Strongpreneur#Business Growth Strategies
May 2, 2019 211
Strongpreneur#Business Growth Strategies
May 2, 2019 211
In this article, we shall examine the nature of the business environment, its importance, and implications for the efficiency and effectiveness of the business organization.
The business environment is a complex of interacting elements or forces ‘that are external’ but are currently or potentially of significant consequence to the future performance of the business enterprise.
The components of the business environment are sometimes described as uncontrollable variable. This simply underlines the fact that the individual firm is usually not in a position to make any significant impact on them in the short run. It further implies that every manager is often forced to take the environment as given, in the sense that he cannot significantly alter it.
It is necessary to modify these statements in two ways. First, an individual firm can, although very rarely, affect the direction, amount, and timing of changes in some of its environment.
Finally, a company can temporarily reduce competition by acquiring patent rights for its new invention.
The second point is that the uncontrollability of the environment does not mean that all or some firms acting together, cannot significantly affect their environment, particularly in the long-run. In the last two decades, cinema houses, and producers of electronic gadgets have significantly altered the ways in which Africans spend their leisure time. Likewise, the successes of many indigenous entrepreneurs have enticed many others into the business. The entry of these new firms has implications for the business organizations whose successes encouraged the new entrepreneurs to venture into the business.
Geographers are concerned with the study of man and his environment. They recognize that man’s ways of life are significantly influenced by his environment. Similarly, biologists in their study of ecology are concerned with the symbiotic relationship between the living organism and its habitat. They recognize that living organisms are constantly reacting and adapting to their environments. In fact, all organisms and organizations that are capable of adaptation tend to adjust to changes in their environments in order to survive.
The business organization operates in an environment that is of great importance to it in a number of ways.
First, the environment is the sources of the input which the organization processes into various forms of products and service. For instance, raw materials, technology, and human resources are obtained from the environment. Consequently, certain environmental changes could affect the quantity, quality, prices, and timing of these and other input and, there, affect the organization’s ability to meet the needs of its customers, shareholders, creditors, etc.
Secondly, the outputs of the business organizations are used in the environment. The business organization’s existence is justified and sustained by the ability and willingness of customers or clients to buy its output. An environmental development such as a change in consumer taste or income could enhance or jeopardize consumers’ willingness or ability to continue to patronize the company. Either way, the firm’s chances of survival and of meeting its various objectives are altered.
Thirdly the environment is important is the fact that every business organization, to a large extent, is constrained by the demands made upon it by external groups and bodies. For example, the government expects business to obey its laws and to pay its taxes as and when due. Both the government and the community require the company to behave in a socially responsible manner, that is, in a manner that protects and promotes the welfare of society. Managers are concerned about meeting the dividends expectations of shareholders while respecting the views and demands of the trade union. Customers expect business to provide them with safe and good quality products, as well as adequate information to enable them to use the products. Since the ability of the business establishment to respond to these demands could make the difference between success and failure, this component of the environment cannot be ignored.
Finally, the generally well-known fact that socio-cultural changes or political developments can alter the attitude of society to private enterprise further illustrates the importance of the business environment. Fundamental changes in the economic, political, social, technological and other environmental factors have important implications for the business organization. If the changes are favorable and are capitalized upon, the business may prosper and grow; but unfavorable changes may threaten the survival of the business.
The totality about the importance of the environment so far suggests that business managers need to give attention to a study of the environment if their managerial actions are to be effective. Environmental analysis is the term used to describe the process whereby managers deliberately observe, measure and predict the environment, so as to be able to plan ahead.
This process involves six major stages:
It is clear here that although the environment lies outside the control of the firm, it should not be ignored if the organization is to survive and grow. Rather, it must be scanned, measured and predicted so that the manager can juggle the firm’s controllable variables (product, personnel, technology, price, distribution methods, and channels and promotion, etc) to constantly adapt or adjust to it.
Environmental analysis is not an easy task. Its complexity is compounded by the fact that the environment is constantly changing in addition to the fact that it has many components.
The components of the environment are:
For the purpose of analysis, it is convenient to identify the major components of the environment. It consists of two broad levels, the operating environment, and the macro-environment.
The operating environment, sometimes referred to as the micro or task environment, consists of various interest groups that make demands on the firm and with which the firm deals. The main elements of this environment are trade unions, competitors, government, shareholders, distributors, consumers, suppliers, creditors and the community in which the enterprise operates. The actions of these groups have a direct impact on the operations of the firm.
