Elements of Environment: Legal, Economic, Social, Technological, Corporate social responsibility, Ethics

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LESSON 5

Effect of Changes in Environment

Business Environment is defined as "all elements that exist outside the boundary of the business

(Organization) and have the potential to affect all or part of the organization

5.1 Elements of Environment

It is a collective reference made to the following factors

· Legal

· Ethics

· Economic

· Social

· Technological

5.1.1 Legal

Rules and Policies and Legal Laws established by government effect the Business Environment

Change in tariff rate may increase or decrease operation of the business.

Laws imposed to regulate business

o Companies Ordinance 1984: It is the Law under which a company performs its business

activities.

o Import Export regulations: Government announces Import & Export Policy at the time of

annual budget. Goods which are manufactured in the country is encouraged by levying high

duties on imported goods and encouraged export.

o International trade agreements e.g.

o European Union (EU): A number of regional agreements have been signed by the EC and

Pakistan such as:

o World Trade Organization (WTO): The World Trade Organization (WTO) is an

international, multilateral organization, which was created as a result of the Uruguay round of

discussion in 1994 to harmonic world trade. Various agreements between member countries

has resulted in lowering import tariffs, bringing down protective trade barriers setting up anti

dumping procedures and settlement methods. However it has failed to achieve any headway in

getting member countries to eliminate subsidies provided t other agriculture sector by nearly all

member states. As a result the WTO is currently faced with the threat of failure. The WTO

trade and services arrangements effectively replaced the general Agreement on Trade Tariffs

(GATT).

South Asia Free Trade Agreement (SAFTA): The South Asia Free Trade Agreement

(SAFTA) was agreed to among the seven South Asia countries that form the South Asian

Association for Regional Cooperation (SAARC): Bangladesh, Bhutan, India, Maldives, Nepal,

Pakistan and Sri Lanka. SAFTA came into effect on 1 January 2006, with the aim of reducing

tariffs for intraregional trade among the seven SAARC members. Pakistan and India are to

complete implementation by 2012, Sri Lanka by 2013 and Bangladesh, Bhutan, Maldives and

Nepal by 2015.

5.1.2

Economic

To make a profit without raising prices, the company turned to making simpler furniture

designs and increasing its technological efficiency.Developments within the economy which

may affect the business environment

Inflation rates:

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Inflation rate is an indicator of economic growth of a country. Inflation rate in Pakistan is 6.1

percent.

Bank Interest Rate:

Availability of capital in the capital, in the capital/money markets

Capital/ Money market is access able for an Entrepreneur who starts business with his savings and

with equity from capital/ money markets on favourable interest rate.

Foreign Exchange rates between two currencies specifies how much one currency is worth in terms

of the other. For example an exchange rate of 120 Japanese Yen to the Dollar means that ¥120 is

worth the same as $1. An exchange rate is also known as a foreign exchange rate, or FX rate.

Consumer spending: Patterns of spending give a good picture of consumer behavior, showing

various social, economic and marketplace trends at the household level. Consumer behavior is also

revealed by decisions not to spend. For example, if enough people are involved, boycotting a

company or a product (or even the threat of it) can be an effective way for consumers to make their

opinions felt. Boycotting has brought about a number of changes in companies' social and business

behavior, such as the development of certain voluntary codes. In fact, any consumer decision to

stop buying a product can ultimately and substantially influence corporate strategies. New trends in

the fast food industry's offerings are one example of the marketplace's responsiveness to

consumers' willingness to walk away.

Employment opportunities: Information Technology offers a variety of jobs. In the present era

information technology is used in every field like, Banking, Medicine, Laboratories, Textiles,

Scientific research etc.

5.1.3 Social

Changing demographic and social needs are impacting the business world. Corporations must address

the issues pertaining to the changing needs and requirements to retain and enhance market positions.

The internationalization of business brings greater pressure as variety of cultures, customs and practices

need to be taken into account whilst conducting business. The employees are today more aware of their

social needs whether these related to the work environment, behaviour, children education health,

compensation or work hours. National interests and culture have to be considered while offering a

particular product or service or exploiting the natural resources of a particular country.

