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The environment of a firm may be defines as the sum of all the elements and forces present in its immediate and remote surroundings, which have a potential impact on its ability to achieve its objectives. A firm does not exist in isolation. It works within the overall environment and must keep up with changes in the environment. Elements of the Business Environment The environment of the firm can be divided into two: (1) Internal environment (micro environment) and (2) External environment (macro environment). Internal Environment [Micro Environment] The internal environment of business refers to all the factors or forces that have a more direct impact on the daily activities of the company. The main factors in the internal environment are: customers, suppliers, competitors, shareholders, financial institutions, and employees. Customers According to Peter Drucker, “the ultimate aim of all business organization is to create a customer” (The Practice of Management, p. 37). Customers exchange resources, usually in the form of money, for an organization’s products and services. The customers expect the management to provide them with quality products and services at reasonable prices which allow appropriate rates of return to its owners. Management on the other hand, seeks to win customers’ loyalty through factual information about their products which have been designed and developed, keeping in view the customers’ expectations. Suppliers Suppliers refer to firms and individuals that provide the resources needed by the company and its competitors to produce goods and services. Inferior or sub- standard quality of raw materials or delayed supply of raw materials will hamper (obstruct) the production process thereby increasing the cost of finished goods. Management must purchase quality raw materials from reliable suppliers, and pay them properly when the money is due. The enlightened management always prefers suppliers who are valuable sources of information on future trends in the raw material market. Competitors These are companies that offer similar or alternative products and services. In pursuit of survival and growth, organizations must compete with one another. The presence of competition and rivalry forces each organization to offer quality products at minimum prices. Therefore, to be successful, a company must provide greater customer value and satisfaction than its competitors do. Competition indeed brings out the best in an organization and requires the management to constantly strive for excellence. Shareholders These are the owners of the firm who can influence the policies and procedures of the firm. They do this by exercising their voting rights. Bearing in mind the degree of the influence of shareholders, company directors and managers are now becoming more conscious of the decisions they make and how they carry out their responsibilities. Financial Institutions These include banks, insurance companies, and other financial organizations. Firms depend on these financial organizations to provide them with capital to carry out their business activities. Employees The organization’s labor force comprises of all the individuals who are employed by the organization. Employees are responsible for work in an organization. The firm must take care of the needs of its employees by providing a work environment that is conducive for them.
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