The traditional mode of business has been eradicated because of the advancement of technology. Moreover, it can be seen through the phenomenon called globalization. The globalization allows every company to enter every foreign market available. Given that they have the credentials to support their ambitions. But how do these methods be fulfilled? Business analyst can always hang on the law of supply and demand. Moreover, the available data for markets can easily be access because of the internet.
There are many speculations in regards to the basics of a business model. The mainstream action for this is to give attention to the factors affecting the market. There are many business experts that are very keen in making decisions for their company. This is to avoid profit loss as well as unnecessary change in business strategies. Law of supply and demand gives the businessmen the idea on how to make strategies in order for them survive and prosper in the market. The next thing to be considered is the externalities. However, a clear definition of what externality is also needed.
According to business analyst externalities can be considered as the side effects of business models. It could also be a direct effect of a company’s strategic methods in gaining profits. The effects could be felt by third parties that are not directly involved within the business. Moreover, they are also considered as stakeholders of the company. They are categorized as positive externalities and negative ones. Negative externalities can be directly determined by feedback from third parties. A good example is when a customer calls a customer service hotline of a company to make a complaint. Customers can make such complaint to the company if they are not satisfied with the company. This can make a very bad impression to the external media. Reports could damage the reputation of the company and can lower their stock price or even loss of profit (Callahan, 2001).
Now creating a relationship between the supply and demand curve and the externalities would also be a subject of interest. The demand curve shall be affected if the externality is a negative one. The trend would be a decreasing demand of the company’s product. On the other hand, if the externality is a positive one it could create more profits thus an increase in the supply curve. There are four types of externalities. This is the positive and negative effect of production, and the positive and negative effect of consumption. The stakeholder affected by these externalities is not limited to the consumers. The government, the competing company, as well as the employees could have experienced these externalities whether positive or negative. The role of the government is referred to as the regulatory board of business. It means that whenever the company creates a problem that can involve the environment and the people living on that place, the government could take action against the company.
A perfect example of this case is when a company production can cause pollution. On this context we can consider this as a negative effect of production. The consumers on the other hand can have a direct effect on the company’s performance of they opt to boycott the company’s product and services. Proper employee engagement is also a test of the company’s effort in protecting their assets. This can be considered as either positive effect or negative of production, depending on the company’s effort to strengthen their employees.
In conclusion, externalities should be given importance by business entrepreneurs. It can determine whether the company is going to the right path or the wrong one. Though it is an indirect relationship with the profits as a whole giving more importance on it would be advantageous for the company.
References
Callahan, G. (2001, August 1). What is an Externality? | Mises Institute. Retrieved from https://mises.org/library/what-externality
