Business Environment

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Class

Professor
LO1) Explain the effects of changes in the economic environment on selected business

Economic Environment largely pertains to certain economic factors that can have both positive
and negative impact on the business cycle of a certain business. We understand that the changes
in these economic factors or the effect that they have will ultimately affect how those in the market
place, whether they may be other businesses and enterprises undergoing business to business
transactions or whether the consumer that is directly obtaining goods or services from the
business, and what the buying behavior of the two clients will be. According to the Business
Development Bank of Canada, “The term economic environment refers to all the external
economic factors that influence buying habits of consumers and businesses and therefore affect
the performance of a company.”

There are many economic factors that may affect the economic environment. It is worth
mentioning that the economic factors that are in discussion for any business, the business often
itself has little to no control over it, but even though they have limited control over it the factors or
aspects will greatly affect the performance and trajectory of the company. The economic factors
that affect the environment can be divided into two major categories. The macro-environment
factors and the micro environment factors. The micro-economic factors are grass root level factors
that may affect the economic environment of business or consumer on an individual level.
Examples of macroeconomic environment such as: competitors; which are similar businesses in
a similar market place, demand; the desire of buying goods and services within a market by the
buyers whether they be and individual consumer or a commercial consumer , supply; the amount
of goods and services in a market, market size; the overall size of the marketplace that depends
on the number of producers that supply of goods and services in the market and the number of
consumers that buy the goods and services in the market.

As for the macro environment factors it focuses more on the factors that are present outside the
marketplace. These factors have an affect over the entire economy and will also have a direct or
indirect effect on the marketplace as well, as it will most certainly affect the buying behavior of the
consumer. Further due to the effect on buying behavior, it will ultimately have an effect on the
performance of the business or the company. For the purpose of this assignment we will be
focusing more on these business environment factors. There are many examples of macro-
environment factors that are outside of the business's control and are large scale factors caused
by changes in the economy which are not limited but include factors such as: unemployment;
which is when individuals are unable to find employment, inflation; which suggests an increase in
the prices of goods and services, interest rates; which suggests the rates at which money is
borrowed, GDP; which is the total value of goods and services in the economy.

Now to further elaborate how all of these economic factors affect the overall business and how it
will affect the line of business that Shifa International hospital is in, I will describe each factor and
how it affects or impacts the day to day business of the hospital

Firstly i will be discussing, Unemployment. According to Britannica Encyclopedia

Unemployment is described as the condition of one who is capable of working, actively seeking
work, but unable to find any work. There is a very important distinction to be made between
someone who is not employed and someone who is unemployed. Any person who is not
employed may not necessarily be looking for a job or employment. Whereas those individuals
who are looking for a job or employment and are part of the labor force but still unemployed are
said to unemployed. For example senior citizens and elderly may not be considered as an
unemployed individual as they are not looking for a job and are in retirement but on the other
hand a fresh graduate who is striving to land a job and is part of the labor market will be considered
an unemployed individual. Unemployment is often used as an indicator to determine the health of
the economy. If unemployment is low it suggests that the economy is able to provide individuals
with jobs, whereas if unemployment is high it suggests that the economy is not growing with the
pace or lacks further growth to accommodate the labor market. For Shifa Hospital an increase in
unemployment can adversely affect the level of business for the hospital. An increase in
unemployment means that individuals will have less to spend. In a country such as Pakistan
where most individuals who receive health services mostly pay from pocket as opposed to other
countries such as Canada where most expenses related to health are paid by the government as
it is a welfare state. Greater unemployment coupled with payment through pocket means that
individuals will spend most of their earnings as well as their savings on acquiring health services
and there’ll be fewer investments thus ultimately leading to a slower economy and finally greater
unemployment, thus entering a vicious cycle. For the hospital, as more people will be
unemployed, there will be fewer people in the pool that can acquire state of the art treatment thus
they will look towards cheaper hospitals for their treatment. Therefore there will be less business
for the hospital.

