Environmental Studies of a Business Firm
An analysis and forecast of external factors constituting general business conditions, for example, prices, national income and output, volume of trade, etc., are of great significance since they affect every business firm. Certain important relevant factors to be considered in this connection are as follows:
- The outlook for the national economy, the most important local, regional or worldwide economic trends, the nature of phase of the business cycle that lies immediately ahead.
- Population shifts and the resultant ups and downs in regional purchasing power.
- The demand prospects in new as well as established markets. Impact of changes in social behaviour and fashions, i.e., whether they will tend to expand or limit the sales of a company’s products, or possibly make the products obsolete?
- The areas in which the market and customer opportunities are likely to expand or contract most rapidly.
- Whether overseas markets expand or contract and the affect of new foreign government legislations on the operation of the overseas plants?
- Whether the availability and cost of credit tend to increase or decrease buying, and whether money or credit conditions ahead are likely to easy or tight?
- The prices of raw materials and finished products.
- Whether the competition will increase or decrease.
- The main components of the five-year plan, the areas where outlays have been increased and the segments, which have suffered a cut in their outlays.
- The outlook to government’s economic policies and regulations and changes in defence expenditure, tax rates tariffs and import restrictions.
- Whether the Reserve Bank’s decisions will stimulate or depress industrial production and consumer spending and how will these decisions affect the company’s cost, credit, sales and profits.
Reasonably accurate data regarding these factors can enable the management to chalk out the scope and direction of their own business plans effectively. It will also help them to determine the timing of their specific actions. And it is these factors, which present some of the areas where a managerial economist can make effective contribution. The managerial economist has not only to study the economic trends at the micro-level but also must interpret their relevance to the particular industry or firm where he works. He has to digest the ever-growing economic literature and advise top management by means of short, business-like practical notes. In mixed economy like that of India, the managerial economist pragmatically interprets the intentions of controls and evaluates their impact. He acts as a bridge between the government and the industry, translating the government’s intentions and transmitting the reactions of the industry. In fact, the government policies emerge out of the performance of industry, the expectations of the people and political expediency.
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