Economic Factors Affecting Decision Making In A Business

Today, technology has become the driving force for economic development. This means countries and businesses are relying more and more on innovation. Many countries across the globe have relied on the old, traditional linear models of “closed” innovation, which does not include any or minimal external stakeholder engagement in value created. However, there is a need for all stakeholders to be involved in the well being of a society. Whether internal or external, a business must consider all factors involved in making a decision.

Hence, federal agencies need to increase support in studies that seek to understand the environment of business decisions. This article focuses on issues that drive specific decisions in a varying business environment. We shall also be looking at decisions at micro and macro levels to understand how each situation should be handled.

Economic students need to relate business decisions to the economy of a nation and the world at large. After all, it is entrepreneurs who boost the economy of a society. As such, every decision they make will have a direct effect on individuals, firms, and the overall economy. Across the world, business decisions feature in the dominant factors that influence the shaping of environmental conditions. It is all about what materials, energy, and organisms will be taken from the environment. It is also critical to look at the quantities to be removed, transportation and distribution, and the effects they leave on the landscape and ecosystems.

In other words, the business decision does not only affect the specific company but the general ecosystem. They can either create or destroy the environment. Above all, business decisions influence consumer choices, direct environmental research, and determine how much development and technological innovations should be provided. This does not go without saying that the decisions made by businesses, in general, create commitments that may be hard or even impossible to reverse in the short term; they can and will cause long term impacts both on individuals and the environment.

But we must also remember that consumer preferences influence these decisions, but only to where the company does not seem to generate profit. There are also government policies that have everything to do with the direction a business takes. They impose regulatory mandates, property rights and liability laws, disclosures, tax and subsidies, procurement procedures, and many other policies that initiate business models.

The Environment And Business Decisions

Today, there are so many researches on the environment. Many human activities have been the cause of significant environmental issues. And it all begins with making business decisions. Hence, a company needs to look at vital environmental problems that compel a specific direction or operation. Consider the following aspects concerning the subject of business and the environment.

Environmental Performance and Competitive advantage

The world is more concerned about the planet today more than ever. Hence, everyone seems to want a part in saving the environment and saving it for future generations. Issues like air and soil pollution that are causing global warming have not been left to chance. The world has become one in restoring the former glory of the planet.

And for these reasons, a company will have to answer the question, “when does it pay to go green?” This is a vital question that concerns the conditions under which a specific business decision enhances the environment while acquiring a competitive advantage above achieving other business goals. Finding the right answer to this question is vital to environment-related decisions by the business and the government, where regulatory principles offer market-related incentives.

Traditionally, businesses only considered environmental performance when compelled by regulatory mandate and liability risks. Or at best, they would do so when an opportunity to cost minimization through the application of material and energy was evident (Royton, 1980; Andrews, 1999). 

In recent times, however, studies have shown a different trend where environmental protection offers a competitive advantage under some conditions (Hart and Ahuja, 1996; Klassen and Whybark, 1999). Ecological modernization has brought out the most promising environmental improvements in the development of business when investments in new facilities are realized (Hart and Milstein, 1999). This is why new factories seem more efficient than the old ones. They offer greater efficiency in material application, and in energy, pollution control/waste reduction and the use of many other approaches that eliminate the need for toxic materials. 

Also, the application techniques that call for less energy and material consumption thought high human consumption needs continue to rise. According to Van Heel, Elkington, Fennell, and Francesca (20010, there are ten different methods of business value that can be used to compare environmental performance. They include shareholder value, revenue, operation efficiency, access to capital, customer attraction, brand value and reputation, human and intellectual capital, risk evaluation, innovation, and operational licenses.

Customer and investor demand

Business must research on the factors that affect customer and investor demand for environmental functionality. Such research would focus on the conditions under which key customers and other stakeholders care about the environment, how the choices influence or fail to impact business decisions that touch directly to the environment. It should also dig into what brings about change in the power of these demand factors.

In other words, customer and investor needs are vital aspects of business decisions. Recent research literature has created a consumer demand for green products at and individual level. Some of the related topics include the effectiveness and importance of green labeling and product certification. There is chance the environmental performance of a business is likely to be affected by future the same factor in global and emerging markets in terms of environmental needs. So far, there are still important unanswered questions such as why there seems to be greater demand for environmental performance among consumers? And will the consumer’s and investors’ future demands affect environmental success, and how will these demands impact business demands and the overall economic growth?

In summary, some businesses find major customers or other stakeholders more influential than consumers’ demand. A business must observe what would bring in more profit in terms of serving the green and as well as their customers.

