Economic factors and Business Environment
In most cases, business environment in which companies operate is influenced by a number of factors. In this context, the term “business environment” is used to imply the various factors that influence the operations of a company; it includes stakeholders, competitors, customers, industry, suppliers, regulations, economic factors, as well as technological factors. Economic factors refer to the aspects that influence the distribution, utilization, and consumption of materials and services within the economy, (Paul 2006). Arguably, some of these factors cannot be controlled by the company. The main objective of this essay is to analyze ‘what’ and ‘how’ economic factors influence the operations of companies in Saudi Arabia within a given business environment.
To begin with, one of the economic factors in the business environment that has significant impact on the operations of a company is income. Income determines the demand of goods and services that should be supplied in the market. From the economic point of view, most scholars assert that the amount of demand of goods and services is positively related with the amount of income of the consumers. As such, when income increases the demand of goods and services also increases, (Andreas 2007). This implies as demand in the market increases, companies will be forced to increase the supply of goods and services so as to take advantage of the increasing demand. As an illustration, Mid-East Food Company manufactures and markets frozen dinners and potato products in Saudi Arabia. Generally, in the recent times incomes of majority of households have increased in most Middle East countries due to an increase in employment rates. The demand for the products of this company has significantly improved as most people can now afford its products. Therefore, the Company has been foods to increase its supplies so as to meet the increasing demand; hence, the growth of the company.
The second economic factor in the business environment is the state of employment rates in the economy. To some degree, employment rates are positively related with income level of an individual. With employment, most individuals can afford to buy certain goods which could not have been the case if they were unemployed. It has also been observed that when people get jobs their lifestyle changes greatly, (Andreas 2007). Tastes and preferences also changes as people have more income which means that they have many options on what to consume or rather purchase. As mentioned above, due to an increase rate among the women in Saudi Arabia, in most households now both the husband and wife have access to white color jobs. Preparation of food at home has become a challenge in most families as they do not have enough time. Therefore, many people prefer readymade food which they only need to warm. Mid-East Food Company has benefited a lot from the increase in employment rates for women. Previously, when the number of women in the workforce was a bit lower, the sales of the company was considerable low. However, its sales have improved recently thanks to the increase in employment rates for women.
The third factor that plays a considerable role in business environment is economic growth and development. In general terms, economic growth determines the amount of funds that the society is getting while development signifies the quantity of money that is being invested in the economy, (Paul 2006). Development greatly impact business environment due to the fact that businesses have to accommodate the demand of society that is economically dynamic. Saudi Arabia is considered as one of the countries in the world that enjoys economic growth and development, mainly due to availability of natural resources such as oil. Mostly, the growth of most companies depends on the growth and development of an economy. Investment activities of companies also contribute to economic growth as well. A good number of companies in Saudi Arabia have expanded due to economic growth and development. For instance, Abdullah Al Othaim Markets Co is one of the companies that has benefited from economic development. The company started by trading in food products and supplies and other agricultural products. However, due to economic development and growth the company has started venturing into other markets such as construction, operating, and managing supermarkets, as well as computer services and maintaining and operating mechanical and electrical equipments.
Demand and supply are other interconnected factors that impacts operations of companies in any business environment. Demand refers to the ability and will of consumers to buy a given commodity, while supply is capacity of business to offer the demanded commodities. Undeniably, in the Middle East and Saudi Arabia in specific, the demand for fast food has increased in the recent times, (Shaikh 2006). This is attributed to the fact that, in households in Saudi Arabia both the wife and husband hold a formal employment. Therefore, there is minimal time for preparing meals at home; hence, they have to rely on ready meals. Due to increase in demand, companies operating in fast food business such as Mid-East Food Company had to increase their supplies so as to satisfy the increasing demand. Thus, profitability of that the company enjoys today can be attributed to the increasing demand for its products.
The other economic factor that plays incredible role in business environment is total and marginal utility. By definition, utility refers to the quantity of satisfaction that the consumers obtain by consuming certain. Arguably, continuous and successive utilization of units similar goods will lead to a decrease in the satisfaction that is derived from those goods by the consumer. To some degree, this may lead to a long term or short term decline in sales of a company, (Lorna 2000). In order to avoid a decline of sales due to decreasing utility, companies introduce a new brand before the effect of decreasing sales is felt. This is the main reason why Mid-East Company introduced a variety of foods such as Mid-East Curly Oven Chips, marinated roast, and Home Fries. This has been very helpful for the company has it has been able to maintain its clients and attracting more clients using this strategy. If utility of one product declines leading to a reduction of sales of the product, the company can always recover the reduction of sales of the product by an increase in sales of another brand.
General Price level is also affects business. In this context, general price level implies the cost that a consumer is supposed to pay for a good or service. In most cases, costs of raw materials, production costs, labor costs, as well as transportation costs are added together and then passed on to the consumer of those goods, (Hulleman & Marijis 2008). Cost of goods determines the amount of sales that a company will achieve. From the economic point of view, it is assumed that when prices goes up the demand decreases leading to reduction of sales. Precisely, from this assumption prices are inversely related to demand. Price determines the success of a company and it is one of the factors that a company has to take into consideration before they start producing commodities for sale, (Lorna 2000). This is one of the chief factors that propelled Abdullah Al Othaim Markets Co to the position it is today. When the company started diversifying its activities, it chose price a strategy to outdo its competitors. In order to achieve this goal, they priced their goods a little bit lower as compared to their competitors. Therefore, they were able to attract many customers securing a large market share. Additionally, due to the large market share, they started producing in large scale; enjoying the benefits of economies of scale.
Availability and circulation of money within the economy is very crucial for business. Thus, money and banking has a role to play in the business environment. In most cases, the government uses banks in regulating economic activities with an intention of achieving a desired goal, for instance a given rate of economic growth. To be more specific, banking smoothens the progress of fiscal and monetary policies that have an impact on business as well as customers of the business, (Hulleman & Marijis 2008). Most importantly, money that is in circulation influences the customers’ demand or rather the paying power. Additionally, banking facilities have an impact or rather determines the borrowing capacity of business as well as individuals. Availability of credit to the general public implies that people have enough money to spend. From the economic point of view, high spending rate facilitates investments rates within the economy; hence, chances of business growth.
Lastly, is the issue of trade cycles. Trade cycles refer to the fluctuating costs of commodities as well as goods within the economy. Some of the important cycles that influences business activities are, rise, fall, stability as well as continuity. Trade cycles affect business in different ways the most crucial one being through prices. Undeniably, different prices are experienced during the various trade cycles, (Shaikh 2006). For instance, during the high trade cycle prices are high; hence, the spending rates are low. This implies that businesses will be realizing low sales due to the fact consumers have less to spend.
Finally, there are a number of factors that influence business activities or rather business environment. The most influential factor is emergences from economic activities. Economic factors refer to the aspects that influence the distribution, utilization, and consumption of materials and services within the economy. Examples of economic activities that have an impact on business environment include: general prices, employment rates, the level of income, trade cycles, money and banking, demand and supply, as well as total and marginal utility. Notably, these activities determine the operations of most companies.
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