Trade union always demand better conditions of service for its members while competitors expect the firm to avoid predatory or unhealthy competition that may not be in the interest of the competing firms. For example, competitors would most probably frown at a price war, and at comparative advertising, that paints other companies or their products in a bad light.
Distributors often require the firm to provide them with some form of support in their efforts to sell the company’s products. Cooperative vertical advertising, high price margins, and training of the distributor’s sales force are examples of these support services.
Consumers are forever demanding fair treatment in the form of safe products, truthful advertising, and fair prices from producers. Shareholders expect a stable and timely return on their investments, while the community and government expect the company to respect the laws and regulations, pay taxes promptly and do honest business.
Some of the demands made by these different interest groups are sometimes conflicting. For example, the demand of shareholders for higher profits may conflict with consumers demand for a fair price, or the community’s expectation of corporate participation in social programmes or philanthropy. The major challenge facing management in relating to these groups, therefore, is the need either to reconcile conflicting demands or to strike a balance between them.
The macro or general environment is less unique to the firm in the sense that it is shared by many industries. The major components of this environment are economic, socio-cultural, political and legal factors. The physical environments, as well as technology, are also included here.
Apart from the importance of specific changes or developments in these variables, the general trend in each of them partly determines the future character and performance of their form.
Some key economic indicators in the environment are the Gross Domestic Product (GDP), general price levels, employment, government expenditure, economic objectives and policies, the structure of the economy, indices of industrial and manufacturing production, and the import-export pattern.
It measures the value of goods and services produced in an economy within a given period, usually one year. It gives an indication of the value of total production. Tables indicate the patterns of estimated growth of the GDP of Nigeria for the period 1981 to 1985.
The figures indicate an anticipated average annual growth rate of 7.2% over the five-year period. Furthermore, they show the decreasing contributions of agriculture, livestock, forestry and fishing, mining, quarrying, and constructions.
On the other hand, manufacturing, utilities, and communications (with an annual growth rate of 15% each), transport and general government service (12%), wholesale and retail trade (10%) were expected to be the fastest-growing sectors. Housing and agriculture were expected to grow at 8% and 4% per annum respectively.
The GDP (at factor cost) was expected to grow from N36 billion in 1980 to N51 billion in 1985, representing an annual growth rate of roughly 16% expected during the Third National Development Plan (1975-80). At constant 1977-78 prices, per capita income was expected to grow from N426, N531 during the period.
Gross Domestic Product at 1977 Factor Cost: 1980-1985
|2||Livestock, Forestry, and Fishing …||3,135||3,260||3,391||3,526||3,668||3,814|
|3||Mining and Quarrying …||8,473||8,815||8,815||8,992||9,171||9,355|
|9||Wholesale and retail trade …||7,215||7,937||8,730||9,603||10,563||11,620|
|11||Producer of government services||2,268||2,540||2,845||3,186||3,569||3,997|
Source: Federal Ministry of Planning Outline of the Fourth National Development Plan, 1981-85, Lagos p. 10.
Gross Domestic Product at 1977 Factor Cost: 1980-1985 Percentage Distribution
|2||Livestock, Forestry, and Fishing …||8.7||8.4||8.2||8.0||7.7||7.5|
|3||Mining and Quarrying …||23.5||22.4||21.4||20.3||19.3||18.3|
|9||Wholesale and retail trade …||20.0||20.6||21.1||21.7||22.2||22.8|
|11||Producer of government services||6.3||6.6||6.9||7.2||7.5||7.8|
Source: Federal Ministry of Planning Outline of the Fourth National Development Plan, 1981-85, Lagos p. 10.
The expected structural transformation of the economy is reflected in the table above. Mining and quarrying were expected to grow from 7.45 to 10.5%. These expected growths or decline in the various sectors and the implied structural changes resulting mainly from government agricultural and industrialization policies suggest growth opportunities for manufacturing firms. A general rising pace of economic activity usually means increased incomes and hence increased demand for some industries’ products.
