The Business Environment

Business Essentials,

LEARNING OBJECTIVES
1. Define the nature of Hungarian business and identify
its main goals and functions.
2. Describe the external environments of retail business
and discuss how these environments affect the success
or failure of any trade or service provider organization.
3. Describe the different types of global economic
systems according to the means by which they control
the factors of production.
4. Show how markets, demand, and supply affect
resource distribution .
.

LEARNING OBJECTIVES
(contd)
5. Identify the elements of private enterprise and
explain the various degrees of competition.
6. Explain the importance of the economic
environment to business and identify the factors
used to evaluate the performance of an economic
system.

The Economic Policy of the State

Definition: The governments strategy and tactics for the
development of the National Economy, consisting always
objectives and tools

The main Features of Economic Policy (EP):

Strategic issues: Economic Policy always contains:
1. General (common, continuous, long term) and
2. Specific (short term but sometimes top priority objectives.

The Economic Policy of the State

Tactical issues: Economic Policy may do (using tools):
1. Tactical legal operations for ensuring free market
operations, (like time limited price settings, merge, fusioncontrol, privatization of companies)
2. Governments business operations by maintaining stocks
from important raw materials (oil, gas, steel, copper,
wheat etc.) purchase and sell them within the frame of an
anti-cyclic, anti-inflation or anti-crisis EP

Objectives of economic policies

The four main economic targets are:
A high level of economic growth (growth in GDP)
keeping the economic equilibrium,
A low level of unemployment
A low level of inflation

External balance (balance between exports and imports

Tools and functions of Economic Policy

Definition:
Tools, methods: fiscal, monetary, trade (supply side)

Dimensions
Economical economic rules (i.e. interest inflation)
Political political preferences (i.e. national
independence)
Functions: to improve a economy currently operating
with problems
Allocations - i.e. capital, grant
Stabilization - demand or supply shock handling
Redistribution - i.e. regional, sectoral, national
.

ACTORS OF E.P.

Direct actors
domestic
State: parliament, government, institutions
National bank

Foreigners

Undirect actors
Parties, lobby
advisors

Fiscal Policy

Supply Side Policy

Monetary Policy
Monetary policy is the use of interest rates, money supply and
exchange rates to influence economic growth and inflation
Interest rates are the cost of borrowing money
Exchange rates the value of one currency in terms of another
Money supply the amount of money in circulation in an economy

The Role of the State in the Market Economy

1. Ensure conditions + frames of Economic Development

Maintain and develop LEGAL ENVIRONMENT for business

activities representing the common interests of the whole
society (laws, taxation, social security, etc.)
Supporting the development of ECONOMIC
INFRASTRUCTURE of business (roads, motorways,
railroads, airports, harbours, telecommunication etc.)
Supporting the development of ECONOMIC
ENVIRONMENT for business, like secure energy supply,
education and national healthcare system, maintaining
social security

The Role of the State in the Market

Economy
2. Develop the organisation of the NATIONAL ECONOMY

Determining NATIONAL ECONOMIC DEVELOPMENT

STRATEGY
Determining the SUPPORT of SME-s
Determining ENVIRONMENTAL, RURAL & AGRICULTURAL
policy of the state
3. Continuously update and harmonize the rules of business
to the WORLDS STANDARDS

The External Environments of Business

External Environment
Everything outside an organizations boundaries
that might affect it
Macro level
PEST(EL)
Indirect difficult to influence i.e. GDP
Direct interaction i.e. market

The External Environments of Business

(cont.)
Domestic Business Environment
The environment in which a firm conducts its
operations and derives its revenues by:
Porter 5 forces market, competition

The External Environments of Business

(cont.)
Global Business Environment
The international forces that affect a
business:
Location of
Supplier
Consumer (relationship)
Design
Back office

The External Environments of Business

(cont.)

