BUSINESS AND ITS ENVIRONMENT
Introduction Purpose of a business
The main purpose of starting a business include:
To help individuals to interact with other
people.
To earn foreign exchange.
To earn money for your basic needs.
To create job opportunities.
To enable an individual acquire other goods and
services.
Types of business activities
The main type of business activities are as follows:
a.) Extraction
This involves obtaining goods from their natural
settings. These activities are:
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Lumbering
Fishing
Mining
Farming
b.) Processing of raw materials
This involves changing the form of a good without
combining it with other goods. Examples include:
Grinding
Refining
c.) Manufacturing
This involves combining different raw materials
to come up with one final product.
d.) Construction
This involves building of structures such as roads,
bridges and buildings.
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e.) Distribution of goods
This refers to movement of goods from where
they are produced to where they are needed.
People who carry out distribution are called
distributors. Examples include:
Retailers
Wholesalers
f.) Trade
This is the buying and selling of goods with an aim
of making a profit.
g.) Provision of Services
This is the selling of services to consumers
.Services include:
Hair stylist
Car washer
Electrician
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Insurance companies.
Business Environments and their Effects on the business
This refers to conditions or factors that affect
business operations. They are divided into two;
Internal
environment
External
environment.
Internal environment/micro-environment
This consist of factors which are within the
business unit itself. These factors include:
a.) Business structure
This is a formal arrangement of activities that are
carried out at various levels of the organization so
that the objectives of the business can be
achieved.
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b.) Resources
These are things used to achieve an objective of
an organization. They include:
Human resource
Financial resources
Physical resources
technology
c.) Business culture
Combinations of employees, expectations,
beliefs and values within the business.
d.) Owners
These are people who provided finances to start
the business.
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External environment/macro- environment
These are factors that affect the business from
outside. These factors include the following
factors:
a.) Economic environment
These factors affect the buyer‟ s ability to buy
goods offered to them by a business. They include:
Changes in income.
Changes in tax rates.
Changes in price of other related goods
b.) Demographic environment
This is the population change. Increase in
population increases the ability to buy more goods
compared to reduction in population. It include the
following:
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Size of the population.
Geographical distribution.
Age and sex distribution.
Birth and death rates.
c.) Legal – political environment
These are laws and policies that regulate business
activities. Hence the business to be formed in a
country must be in line with the laws and
regulations.
d.) Technological environment
Technology ay refer to the level of know how or
efficient use of tools and equipment. Advancement
in technology will lead to better quality goods and
services.
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e.) Cultural Environment
Culture are the norms that regulate behaviors of
people in a society. Culture dictates how people live
and what they consume.
f.) Competitive Environment
This is where firms are trying to outdo each other
in their efforts to maximize profits.
g.) Physical Environment
Physical environment include factors such as:
Relief and climate.
Infrastructure like roads, water supply,
electricity and banks.
Good infrastructure may support business
activities compared to poor infrastructure.