BUSINESS ENVIRONMENT

BUSINESS ENVIRONMENT
INTRODUCTION

Business activity – all economic activities carried out by a

company during the course of business or any activity a
business engages in for the primary purpose of making a
profit.

Main aim is to make profit either in short or long term.

Business activity is not only trading activities i.e. Buying and

selling, but includes other forms like banking, insurance,
manufacturing, providing educational services, transportation
both passenger and cargo, internet services etc.
 INTRODUCTION
Cont’d
Business activity is a fundamental and universal feature
of human existence yet concept of business is difficult
to define with any degree of precision.

Most business activity takes place within an

organizational context and reveals a wide variety of
organizations ranging from the small local supplier of a
single good or service to a multibillion dollar
multinational corporation.
 BUSINESS ORGANIZATION
 Describes how businesses are structured and how
their structure helps them meet their goals.
 All business organizations have common features
such as formal structure, aim to achieve objectives,
use of resources, legal regulations controlling them
etc.
 Designed to focus on either generating profit or
improving society.
 TYPES OF BUSINESS
ORGANIZATIONS
 A business may be owned by one person as a Sole
Proprietor

 A business may be jointly owned with another person or

partner as a Partnership.

 A business could be owned through the establishment of a

Limited Liability Company.

 A limited company can be Privately or Publicly owned.

 1. Sole Trader
A business owned by one person, who assumes all the assets of the
business as well as all the debts.

Main features of Sole Proprietorship:

 Only one person (the owner) provides all needed capital

and manages it alone.

 Simplest and most common type of business enterprise.

 Business tends to be small in size although not always

so.
 This business enterprise is not confined to retail trade.
 Advantages of Sole Trader
 Business is easy to set up, control and manage.

 Requires small amount of capital to set up; as a

result many people are able to run this type of
business.

 Owner makes independent and quick operational

decisions.

 Business affairs are kept private except when

completing Tax returns. The law provides that the
sole proprietor shall pay tax.
 Disadvantages of a Sole Trader

 Personal assets are at risk because business

has unlimited liability.
 More difficult for a Sole Trader to source
outside finance because in most cases they lack
collateral.
 Sole trader is entirely responsible for all
aspects of the business (Marketing, Production,
Finance etc.)
 Difficulty of continuing business after death
or disability and bankruptcy of the proprietor.
 Sole Trader is responsible for all debts of the
business.
 2. Partnership
The Partnership Act, 1890, defines a partnership as a
relationship which subsists between persons carrying on
business in common with a view to profit.
Types of Partnership:
 General partnership: commonest type of
partnership where all partners work together on daily basis
sharing all privileges, benefits, and liabilities of the
partnership.
 Limited partnership: type of partnership in which
some partners contribute in raising capital but do not take part
in management of business. Such a partner is referred to as
“Sleeping Partner.”
 Partnership Agreement: document specifying and
regulating running of the business, contains the duties,
responsibilities, rights, penalties and general functions
of partners towards the business.
 Advantages of Partnership
 Few formalities are required to set up this type of
business.

 Sharing of partner’s knowledge and skills.

 Sharing of general management of the business.

 No obligations to publish Accounts and affairs of

the business to the public.

 Sharing of profits (or losses) of the business.

 Disadvantages of Partnership
 Each partner is liable for the debts of the
partnership, even if caused by actions of other partners.

 Personality clashes can affect business greatly if

not checked.

 Death or bankruptcy of one partner will

automatically dissolve the partnership unless provided
for in partnership agreement.

 Less flexibility of operations as is the case with

individual proprietorship.
 3. Limited Companies
An association where two or more people come together for a
common business goal.

A Company has “Corporate Personality”. It has all rights

that are in some cases as those of a human individual and is
always treated by Law as a “Separate person”.

 When a Limited company fails, its members or

shareholders are only required to meet their debts up to the
nominal value of their shares. This is the limited liability of
persons investing in business ventures.

Limited companies are either private or public.

 PRIVATE LIMITED COMPANY

 Private company: any registered company formed

and owned by private individuals other than the public.

 Its’ name always ends with the word Limited abbreviated

as Ltd.