Technological Environment

All the ways by which firms create value for their

stakeholders,

Innovations
Radical i.e. qr code

Incremental i.e. sales area

R+D

The External Environments of Business

(cont.)
Political-Legal Environment
The regulatory relationship between business and
the government (legal system) and its agencies that
define what organizations can and cant do, i.e.:
Plaza stop
Cigarette, tobacco kiosk competition
Special tax

The External Environments of Business

(cont.)
Sociocultural Environment i.e.
Consumer behavior

Consumption
Gender
Ages

The External Environments of Business

(cont.)
Economic Environment
The relevant conditions that exist in the economic
system in which a company operates
Examples:
GDP

Inflation
Labor force
Debt level
Real income

Economic Systems
Economic System
System for allocating the resources among citizens
and companies

Factors of Production

Land (assets)
Labor
Capital
Knowledge

Types of Economic Systems

Planned Economy
Market Economy
Mixed Market Economy

Planned Economies
Communism
A system Karl Marx envisioned in which
individuals would contribute according to their
abilities and receive benefits according to their
needs.
Planned resources allocation,

Estimated demand planned capacity, or

Restricted capacity product shortage
unsatisfied demand

The Economics of Market Systems

Demand
Supply
The Laws of Demand and Supply in a Market
Economy

Demand and Supply in a Market

Economy
Demand and Supply Schedule
The relationships among different levels of
demand and supply at different price levels as
obtained from marketing research, historical data,
and other studies of the market.

Surpluses and Shortages

Surplus
Quantity supplied > quantity demanded

Shortage
Quantity supplied < quantity demanded

Private Enterprise in a Market

Economy
Private Enterprise System
Individuals pursue their own interest without
governmental restriction

Elements of a Private Enterprise System

Private property rights

Freedom of choice
Profits
Competition

Degrees of Competition
Perfect Competition
Prices are determined by supply and demand
because no single firm is powerful enough to
influence the price of its product.

Principles of perfect competition:

Numerous small firms producing or trading
identical product

Degrees of Competition (Cont.)

Monopoly
An industry or market that has only one producer
(or else is so dominated by one producer that
other firms cannot compete with it).

Oligopoly
Handful seller with power to infulence the
price

Economic Indicators
Business Cycle
Expansion and contraction

Aggregate Output
Total quantity of goods and services

Standard of Living
Total quantity of goods and services people can purchase
Quality if live

Economic Indicators (cont.)

Gross Domestic Product (GDP)
Total value of goods and services produced by
national economy through domestic factors within
a given period

Gross National Product (GNP)

Total value of goods and services produced by national
economy regardless of where the factors are located
within a given period

Economic Indicators (cont.)

Real GDP
Adjusted to account for changes in currency
values and price change.

Nominal GDP
Measured in current i.e. HUF

GDP per Capita

Purchasing Power Parity

Purchasing Power Parity
what people can actually buy in different
countries exchange rates are set
Purchasing Power Parity
Big Mac actual US price
Big Mac HUN price
Calculated fx rate
Actual fx rate
Big Mac "calculated" US price
HUF

4,4
USD
830
HUF
190
HUF/USD
217
HUF/USD
3,8
USD
under valued

Economic Indicators (cont.)

Purchasing Power Parity

Economic Growth
Productivity
A measure of economic growth that compares
how much product a system produces with the
resources needed to produce that product.
GDP/labor Income / labor

GDP/capital Income / assets

Tacit, explicit knowledge

Economic Growth (cont.)

Balance of Trade
The economic value of all the products a country exports
minus the economic value of its imported products.

National Debt
The amount of money that the government owes its
creditors.
Consumer Price Index (CPI)
A measure of the prices of typical products purchased by
consumers living in urban areas

The Policy of Commerce in the EU

1. Support of the common market development

Decrease and cancel of internal customs barriers,

Build up common external customs system

Import quotas for certain goods (steel, textile etc.)

Mutual customs preference treaties with developing countries

2. Decrease foreign trade barriers in WTO (GATT) rounds

Interests of EU against USA, Japan, China

Regulating services, capital and labour flow through the internal borders of
the EU

3. Improving the competitiveness of the EU

4. Supporting the development of the European integration (wideness
and deepness)

Key Terms
aggregate output
balance of trade
business
business cycle
capital
capitalism
communism
competition
consumer price index
demand
demand and supply schedule
demand curve
depression
domestic business environment

economic environment
economic indicators
economic system
entrepreneur
external environment
factors of production
fiscal policies
global business environment
gross domestic product (GDP)
gross national product (GNP)
inflation
information resources
labor (human resources)
law of demand

Key Terms (cont.)

law of supply
market
market economy
market price (equilibrium price)
mixed market economy
monetary policies
monopolistic competition
monopoly
national debt
natural monopoly
nominal GDP
oligopoly
perfect competition
physical resources

planned economy
political-legal environment
private enterprise
privatization
productivity
profits
purchasing power parity
real GDP
recession
shortage
socialism
sociological environment
stability
stabilization policy

Key Terms (cont.)

standard of living
supply
supply curve
surplus
technological
environment
unemployment