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Political Factors
Political factors refer to the degree of intervention of government in the economy. There are certain formal and informal rules laid down by the government which every organization has to abide by in order to sustain its operations in a particular country. Important political factors include: Political stability Taxation laws Entry mode regulations Trade regulations such as NAFTA
Pricing regulations Intellectual property rights Anti trust laws Entry requirements Tariffs Employee wages and benefits Political decisions have a strong influence on many vital areas for business such as the educationof the workforce, health of the nation and quality of the infrastructure of the economy such as the road and rail system.
Economic Factors
Economic factors are those which have a direct impact on the capital loss of organizations and purchasing power of customers. These include: Inflation Exchange Rates Rate of unemployment Literacy Rate Effectiveness of financial institutions Efficiency of free market Quality of infrastructure Interest Rates Business Cycle Stability of currency Skill level of employees Economic Growth Income distribution Below is an example of economic factors and its impact on an organization, as mentioned in a book called Foundations of Economics. Higher interest rates may deter investment because it costs more to borrow A strong currency may make exporting more difficult because it may raise the price in terms of foreign currency Inflation may provoke higher wage demands from employees and raise costs Higher national income growth may boost demand for a firms products
Social Factors
Social factors are cultural aspects and demographic variables which are closely linked to the market potential and customers needs. These include: Age distribution Attitude towards health and environment Education Leisure activities Attitude towards career Changing lifestyle Gender Role In developed countries such as UK and USA, the labour pool is growing. This means the costs for firms, who are paying pension to their employees have increased because the staff are living longer.
Technological Factors
Technology is what drives the phenomena of globalization. It provides competitive advantage to firms. Major technological factors include: Rate of technological innovation Rate of obsolesce of technology Technological development New technological platforms Diffusion of technology Technology reduces costs, improves quality and leads to innovation. It can benefit consumers as well as the organizations providing the products.
Environmental Factors
Industries such as tourism, insurance and farming are being affected by environmental andecological aspects. Environmental factors include: Environmental protection laws Waste disposal laws Energy consumption regulation Global warming Due to the growing awareness of climate change, organizations are moving towards making products and processes which are environment friendly thus, creating new business opportunities.
Legal Factors
These are related to the legal environment of an organization and impact its demand and cost. Major legal factors include:
Health and safety law Consumer law Competition law Employment law Discrimination law