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Influence of Economic and Environmental Factors on Enterprise Development (PDF)

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Influence of Economic and Environmental Factors on Enterprise Development


The business environment has been a vital point to consider in evaluating entrepreneurial performance, researches have established that there is relationship between entrepreneurial activity and the environment in which it is domiciled.

This paper x-rayed the impact or especially the influence of the Nigerian business environment as it affected the productivity of the entrepreneur operating in the country.

The paper is structured into various parts. The first is the introduction followed by part two which looked at the definition of the keywords, explained the nature of the business environment and its component parts, also discussed the importance of the business environment to an entrepreneur.

Conceptual issues relating to this paper was deliberated upon.

The study depended on resources from academic publications, reports and publications of government agencies and other stakeholders in the field of entrepreneurship in Nigeria and outside the country.

The paper therefore argues in conclusion that the government is the vital organ that can lead to a beneficial business environment. It also recommends the inclusion of entrepreneurship in the curriculum of schools, ensuring that the NYSC period is loaded with workshops and seminar on entrepreneurship.


  • Background of the Study

The development of enterprise activities at anytime is dependent upon a complex and varying combination of economic and environmental factors.

The economic and environmental factors exercise a strong influence on the personality and background of business operations.

The process of interaction and adaptation between enterprises, environment and economy goes on continuously. Enterprise development which is the creation of new enterprises and expansion of existing enterprise or re-development of enterprises (Ohanemu, 2006).

The critical success factors of any enterprise development strategy are the viability of the business strategies behind the enterprise development activity which are often distorted by the economic and environment factors (Kuye, 2004).

Business enterprises anywhere in the world operate within the economy and also within the environment.

In management, the term environment does not necessarily mean physical surroundings but, it is used as the total forces, factors and influence that surround and affect business organization likewise the economy which can make or mar business operations.

Economic and environmental factors walk hand-in-hand to influence the growth and development of enterprises.

Therefore, business organizations irrespective of their objectives must take into consideration these economic and environmental opportunities and constraints (ILO, 2007).

To this end, the extent to which business operators and managers could identify, evaluate and reach to the economic and environmental factors will have considerable impact and influence on enterprise development.

Nevertheless, the researcher emphasize the need to study business environment and the economy is very important considering the fact that business organizations do not operate in a vacuum and effective management and profit maximization in complex and dynamic society requires the assessment of strength and weaknesses of the enterprise and the opportunities and threats provided by the challenges of the internal and external environment and the overall economy.

Ukaegbu (2004) stated that the contemporary environment is becoming dynamic and competitive and since business organizations do not operate in a vacuum, they are affected by environmental and economic conditions.

Hence, for survival, development and growth, business enterprises must cope and adapt to these influences posed by the ever changing economy and environment (internal and external).

Kuye (2004) asserted that managers must not only be aware of what constitutes the elements of their business economic environment but also should be able to respond to the forces of the economic environment which inevitably impinges on the operations of business enterprises.

Ukaegbu (2006) is of the opinion that the relationship between a business enterprise and its host economic environment can be examined from three strategic ways, first; the enterprise can be viewed as importing various kinds of inputs (resources), such as human resources, capital, managerial and technical inputs.

These inputs are then transformed to bring about outputs which take the form of goods and services.

The second approach is the study of the relationship between the organization and the economy focus on the demands and legitimate rights of claimants such as employees, consumers, suppliers, stakeholders, government and the society.

The third approach is to view the organization as operating in an external environment of opportunities and constraints.

Thus, no single approach is sufficient for all time and in all circumstances in enterprise development because they are complementary.

The elements external to the business enterprise affect its performance and development as well as elements within the enterprise.

Business enterprises are acutely aware of the importance and influence of the economic environment on their organization.

Almost all annual company reports presented by business operators devote attention to the general environment prevailing in the country and an assessment of its influence on their enterprises. Business enterprises anywhere in the world operate within the economy and environment.

According to Adidu and Olanye (2006), environment is the aggregate of all conditions, events, circumstances and influences that surround and affect the enterprise.

This means that business enterprises must interact with this conditions and factors to influence its decisions, directions and performance.

Economic system and other conditions in the environment determine the success of enterprises and its development. Therefore, enterprises and its management have to adjust to the conditions and factors prevalent around it.

