A business environment and its forces in its micro environment operate in a larger macro environment of forces that pose threats to the business. The macro environment of business includes activities which are uncontrollable and need proper nourishment and attention on the part of a business enterprise. A sketchy picture of the important macro environmental forces is as explained below:
Define Economic Environment in Business Environment
The survival and success of business enterprise is finally decided by the economic environment and various market conditions. The important external factors that affect the economic environment of a business are:
Economic Conditions, Economic Policies, Economic System
Economic Conditions: Business cycles and growth of the economy are important factors defining the economic environment. The stage of economic development decides the size of the local or domestic market and its dynamism affects on the business.
Economic Policies: The Government decides the economic environments of business through the following:
Budgets, Industrial regulations, Economic planning, Import & Export regulations, Business laws, Industrial policy, Controls on prices and wages, Trade and transport policies, The size of the national income, Demand & supply of various goods etc.
Various laws framed by the central government, stage government and local bodies to regulate the business also from part of the economic environment of business. Some of the important acts include:
Factors act, 1948, Industrial Disputes act, 1947, Foreign Exchange & Regulations Act, 1947, Imports and Exports (Control) act, 1947,Companies (Development and regulation) act, 1951 and many others acts, New Industrial Policy of 1991.
Economic System: The economic system existing in the country also affects the business enterprise to a very great extent. The economic system of a country may be:
Free enterprise i.e. capitalist, Socialist, communist
Capitalism: It is a system of economic organisation features by the private ownership and use for the private profit of man made and nature made capital. There is a private ownership of the means of production, individual decision making and use of the market mechanism in the capital system. Household and firms are the basic production units. Individuals and firms have the rights to own and use property and to earn and spend incomes. All the factors of production are privately owned. Under capitalism profit acts as a barometer and people try to earn more and more of it.
Socialism: Socialism is an economic system where the means of production are either owned or managed by the state and where the investment structure, consumption, allocation of resources, distribution of income etc are regulated and directed by the state. It does not mean that there is a perfect equality in income distribution. There may be wage differentials, depending on the nature and requirements of the job. In socialist system all working people have an interest in the fullest understanding and application of the economic system. A liberal socialist economy preserves to a considerable extent free choice of consumption.
Mixed Economy: In mixed economy there is a policy of compromise between capitalist and socialist economic system. There are features of private capitalism and state capitalism. There is an existence of public and private sectors and overall government regulation of the economy. The Indian economy is a mixed economy and comprised by the co-existence of private, public, co-operative, tiny, small, medium and large industries. The main characteristics fields of production which are excluded from private sector while some are included in it.