.e. monetary
policies and policies launch by Federal Board of Revenue.

 Business should not rely on the credits from the Banks and
other links to run their business to avoid the circumstances
occurred by Interest Rates.

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 Businesses dealing with Exchange rates should have to

deal their businesses with currency which is involved in
their purchases.

 Experience staff should be hired who can face unseen

circumstances with their experience with ease.

 Employee motivational programs should be launched.

 On job trainings should be there to meet the current

attitudes of business.

 Planning Division should be launched or consultancy should

be hired which analyses monthly the current situation of
business with the current economy to prevent business
from loss.

References:

 www.mindtools.com

 www.coursework4you.co.uk

 www.netamba.com

 www.businessdictionary.com

 www.yahoo.answers.com

 Www.wikipedia.com

 www.sbp.com.pk

 www.fbr.gov.com.pk

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