Economic Environment: Key Issues That Can Affect Your Business
The economic environment is one of the components of the business environment in which you operate your business. Knowing the economic climate helps you to understand how your country’s economy affects the demand for goods and services. Secondly, it helps you to learn how it affects your ability to acquire products and services.
Economies of most developing countries are so small that most people don’t have enough money to spend on luxuries. At times they even don’t have enough to spend on the necessities of life. It means that when you are setting up a business, you need to consider the ability of the population to buy the products or services you intend to offer.
What aspects of the economic environment should you consider when starting a business?
When starting a business, you have to pay attention to the nature of the economy in which you want to do business. Some of the critical aspects to consider under the economic environment include the following:
1. The interest
When commercial banks charge high-interest rates, it usually discourages people from borrowing. You should, therefore, ask yourself how easy it’s going to be to borrow money from the bank to finance your business. For example, in developing countries, commercial banks may not be willing to lend money to farmers because they think that they run high-risk companies. It’s is mainly because agricultural activities are usually affected by weather conditions. In dry seasons, farmers may realise poor yields and those who borrow from banks may find it so hard to pay back the borrowed money.
2. Per capita income
Per capita income is another crucial component of the economic environment. Per capita income generally refers to the average amount of money or income available for spending every year by each person in any given country. As you start a business, it’s essential for you to know how much of the income your targeted customers are willing to spend on the product or service you’re offering. In developing countries, most people don’t have enough money to spend on their basic needs.
For example, most online advertisers offer a low cost per click on online adverts in developing countries. It’s because most people in those countries cannot spend on the products or services advertised online. But in developed countries, every click turns into a sale in most cases. The same advert may get a higher cost per click in a developed country than in a developing country.
Infrastructure refers to the existence of road networks, communication systems, schools and hospitals, among others.
While internet businesses rely mostly on a sound communication system, agricultural companies depend primarily on functional road networks. For example, if you want to start an online store, you need to have an excellent and fast internet connection. However, in most developing countries, people the internet is limited to urban areas. Secondly, it’s so slow that it frustrates the internet users in addition to spending their valuable time.
But if you plan to do farming, you will need an excellent road network. It’s when you will be able to market your farm/garden products quickly before they go bad. However, many farmers in developing countries experience excessive delays due to adverse road networks. As a result, some of the produce rots on the way before it gets to the market.
It’s challenging to be in business alone without other competing companies. You’ll always have business competitors who keep you unsettled. You’ll always have competitors in your marketplace that offer better prices, skills, quality products and services, etc. They will always endeavour to do business better than you to have an advantage over you and take your customers.
Because there will always be competitors in any business you will venture into; it’s a good practice to look at them positively. Why? Because they allow you to think about new ways of doing business relentlessly. There is also something new you’ll always learn from your business competitors. It could be marketing techniques, customer care and support, innovativeness, quality standards and many others.
Knowing the economic environment in which you operate is so important. It enables you to plan to avoid risks and any unforeseen consequences. Always focus on the economic situation to succeed in your business.
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Hello! My name is Charles Kiyimba, a creative engraver, a professional teacher, a passionate blogger, a confident graphic/web designer and the founder of Goleza Designers Ltd, an engraving business that turns images into real products. Through my hands-on experience, I share with you free helpful information on our products and services, business, marketing and personal development. Always dive in for more!
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