Economic factors affecting business
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Economic factors affecting business include all important trends in the economy that can help or hinder the company in achieving its objectives. Economic factors that commonly affect businesses include consumer behaviour, employment factors, interest rates and banking and inflation and overall economic indicators. They also include several legal regulations in the country, which are described in: Legal factors affecting business. Analysis of economic factors is integral part of every strategic analysis method including PEST analysis, STEEP analysis, PESTEL analysis, PESTLE and other derivatives of strategic business environment analysis.
Consumer behaviour and confidence level
- optimism of consumers,
- belief in overall good state of economy,
- willingness to spend money and buy new products,
- level of spending
- purchasing power of potential consumers (amount of money or savings available),
- levels of market demand and supply
- bargaining power of customers,
Economic indicators regarding employment
- unemployment rate and trends in overall employment level (high unemployment means fewer people with buying potential),
- number of jobs created in the market,
- competition in job market (necessity to pay higher wages),
- high priced jobs/ low priced jobs, overall labor costs,
- number of highly skilled specialists,
- number of employees seeking jobs,
- number of people near the retirement age,
- level of income in population (income per capita),
- differences in income, level of economic inequality,
- risk of lay-offs,
- strength of trade unions,
- additional burdens on salary,
- social and health insurance rates,
Economic factors regarding money, interest rate, banking, etc.
- interest rates (determines costs of financing of business and investment activity),
- overall level of debt,
- level of government debt,
- inflation rate, and inflation perspectives,
- monetary policy, supply of money,
- rating agency evaluation of country,
- banking facilities and level of services (e-banking, Internet banking, etc.)
- financial market condition, asset prices, freedom in trading
- phase of economic cycle (prosperity, recession, depression, recovery)
- availability of mortgage debt,
- exchange rates,
- influence of international organization (WMF, World Bank, etc.),
Investment market and production factors availability
- price level of commodities (essential and non-essential),
- costs of raw materials needed for production,
- costs of transportation and logistics services,
- availability of roads and fast transport routes,
- bargaining power of suppliers, producers, supply chain partners
- tariffs, export and import restrictions,
Check also other:
- Social and cultural factors affecting business
- Technological factors affecting business
- Ecological factors affecting business
- Political factors affecting business
- Legal factors affecting business
- Ethical factors affecting business
References
- Begley, T. M., Tan, W. L., & Schoch, H. (2005). Politico‐economic factors associated with interest in starting a business: A multi‐country study. Entrepreneurship Theory and Practice, 29(1), 35-55.
- Hansen, G. S., & Wernerfelt, B. (1989). Determinants of firm performance: The relative importance of economic and organizational factors. Strategic management journal, 10(5), 399-411.
- Pearce, J. A., Robinson, R. B., & Subramanian, R. (2000). Strategic management: Formulation, implementation, and control. Columbus, OH: Irwin/McGraw-Hill.
Author: Krzysztof Wozniak
