Business environment plays a significant role in determining the success or failure of a business. Basically, there are various internal and external factors that dictate the success of the business. Whereas the internal factors can be controlled by the management of the company in question, controlling external factors is an impossible task. Any business that intends to be successful ought to have a perfect understanding of its business environment. This paper seeks to analyze five dimensions of business environment: Economic environment; competitive environment; technological environment; social environment and global environment. In so doing, the paper will focus on the banking industry to determine these environments.
Economic environment
The economic environment is an example of the external environments, which a business has no control over. Simply put, this environment entails all economic factors that have a direct or indirect bearing on the way the business works. Any business depends on this factor because they need inputs. The ability and easier to make sales also depends on the economic environment at the particular time (Campbel, 2005). There is no option. There is no alternative. As a factor, the economic environment has a direct impact on the day to day operations of any business. Most organizations tend to have a system where they forecast on the economic environment in order to adequately plan for any eventuality. Without this, there is no doubt that a business may collapse.
As a matter of fact, banks do not deal with goods; they specialize in services. These services may include offering loans to the customers and accepting deposits. Regardless, all these are shaped by the prevailing economic environment. There is no doubt that a weak economic environment negatively affects the quality of assets. In addition to this, customer activities are minimized. Because banks heavily rely on the activities of the customers, a weak economic environment affects the banks negatively.
Competitive environment
This is commonly known as the market structure. It is one of the factors that an organization or a business has no control over. Simply put, it refers to the dynamics under which a given business competes. The level of competition that a business faces may determine the level of success. World economic conditions represent the perfect element of this factor. Such conditions shape the cost of goods and services. A business facing high competition may be forced out of the market because of the high operating costs. There are high chances that such a business will be running on losses. This is different with a business that thrives on competition (Kelly & Williams, 2015)
The banking industry, like many businesses, is fully shaped and determined by the competitive environment. There are several elements that shape this. Existence of direct competitors is one such issue (Ezeoha, 2008). In this industry, for instance, there are a number of players offering similar services. Today, there are several banks that offer banking services, bringing about direct competition for customers. The success of a bank will depend on the share of clients it has in the industry. In order to achieve this, various banks have come up with various packages and mechanisms to entice the clients. All this is geared towards ensuring that clients stay loyal to a certain bank to ensure there is continuity of operations.
Indirect competitors also present a major challenge to the banks. Today, there are several non-banking institutions that offer similar services to the banks. Mobile money transfer is one such example. In addition, technology has dictated that people can make savings in their mobile lines. This has brought about the flexibility of accessing one’s money (Campbel, 2005). With this being the case, there has been a decrease of banking activities. Banks have, as a result of this, suffered. In order for a bank to be successful in the industry, it ought to take its competitive environment seriously.
Technological environment
The 21st century has seen a tremendous development in technology. Today, almost all sectors of the economy are affected by technology. Simply, technological environment refers to the technological innovations that have been introduced to the industry that have a direct impact on the day to day running of the business. It is crucial that organizations and businesses are keen to ensure that they incorporate the latest and adequate technologies to ensure effective delivery of services. It would be wrong for an organization to rely on past technology that is not helpful to the clients. This is because clients tend to move to businesses that have upgraded their technologies to meet their current demands.
Like all other sectors, technological improvements and changes have affected the banking industry in a great way. There are several elements and aspects through which banks have been affected. As already argued, technology has made it possible for people to invest their money in their mobile lines without transferring it to the banks. In addition, people can transfer their money online. This minimizes the role of banks in handling money, meaning that most banks will make losses out of this. Today, banks are investing in technology to ensure that customers can access their money through their phones (Demirguc-Kunt, 2008). This brings about convenience. It is now possible for a person to send or withdraw money from a bank without physically visiting the bank. It is also possible for them to check for other details at the comfort of their homes. Banks that have not incorporated this technology face the potential of losing their clients to banks that are more established. To this extent, technological environment cannot be controlled by the business in question.
Social environment
This is the immediate social and physical setting for a business. In one way or the other, it may include elements such as the culture, beliefs, levels of education and the spending habits of the community within which a business is based. In the modern world, the ability of a business to interact with the surrounding is essential in promoting customer relations. Any business that has positive customer relations is likely to succeed because it will have a constant supply of clients. The reverse is also true.
The banking industry is directly affected by the social environment. People in America, for instance, demand high class products and services, regardless of the cost. This is because they have become more advanced. Several banks have taken advantage of this to tap into the new customers and offer them quality services. The culture of the surrounding people has a direct impact on the running of the business. Where the level of spending is high, a bank is likely to benefit because there will be a constant flow of cash from the client to the bank, and vice versa. In an environment where the surrounding community has a habit of not spending, a bank is likely to make losses (Preble, 2008). This is because it will not be in a position to make profits from the accounts of the clients. Availability of banks that meet the requirements of the consumers also shape the day to day running of businesses.
Global environment
Globalization has had an impact on various businesses. As a matter of fact, globalization has made the world a global village. Events happening in one corner of the world can easily be transferred to another corner. Information sharing has also become easy, making it possible for a person to share their information to others in a different continent in a matter of seconds. This has had both negative and positive impacts on businesses. Globalization has increased the level of competition in businesses. In addition, it has increased the market base for products and services. Because of the technological advancement, it has become possible and easy for a business to advertise the products or services they offer in a matter of seconds. The impact of this cannot be understated.
Globalization has had a major impact on the banking industry. First, it has become possible for banks to open and run their branches in various continents. Major banks today operate in various continents because of the opportunity that prevails. This has led to the expansion of the banking industry. Whereas this is a positive element to major banks, small banks have been frustrated by globalization (Ezeoha, 2008). Simply put, he level of competition has been increased, making it difficult for them to run their businesses sustainable. Big banks have economic and competitive edge over small banks. This means that they are able to attract several clients at the expense of the smaller banks. This shapes the practice in the banking industry. A business ought to be careful to take advantage of globalization to access new opportunities. Similarly, a business ought to be keen to avoid being affected negatively by the global environment.
References
Campbell, D. (2005). The international business environment. Organisations and the Business Environment, 315-341. doi:10.1016/b978-0-7506-5829-4.50018-x
Demirguc-Kunt, A., Love, I., & Maksimovic, V. (2006). Business environment and the incorporation decision. Journal of Banking & Finance, 30(11), 2967-2993. doi:10.1016/j.jbankfin.2006.05.007
Ezeoha, A. E. (n.d.). Internet Banking Strategy in a Highly Volatile Business Environment. E-Banking and Emerging Multidisciplinary Processes, 64-100. doi:10.4018/978-1-61520-635-3.ch005
Kelly, M., & Williams, C. (2015). BUSN: Introduction to business
Preble, J. F., & Reichel, A. (2008). Scanning the Future Environment for Banking. American Journal of Business, 3(2), 23-31. doi:10.1108/19355181198800012