This includes

o Demographic changes leading to changes in needs:

o Age Composition:

o Gender:

o Occupations

o Social norms

o Changing attitudes and perceptions

o Lifestyle

o Prosperity

o Availability of foreign brands/products

5.1.4 Technological

The most overwhelming change in the technology sector is rapid expansion of the internet as a place

for doing business. The World Wide Web and other advances in information technology have changed

the whole face of business.

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To produce desired products, It is necessary for a business to stay in market to produce the

goods according to the desire of the consumers. Due to the change in technology day by day

innovations has been taken place. Competitors by using the technology reducing the cost and

improving the quality.

To solve a problem,: There are varieties of problems facing a business in the contemporary world.

Information technology is being used to overcome the business issues like, Marketing, Brand of the

product, Quality of the product, Cost control, Organizational internal and external issues etc.

To fulfill a need: Information system must fulfill the needs of the business. An organization

needs information of its customers, product, market trend, employee information, payroll,

manufacturing cost etc. In time information helps the organization launch its product in time to

maximize profit.

The way products are developed and offered to the customers keeps changing thus affecting the

business environment in which the organization works

Pressures/Challenges

The changes in business environment pose challenges on the organizations which need to be responded

to. Following are the pressures

Competition for cheaper factors of production

Cheaper factor of production is a challenge for the survival of a company in competitive market.

Factors of production are basic elements of reducing manufacturing cost. Cheap and skilled labour

Availability of raw material, infrastructure.

Changing workforces

Lack of availability of skilled and experience force in market is a challenge for an organization.

Continue change in work force is harmful for an organization.

Enhanced customer quality

For the enhancement customer quality consistently provide innovative products, with outstanding

customer service and help their customers achieve operational excellence. An Organization ability to

provide outstanding product quality, service support, and their ability to enhance product quality,

achieve shorter delivery times, reduce scrap, rework and reduced life cycle costs

· Technological Obsolescence

Technological obsolescence is the result of the evolution of technology: as newer technologies appear,

older ones cease to be used. For example, new media for storing digital information rapidly replace older

media and reading devices for these older media become no longer available. Newer versions of software

constantly render older versions obsolete and the hardware required by this software also changes over

time. Consequently, information which relies on obsolete technologies becomes inaccessible. Currently, it

seems that the lifetime of digital storage media generally exceeds the life of the technology that supports

it.

· Information overload

In recent decades, technology has so enhanced our ability to gather data that the sheer volume of data

now outstrips our capacity to deal with it. Informatics is taking this seemingly unmanageable flood of data

and transforming it into information that helps solve key problems in fields like medicine, genetics,

chemistry, Internet security and engineering

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5.1.5 Corporate social responsibility

Corporate social responsibility (CSR) is an expression used to describe what some see as a company's

obligation to be sensitive to the needs of not only all of the stakeholders in its business operations but

more importantly the community at large. It has been defined as:

"The continuing commitment by business to behave ethically and contribute to economic development

while improving the quality of life of the workforce and their families as well as the local community and

society as large."

Businesses are now seen as partners of the communities in which they may be located rather than simply

as a profit making set up serving the needs of their stake holders.

Corporate social responsibility incorporates the principle of sustainable development along with "triple

bottom line reporting" reflecting not only financial results but also social and environmental impact of

the business.

The CSR may be looked after by an independent department reporting directly to the board or may be a

part of the business development or human resource department.

5.1.6 Ethics

Corporate or business ethics have attained vital importance in today's world. The issue not only

addresses matters such as how those charged with governance and managing businesses take decisions

but importantly the employee conduct and behaviour the corporations responsibility in terms of its

image, product, branding, trade, business practices and compliance with not only national and regional

but also international laws.

The huge number of financial and corporate scandals has moved the regulators to take suitable action. In

Pakistan all listed companies particularly are required to follow the code of corporate governance.

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