The general environment surrounding any business also includes the economic environment. The economic environment can, and does, change quite rapidly. The effects can be far reaching and may require changes in the business strategies. In recent times many Asian countries have suffered from economic recession. In this period of “Asian flu” many businesses collapsed.
According to the book Marketing Strategy: Planning and Implementation (Walker,O.C , Boyd,H.W , Claude,J. 2002) every country has a legislative or regulatory environment within which both local and foreign firms must operate. As with any external force, the political/legal environment presents a firm with strategic opportunities as well as threats. Many third world countries present an array of political risks to companies seeking to do business there. Controversies over copy right infringement involve the highest stakes. In china, pirate factories engage in counterfeiting items such as video movies, compact disks, computer software, prescription drugs and Rolex watches. Counterfeiting costs U.S companies an estimated $1 to $2 billion a year.
The business environment as a whole effects the operations and strategies of every business. But some of the factors are more dominating than the others, depending on the industry and the part of the world. The economical environment changes have an everlasting impact on the business. In fact the impact of economical environment can be seen by the fact that Startbucks, the iconic coffee chain, reported that their revenue for fiscal year 2008 fell by 6% and sales have been falling by 9% at many of its stores. As reported in the BusinessWeek (“Starbucks Cuts More Stores and Workers Amidst Recession and Lower Earnings”, 2009), they have decided to layoff some 700 corporate and 6000 store employees to cope up with the economic recession that is faced by the world today. Starbucks has eliminated bonuses to minimize as much costs as possible. Even Howard Schultz, CEO of the company, cut his own annual salary from $1.2 million in 2008 to fewer than 10,000 a year in 2009.
In order to retain their customers, who have stopped spending on its pricy coffee, Starbucks is coming up with different strategies to attract customers such as offering coffee at different times of the day, especially in the morning and eliminating ready-brewed decaf coffee at afternoon. Also the company will sell all but one of its private planes.
Like mentioned earlier, the economical environmental changes have a very serious impact on every business therefore, it is crucial for companies to bend themselves according to the economic conditions of their location. Same has been done by IBM, the world’s biggest computer service provider, reported by IBM had already cut at least 4,000 positions since January and still plans to cut 5,000 jobs. Their sales fell 4.5% last quarter as corporations pared budgets to deal with the economic recession, reported Boston Globe (“IBM is said to cut 5,000 services jobs”, 2009). Moreover, Microsoft and Intel are also firing 5,000 and 6,000 employees respectively. To cope up with the economic recession and falling demand, Intel also plans to shut down five of its plants.
Similarly, 3M in France has also felt the jolts of worldwide economic unrest, reports Star Tribune (“3M and Its Workers Feel the Pain of the Slumping Economy and Expect More Trouble Ahead”, 2009). The international giant that makes Scotch Tape, Post-It notes and everything else from dental crowns to band-aids, kitchen sponges and automotive adhesives, has felt the economic punch in five of its six businesses. Like other industrial giants such as Dow Chemical, Dupont, Pentair, and H.B. Fuller, 3M is feeling the hardships of a recession that respects no boundary or reputation.
"We saw all the classic signs one would expect at times like these: canceled orders, inventory corrections in the channel, factory shut downs, layoffs and overall weak business conditions," Buckley, the CEO of 3M, said. "While weak business conditions, poor consumer confidence and a fear factor made it worse, we believe the principal cause of the severe downturn was the shortage of credit to lubricate the wheels of global commerce." To keep up with the worsening economic situation 3M is focusing on reducing costs as much as possible and retaining cash.
Seeing the impact of economic environment on the operations and strategies of business, it is concluded that economic changes affect the businesses more than any other general environment component. If businesses do not respond to economical changes they will start losing the market and will eventually withdraw. Technological, legal and socio-culture environment also affects the business but the effect of economical changes is more drastic and threatening than any other factor change.
REFERENCE LIST
Boyd,H.W . Claude,J . Walker,O.C , (2002).Marketing Strategy: Planning and Implementation. Boston: McGraw-Hill Irwin.
DePass, D (January 28, 2009). The Winds of Economic Misfortune Struck Hard at 3M Co. Thursday: 3M and Its Workers Feel the Pain of the Slumping Economy and Expect More Trouble Ahead. Star Tribune, Minneapolis, Retrieved from http://www.istockanalyst.com/article/viewiStockNews/articleid/2993508
Helm, B. Kiley, D. (January 28, 2009). Starbucks Cuts More Stores and Workers Amidst Recession and Lower Earnings. BusinessWeek, Retrieved from http://www.businessweek.com/the_thread/brandnewday/archives/2009/01/starbucks_cuts.html
IBM is said to cut 5,000 services jobs. (2009, March 26). Boston Globe, p.8. Retrieved from Monash online library database.