The second factor that affects the business environment is Inflation. In simple terms, inflation is
the change or mostly the increase of the general prices. The Finance Ministry of Pakistan
describes it as “a persistent change in the prices of goods and services in an economy over a
period of time”. Due to inflation the prices of any group of goods or services will be more pricey
or expensive to acquire than when it was before as the value of the money held has eroded due
to inflation. If a country suffers from inflation it is suggested that the inhabitants of the respective
country has less purchasing power than it did before. Inflation is considered bad for business and
so is the case for Shifa Hospital. As the prices rise for commodities so will prices rise for health
commodities, but due to inflation the purchasing power of the patients will decrease therefore as
the health commodities go up the demand will decrease, the supply will increase which ultimately
make the price go up further making it difficult for the consumer to buy these commodities. As a
result business will further slowdown.

The third factor that will be discussing which affects the economic environment is exchange rates.
Exchange rates is the relative value of currency. Britannica describes it as the “price of a country’s
money in relation to another country’s money”. If a country greatly depends on imported goods
the increasing demand will have an increasing effect on the price making the cost of the imported
goods higher. For a country such as Pakistan which is a developing country and one that heavily
relies on imported goods for various industries an increasing exchange rate and devaluing local
currency seriously hampers economic growth. For Shifa International Hospital providing an
international level of service requires an international grade of instruments and machinery to be
used. If we take the recent increase of the dollar exchange rate, in a matter of months, the price
of one dollar shot up from 106 rupees to 156 rupees. This meant that the procurement of
machinery and instruments got even more expensive for the hospital and as a result the cost of
production or the cost of the provision of services also rose. Therefore the business of the hospital
may have taken an extreme plunge.

The next aspect for the purpose of this problem we believe is the interest rates which might
increase or decrease due to immediate changes. If the economy loses its value in the free market
interest rates go up for that organization. What happens here is basically when you take a loan of
cash you promise to pay it back at a future date with a certain percentage of interest. If the prices
surrounding the interest rates go up it added to the burden that is to be paid back. If viewed in the
light of the hospital let's take a hypothetical situation where the hospital takes a loan from the
international market to buy certain machinery for the service provision or it takes the machinery
itself at a loaned prices. The payback period of this may be estimated for about 5 years with the
interest rates included. If the hospital earns the value back by the time it’s been about 4 years
and 11 month but then the price of the dollar shoots up instantly due to instability in the economy
of the country, this will have a negative impact on the hospital altogether. As this means that a
greater amount would now be required to be collected in order to achieve and collect the total
amount needed to pay back the loan.

The last element that we will be including for the argumentative basis is basically are the tax rates.
This is the involuntary fee that is levied on the public at large in the form of direct and indirect
taxes, this fee is collected to go on to provide government activities and public service. However,
there is only so much tax that should be levied on the people where it will be appropriate and not
become a threat to humanity all together. If the taxed go above what the carrying capacity of the
nation as a whole. It leaves the country in a state of unemployment and poverty rates going up.
The same effect is faced by all other organizations to which the hospitals are no exception. Let's
assume that the tax rates go up and the indirect and direct tax rates both increase. This will result
in the cost for the relative service to shoot up and as a result will make it harder for people to get
their checkups and have the required health treatment for their sickness. The patients will have
to settle for a lower level of service provision as the tax rate rising will add to the cost of health
altogether. Whereas on the other hand the decrease in tax rates will have the complete opposite
effect where people will find it a little easier to have their regular checkups and keep their health
in check.
Bibliography
The Bank of Business Development of Canada. Economic
environment.https://www.bdc.ca/en/articles-tools/entrepreneur-toolkit/templates-business-
guides/glossary/pages/economic-environment.aspx

Encyclopedia Britannica. Unemployment. https://www.britannica.com/topic/unemployment

Chapplelow J. Unemployment. https://www.investopedia.com/terms/u/unemployment.asp

Government of Pakistan, Finance Ministry. Inflation.

http://www.finance.gov.pk/survey/chapters_19/7-Inflaton.pdf

Chen J. Inflation. https://www.investopedia.com/terms/i/inflation.asp

Encyclopedia Britannica. Exchange Rates. https://www.britannica.com/topic/exchange-rate

Subohi A. Taxing elite schools and hospitals. Dawn.

https://www.dawn.com/news/1517254/taxing-elite-schools-and-hospitals

MBN. Economic Environment. https://marketbusinessnews.com/financial-glossary/economic-

environment/