2. 1.
T H E E C O N O M I C E N V I R O N M E N T
S I G N I F I C A N T LY I N F LU E N C E S T H E
F U N C T I O N I N G A N D P E R F O R M A N C E O F
O R G A N I Z AT I O N S . O R G A N I Z AT I O N S O P E R AT E
W I T H I N A B R OA D E R E C O N O M I C C O N T E X T,
A N D C H A N G E S I N E C O N O M I C C O N D I T I O N S
C A N H AV E A P R O F O U N D I M PA C T O N T H E I R
S T R AT E G I E S , O P E R AT I O N S , A N D OV E R A L L
S U C C E S S
3. IMPORTANCE OF ECONOMIC ENVIRONMENT
Strategic Decision-Making:
Organizations use economic information to make strategic decisions regarding production, investment,
pricing, and market expansion. Understanding economic trends helps in aligning business strategies with prevailing market
conditions.
Investment Decisions:
Economic indicators influence investment decisions by providing insights into the overall economic health. Investors,
including businesses, individuals, and governments, use economic information to allocate resources and make informed
investment decisions.
Global Business Dynamics:
In an interconnected global economy, organizations must consider international economic factors. Changes in exchange
rates, trade policies, and global economic trends can have implications for businesses operating on a global scale.
4. •Competitive Intelligence:
Organizations need to monitor economic conditions to gain competitive intelligence. This involves understanding how economic factors impact the
competitive landscape, supply chains, and market dynamics
Resource Allocation:
Economic information guides resource allocation decisions within organizations. It helps in optimizing the allocation of financial, human, and
technological resources to maximize efficiency and productivity.
Economic Stability:
Economic stability is crucial for sustained growth. Organizations contribute to economic stability by creating jobs, generating income, and fostering
innovation, which, in turn, supports broader economic well-being.
CONT...
5. Cont...
• Market Conditions:
• Economic conditions directly influence demand and supply in the market.
Organizations need to adapt their products, services, and marketing strategies to
changing economic circumstances to remain competitive.
6. •Gross Domestic Product (GDP):
•GDP measures the total value of all goods and services produced within a country's borders over a specific period. It is a fundamental indicator of economic health and
performance.
•Inflation Rate:
•Inflation refers to the rate at which the general level of prices for goods and services is rising, leading to a decrease in purchasing power. Controlling inflation is a key
economic goal.
•Exchange Rates:
•Exchange rates determine the value of one currency in terms of another. They impact international trade, investment, and the cost of imported goods.
•
•ELEMENT OF ECONOMIC ENVIRONMENT
7. •Trade Policies:
•Government policies related to international trade, tariffs, and trade agreements impact a country's economic
relations with other nations.
•
Global Economic Trends:
•Economic conditions in other parts of the world affect global markets, trade, and international economic relations.
•Natural Resources:
•The availability and management of natural resources, including energy, minerals, and agricultural products,
impact economic development.
•Technological Advancements:
•Advances in technology drive economic growth, impact industries, and contribute to productivity improvements.
•CONT...
8. CONT...
• Interest Rates:
• Interest rates, set by central banks, influence the cost of borrowing and the return on
savings. They play a critical role in controlling inflation and stimulating or cooling
economic activity.
9. Factor affecting
• Natural Disasters and Climate Change:
Environmental factors, such as natural disasters and climate change, can have economic implications, affecting industries like agriculture, insurance, and
infrastructure.
Demographic Trends:
Population trends, including age distribution and migration patterns, influence labor markets, consumer demand, and overall economic dynamics.
Regulatory Environment:
Government regulations, including those related to business operations, environmental standards, and labor laws, influence economic activities and market
behavior.
Natural Resources:
The availability and management of natural resources, including energy, minerals, and agricultural products, impact economic development and trade
balances.
10. CONT....
• Consumer Confidence:
The confidence that consumers have in the economy influences their spending
behavior. High consumer confidence often leads to increased spending, driving
economic growth.