 Minimum number of shareholders required for private

company is two (2) and can have shareholders up to fifty
(50).
 Advantages of a Private Limited
Company

 Legally separate entity or personality from owners.

 Liability of Shareholders is limited, so their personal assets

are not at risk.

 Shareholders have direct control over company’s affairs.

 Can easily raise more capital by selling shares though

not publicly.

 Has sure continuity, as company does not depend

on one person.
 Disadvantages of a Private Company

 Too many legal formalities to comply with.

 Accounts should be audited annually hence the

need to engage services of Auditors.

 Company is less flexible when compared with a

sole proprietorship.

 It is a costly exercise to form a Limited liability

than that of a sole proprietorship.
Public Limited Company
Public company states in its Articles of Association
that it is a Public Company mostly abbreviated as
Plc. This type of company is one that advertises
inviting the public to buy shares in it. It also lists its
shares on the stock exchange market.

Characteristics
 Formed by at least two (2) persons without a maximum
number.

 Shareholders or members of the company elect a Board

of Directors to control it.
Public Limited Company cont…

Characteristics
 Day to day running of the business is in the
hands of the Managing Director.

 Board of Directors deal with the Managing

Director on Policy issues.

 It is a separate legal entity and is registered with

the Registrar of Companies.
 Advantages of Public Limited Company
 The company is a separate legal entity and as such liability of
shareholders is limited to amount of shares they hold in the
company.

 It can raise more capital by the sale of shares on the stock

exchange (i.e. LUSE).

 It can employ professionals in fields like Marketing,

Accounting, Human Resource Management etc, making it more
efficient.

 Its size makes it possible for the company to buy modern

equipment and technology.

 It has assured continuity.

 Disadvantages of a Public Limited
Company
 It has to comply with many regulations set to protect
Employers, Employees and other Stakeholders.

 There is little secrecy, as its accounts must be published

annually. This is a legal requirement.

 Decisions tend to be delayed because of the amount of

administration or bureaucracy involved such as those that
require the Board’s approval.

The risk of takeover bids by other companies because shares

of a public limited company can easily be bought on the stock
exchange.
 WHAT IS THE BUSINESS
ENVIRONMENT?
 This term connotes external forces,
factors and institutions that are beyond
the control of the business and they
affect the functioning of a business
enterprise.
 The business environment poses threats
to a firm or offers immense opportunities
for potential market exploitation.
WHY STUDY THE BUSINESS
ENVIRONMENT?
 Development of broad strategies and
long-term policies of the firm
 Development of action plans to deal with
technological advancements
 Foresee the impact of socio-economic
changes at national and international
levels on firm’s stability
 Analysis of competitor’s strategies and
formulation of effective counter-measures
 Keeps business flexible and dynamic
EXTERNAL ENVIRONMENT
External environment is everything outside an organization
that might affect it. An organization's external environment
consists of two layers:
 General environment - nonspecific dimensions and
forces in an organization's surroundings that might affect
its activities. Includes Political, Economic, Social-cultural
and Technological (PEST) factors.
• Task environment - specific organizations or groups
that are likely to influence an organization. Consists of
competitors, customers, suppliers, regulators, unions and
owners.
General Environment

1. The Political/legal Environment

 Consists of the law and interpretation of
laws that require firms to comply with.
 Ignorance or noncompliance with the
laws, could result in fines.
 Operating within the legal framework is
both socially responsible and ethical.
 Political/legal
Environment Cont’d
 Organizations must be aware of state and
local laws that influence their activities.
 (12/08/2018-GRZ Pronouncements on,
Tariff on internet phone calls, The Food
Reserve (Amendment) Bill, 2018 and Cyber
Security and Cybercrime Bill, 2018)
 Thecentral and local government have
established regulatory agencies to enforce
laws i.e. CCPC, ZRA, NAPSA etc.
2. Economic Environment
 Economic and competitive forces in the
general environment influence business
organizations and customers' decision and
activities.
 Overall state of the economy fluctuates in
all countries.
 Thehealth of the economy influences how
much consumers spend and what they buy.
 Therefore, present-day economic conditions
and changes in economy have a broad
impact on the success of organization
Economic Environment
Cont’d
The consumption patterns of their
potential customers are affected by
economic forces such as:
 The rate of inflation
 Interest rests
 The availability of credit for consumer
purchases or investment purposes
 The rate of unemployment
 The size of disposable personal
income
3.Technological Environment
 Represents the application of knowledge based on
discoveries in science, inventions and innovations.

