Business environment concepts and analysis

Business Environment

There are differing views on the role of business. Milton Friedman (1970) has the classic argument that the social responsibility of business is to increase its profits. This argument holds that businesses exist to make money, and it is in this pursuit that they do the most good for society. Making money, after all, results in things like jobs, new inventions, new products, efficiency and lower costs of goods. Business is the vehicle by which investors earn a return and to earn that return businesses must do good things that people find positive and are willing to pay for. Indeed, just the making of profit is considered to be good, since this means that people have earned money that they can spend, thereby contributing to economic growth. The World Economic Forum (2013) takes a somewhat contrary point-of-view, arguing that the role of business is more complex than that, inherently, because of the high level of interactions between business and society.

The role of non-profits is somewhat different. Whereas business makes positive contributions to society almost by accident as a byproduct of its pursuit of profit, non-profits make positive contributions to society as their primary objective. Non-profit entities seek to deliver public services, for example, that people cannot afford to pay for but which do bring benefit to society. In a sense, by contributing to make society a better place and by improving outcomes for some people, non-profit agencies provide the framework for people to have the time to engage in positive for-profit activities. Thus, non-profits provide work that is not valuable on economic terms, but which does have a value to society at large.

The economic environment is another part of the overall business environment context. The prevailing economic situation is actually rather poor. GDP growth is not strong, and unemployment is coming down slowly. The result of this is that there needs to be intervention to spur economic growth. There are two kinds of intervention, those being monetary and fiscal policy. Monetary policy is run by the Federal Reserve and is specifically related to the money supply. The instruments of monetary policy -- open market transactions, the discount rate, and the reserve requirements for banks -- all affect either the cost of money or the supply of money. The cost of money is of course related to the supply and demand for money, being a relationship between the two. Fiscal policy refers to government spending and taxation.

The current economic situation is not great, with a weak recovery from a deep recession. As such, one would expect significant effort on the part of both the Fed and the government to improve economic conditions. The Fed is doing its part, using all of its policies tools and even some unconventional ones like quantitative easing, communications. However, the Fed notes that monetary policy is not enough on its own to deal with the current economic situation -- it has done all it can and clearly it is not enough (Labonte, 2013). There has been little in the way of fiscal policy, and the result has been entirely predictable. With no particular influx of spending into the economy, the recovery has generally been quite weak. With no fiscal policy tools on the horizon, it is therefore unlikely that any improvement to the recovery will take place.

International business is also an option for a company to improve its situation. If a company wants to sell, for example, running shoes, it has a number of options for this. The company could make the shoes in one country and sell them around the world. The company could also make the shoes in a number of different countries for local sale. It is recommended that the country should take advantage of economies of scale and produce in one country. Then, the company should sell the shoes all over the world. It can use local help from retailers to sell the shoes, or it can set up its own stores in order to make the sale.

Another option, of course, is to license production in each country. The downside of this is that there is not going to be production in every country, so there could be gaps in the licensing agreement. There could also be inconsistent product quality. Clearly, it is important for the company to analyze these different options carefully before settling on a course of action.

Additionally, companies should also take into account social responsibility. If you think about a company like Wal-Mart, they actually take social responsibility fairly seriously. Their focus on efficiency as a means of driving down cost means that they are often oriented towards reducing costs. The result is that there are often good outcomes.

One stakeholder group for Wal-Mart is the company's suppliers. Often, the calls for greater efficiency and greater sustainability fall to the suppliers to implement. This can actually be a challenge for many and it might hurt their bottom line. Wal-Mart uses its bargaining power, however, to drive different terms for its purchases.