Supply chain and Production and Networks

The question of whose business decisions influence environmental outcomes can never be overlooked. Proper research on this issue may include environmental decisions that directly affect the supply or commodity chain. And this, of the essence, means multiple businesses and their production sequences touching material extraction to retails sales, consumption, and post-consumer waste management have to be considered. Note that many environmental decisions are taken based, nor on individual companies, but the decision regulations in the larger scale chains or networks and how they relate.

Many traditional types of research focused only on the dominant positions of specific firms of industrial sectors as a unit of study. Today, we are compelled to look at the larger institutional networks of decisions, incentives, and principles. A recent survey by Gereffy, Humphrey, and Sturgeon (2002) presents a greater theoretical precision that characterizes effective relationships in the supply chain. In short, we can say, the business decisions are influenced by a standard set of rules that touches a full string of a business and their products.

Business Decision Making and Government Policies

How do government regulations and policies on the environment affect business decisions? There are already many pieces of research the swell on this issue, which all indicated how crucial government policies are important in business decisions. Regulations and economic incentives, including taxes, charges, and tradable permits (Stavins, 2003, and direct information disclosure requirements (Tietenberg, 1998), greatly affect the direction business has to take. Other aspects of government influence include government-supported voluntary initiatives, where the government presents technical information support, certification guidelines, great conditions for public recognition, and flexible regulations on the environmental aspect of a business.

Government regulations have a lot to do with how companies conduct their businesses. But some laws have far-reaching consequences on business incentives. For instance, in the US, both guidelines and tax benefits favor end-of-pipe pollution-control technology over technologies that deal with production processes. In this case, technology regulations often fail to recognize explicit environmental criteria.

Where a policy incentive is applied to promote green innovation, they may have an effect of privileging a specific technology. It is only a matter of knowing the conditions under which such conditions appear. This means both government policies and procurement standards, and business set standards, strategic risk behavior by firms to lock in incentives that favor them more. Hence, a channel is created for competitors to innovate processes that may seem to keep them higher. Also, a change in standard-setting may create critical changes in business expectations. It may also impact the competitive advantages among businesses in a particular operating market, as well as the global decisions on the environment by companies.

Micro and Macro factor in Business decisions making

The micro-business environment is defined as the conditions that have a direct impact on a business. They are related to a specific area of operation in your company and can all business processes. These factors can change the daily proceedings and general performance of a firm. Micro-environment factors include customers, suppliers, resellers, competitors, and the general public.

The macro-environment is a more general situation that touches the whole economy. It impacts the operations of business groups, how they perform, make decisions, and build strategies. It is very dynamic in that businesses must continuously track how it changes and in carries external factors that the company has no control over, but specifically affects it. Such factors include economic factors, demographic forces, technological changes, natural and physical factors, political and legal environments, and social and cultural aspects.

Customer, suppliers, and resellers

Companies make their marketing decisions based on their target customers. And once they have a customer base, they will make decisions based on how the customers react to the product. Be it B2B, B2C, international or local, a business’ marketing campaign constantly shifts to meet the demands of their customers. Businesses rely on the stability of demand, prospects of sale growth, relative profitability, and intensity of competition to make these decisions.

The supplier of a particular product is the largest and maybe most significant influence on the success of the business. They form a key link between the business and retailer, making the delivery process possible, insurance for necessary resources in your business, and essential determinant for pricing changes and decisions.

The reseller is a direct link to the customers. They include middlemen such as wholesalers and retailers. They, too, have a critical part to play in the success of a business. If, for instance, a particular retailer has an excellent reputation, it will be easy for them to pass your product to the consumer. They are crucial for promotion, sale, distribution, marketing, and financial mediation.

Competitors and the general public

Every business that sells a product/service similar to what you are offering is your competition. Hence, their tactics, and sales matter to you. It is therefore vital to look at how their product and prices affect your and make changes appropriately. The main factors to consider in this case include desire competition, a product from the competition, and brand competition.

Again, every business model seeks to impress the general public. Every step they take must be seen for this perspective too. It is very vital to make decisions that consider others because their reactions may be the only thing that pushes you up or drags your brand through mad. Hence, business decisions take note of public opinion, the Media, and environmental pollution.

Apart from the factors, the macro-environment factors mentioned above drive a business’s decision-making process. Economic factors like interest rates, exchange, rate, recession, inflation, taxes, and demand/supply, for instance, affect everything from marketing to pricing. Demographic factors, on the other hand, include how income variables influence businesses, age variables that affect business, geographic region variables, and education levels. Also, the modern world is running on technological innovations. Hence businesses must look at skills and ability implemented into production. Such factors include automation, internet connectivity, 3D technology, speed/computer power, engine performance and efficiency, security, and many others.

Author: James Hamilton