By nature, prices are not static. There is usually a tendency for an upward trend. The term inflation is used to describe a situation when there is a generalized, persistent, and significant rise in price levels. Nigeria has experienced a substantial amount of inflation in recent years. The highest inflation rate of 43% was recorded in 1975, partly as a result of heavy government spending, and the massive public salary increases awarded by the Public Service Review Commission, otherwise known as the Udoji Commission in that year. The official rate of inflation in 1976 was 8.6%, although unofficial estimates put the figure at 25-30%.
Since then there had been a considerable decline (after an initial rise), the corresponding official figures being 16.6%, 11.8% and 10% in 1978, 1979 and 1980 respectively (see Table 3.4). The indices show increases or decreases in prices. For example, an index of 247.5 for all items in 1981 shows that a basket of goods costing N100 in 1975 (the base year is 1975, N100) would be expected to cost about N247.50 in 1981.
Inflation does have some impact on all organizations in terms of increased input costs and the prices of their outputs; although the magnitude of the impact would vary from one organization to another.
Furthermore, inflation in the absence of at least a corresponding rise in income could severely limit the consumer’s real purchasing power and, therefore, curtail his demand for goods and services. Inflation could compel government intervention. For example, the establishment of the Price Control Board (now defunct), the Productivity, Prices, and Income Board, and Rent Tribunals was one of the government’s responses to the inflation that gripped Nigeria during the second half of the 1970s. For some commodities, such as cars, newspapers, and cement, price increases could not be introduced without government approval.
The level of employment in an economy, through the laws of supply and demand, has some influence on the price of labor. A high level of unemployment would tend to pull down the price of labor since unemployed people would most probably be more willing to accept lower wages.
Nigeria’ labor force was estimated at 32.24 million in 1981, and this was estimated to increase to 36.08 million in 1985. However, the total number in gainful occupations had been estimated at 30.90 million and 34.82 million in 1981 and 1985 respectively. The corresponding estimated unemployment rates were 4.2% and 3.5% for the two years.
|Tobacco and Kola||183.1||186.0||202.9||229.2||264.8||1.6||9.1||13||30.5|
|Accommodation Fuel and Light||127.3||131.4||166.9||177.3||173.2||3.2||27.0||6||2.3|
|Household goods and other purchases||136.9||147.1||156.0||181.5||194.6||7.5||6.1||16||7.2|
Source: 1. Central Bank of Nigeria, Annual Report and Statement of Accounts for the year ended 31st December 1979, pages 28.
This represents a decrease when compared with the 1981 unemployment rate of 4.3 percent. These figures excluded underemployment, which was very considerable, especially in rural areas. Furthermore, the urban unemployment rate far exceeds the national average, which has been estimated at between 8% and 13%.
Out of Nigeria’s official 1973 provisional population figure of 80 million, only about 3.75% were in gainful wage employment. This represents only 9% of total gainful occupations, and it was expected to grow at a rate of 5% during the 1981 – 1985 plan period.
The table below shows the percentage sectoral distribution of total gainful employment as of 1975.
(27,910.00 – 100%)
Mining and quarrying 0.4
Manufacturing and processing 16.8
Construction and building 0.9
Electricity, gas and water 0.1
Transport and communication 0.6
Source: The National Development Plan 1975-80, P.370
Government socio-economic objectives and the policies formulated to implement them, dictate how much encouragement the government is prepared to give to the various sectors of the economy. While the broad goals and guidelines purposed by the government are usually likely to endure for a long time, the specific objectives and policies are likely to change more frequently.
Both in words and action, Nigeria is committed to fostering a mixed economy where privately-owned and government-owned business enterprise co-exists. Over the years, government participation in business increased. The various Nigerian governments participated in various industries, including banking, insurance, brewing, steel, oil exploration, refining and marketing, road, air and sea transport, and the newspaper and textile industries.
The specific objectives of the Fourth National Development Plan were:
Consequently, agricultural production and processing, education and manpower, economic infrastructure, housing, health and diversification of the economy are regarded as high-priority areas.
Government adopts various fiscal, credit and monetary policies, and industrial guidelines and incentives from time to time, in order to guide the productive efforts within the economy towards the achievement of the stated objective.
Such measures normally include the following:
The present structure of these incentives in Nigeria is such that the following priority industries are highly favored by the government, in the administration of incentives:
These policies and incentives affect the attractiveness or otherwise of investment opportunities. In order to reap their benefits, the manager should not only be conversant with them, but also should be able to predict changes in them, and be in a position to capitalize on them.
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