 New technology results in new products and services

for consumers, improved existing products and often
lower prices through the development of more cost-
efficient production and distribution methods.

 Technology affects the types of products that

organizations can offer.
 Monitoring the
Technological environment
Reasons for monitoring the technological environment
include;
 Adopting technology may be the means by which a firm
remains competitive.
 Applying new technology also gives organizations the
opportunity to improve customer service e.g. 24 hours
banking due to ATMs.
 New technology can lead to increased productivity and
operating efficiency e.g. CAD and CAM speed up the
production process in manufacturing companies.
4. Social/cultural Environment
 Analysis of the social environment is
concerned with understanding the
potential impacts of society and social
changes on a business, its industry and
markets.

 This may include changes in Tastes,

fashion, lifestyle, preferences etc.
Environment forces within the
international business include:
 language differences
 changing currency exchange rates
 different national laws affecting
economic activity, political risks and
stability
 tax laws of different nations
 social/cultural differences between
nations.
 TASK ENVIRONMENT
 1. Competitors: An organization's competitors are other
organizations that compete with it for resources. Other
competitors include those who produce similar or
substitutes products or services.
 2. Customers: Can be individuals or organizations.
Understanding customers is an important factor in the
success of any business organization.
 Their rights include:
 The right to choose freely –Variety of goods
 The right to be informed-Education on product information.
 The right to be heard –Express displeasure
 The right to be safe- Product safety
 TASK ENVIRONMENT cont…

 3. Suppliers: Organizations or individuals that

provide resources for other organizations. Banks and
lending agencies are both suppliers of capital for
businesses.
 4. Regulators: Units that have the potential to
control, regulate, or influence an organization's
policies and practices
 Two Important Kinds:
 Regulatory agencies - created by the government
 Interest groups - formed by their own individual
members to attempt to influence business.
 TASK ENVIRONMENT cont…

 5. External Labor: Organizations must also concern

themselves with labor especially when it is organized
into unions.
 Industrial Relations Act requires organizations to
recognize and bargain with a union.
 Union has to be legally established and should be a
mother body of the organization's employees

 6. Owners: Shareholders/ stockholders are no

longer sitting on the sidelines but are taking more
active roles in influencing the management of
companies they hold stock in.
 TASK ENVIRONMENT cont…

 7. Strategic Allies: Two or more organizations

working together in a joint venture or similar
arrangement.
 Help companies get from other companies the
expertise they may lack.
 Also spread the risk.
 Managers must be careful not to give away sensible
competitive information.
 INTERNAL ENVIRONMENT
 An organization's internal environment consists of
conditions and forces within the organization.
 Major components include:

1. Board of Directors

2. Employees

3. Culture
INTERNAL ENVIRONMENT cont…

 1. Board of Directors: Elected by stockholders and

charged with overseeing general management of firm to
ensure that it is run in way that best serves stockholder's
interests.
 Plays major role in helping set corporate strategy and
seeing that it is implemented properly.
 Reviews all important decisions made by top management
and determines compensation for top managers.
INTERNAL ENVIRONMENT cont…

 2. Employees: Exert a lot of influence on

organizations by way of demanding for good
conditions of service
 If employees demand high pay and other benefits
than they produce, an organization will be affected
 Second challenge for business is harnessing human
skills and talents for productive work while
protecting human dignity and health at the same
time.
INTERNAL ENVIRONMENT cont…

 3. Culture: set of values that help organizational

members understand what the organization stands
for, how it does things and what it considers
important.
 Plays a major role in shaping managerial behavior.
 Most successful foreign firms, such as Toyota have
strong and clear cultures that contribute to their
effectiveness.
 Culture is a powerful force in organizations, that can
shape firm's overall effectiveness and long-term
success.
END