Pawan (2005) opined that no business enterprise can ignore the environment around except at its own peril, holding that the penalty of environment disregard is heavy thus it does not only reduces profit margins and makes opportunities for expansion and development but it also social hostility and makes economic environment growingly inhospitable to business operations and development.

Pawan further pointed out that attempts must be made to influence the economic environment in order to make it congenial and favourable to enterprise development.

Accordingly, one of the factors considered in this research work influencing enterprise development is demand and supply. Demand and supply comprises the fundamental concept on which global business continuity stands.

Supply is a fundamental economic concept that describes the total amount of a specific goods or service that is available to customers; also Demand defines the willingness of consumers to purchase particular good or service, Investopedia (2018).

The principle of Demand and Supply states that when a particular good or service has limited supply and increased demand, the price of the good or service increases.

Conversely, when a particular good or service has an abundant supply and little demand, the price of the good or service decreases.

Demand and supply is one of the factors of enterprise growth and development and many businesses find it difficult to respond and increase production to meet the increased demand. (Hamlett, 2002).

The growing, long term imbalance of supply and demand threatens business performance. Business enterprises who are unable to insulate themselves against the threat of scarcity will face significant challenges with their financial performance, growth and long term competitive advantage.

Zhou (2011) asserted that the influence of entrepreneur ability to the enterprise development is reflected on the demand and supply relationship of entrepreneur’s ability.

The compared result of business enterprise ability in supply and demand decides the efficiency and profitability boundary of enterprise operations and growth.

Inflation is the persistent rise in the general price level of goods and services. Inflation occurs when the volume of purchases are permanently running ahead of production and too money in circulation chasing too few goods.

Inflation in our country today has marred the development of enterprises, where there is no effective and efficient cash flow in the economy and there is a rise in the products and services, customers and potential buyers and investors finds it difficult to purchase and invest thereby causing weak demands of products and services in our   contemporary economic environment (Osifo, 2017).

High production cost less sales has distort enterprises to meet it planned objective which is profit maximization. The efficiency of financial sector gets worse due to the rate of inflation through financial market frictions and shows the economic performance of enterprises.

Inflation damage economic growth of business enterprises especially the operation of financial market thereby declining financial development within the enterprise.

More so, inflation causes uncertainty, forces consumers to tighten their belt leading to shrinking demand and market size. Huge pressures created by input price   rise lead to rising output costs.

The result is declining margins, unhealthy financial statements and at times leading to closing down of business enterprises (Williams, 2002).

Political factors influence the development of business enterprise. Political factors are government regulations that influence business operation positively and negatively (Alonso et al, 2007).

Business operators must keep a bird’s eye view over political factors. These factors may be current and impending legislation, political     instability and changes affect business operation and activities.

Tutor (2018) affirmed that political factors could impact a business enterprise by making the market environment less friendly for the business.

Typically, government has a great deal of   power over business enterprise and many times, there is not much that business enterprise could do about it.

Ingram (2009) maintained that trends in politics set by government agencies and leaders can affect the legal framework within which small businesses operate the market conditions that affect consumer behaviour and the amount of assistance offered to business enterprises by the government.

Business operators being aware of politics trends at the national and local level is an essential part of planning and strategy development for business enterprise.

The political environment in a country affects business enterprise and could introduce a risk that   could cause them to suffer a loss (Pondent, 2018).

The political environment could change as a result of the actions and polices of government, at all levels, from the local level to the federal level.

Business   operators should therefore plan for the variability in the policies and regulations of thegovernment to maintain a stable business economic environment.

Social factors also influence business enterprise development. According to Mack (2018), many social factors influence markets that retail business serve.

Economic and political changes, for instance, can overlap and fundamentally change how the society thinks.

While business operators couldn’t hope to predict every possible change, paying attention to the major social factors that drive change can help prepare them to adapt.

More so, business operators must consider the ethical and social ramification of their actions; as well as the actions of their suppliers.

The social environment of a business according to Umar (2018) consists of all a society believes, it customers, its practices and it is the way it behaves.

The social external environment becomes even more complicated, each with its own unique values and customs that make up social environmental factors that affect business  enterprises.

Umar further explained that what the society believes, its customs, its practices and behaviour affects the attitudes, opinions and interest of consumers, thereby directly affecting product sales and services by business and revenues earned.

The product and services offered by business enterprise should be tailor made to suit consumers’ lifestyles and compliment their behaviour, this is where social factor marketing is considered.

Slow reaction or lack thereof, to changes in the society could be costly affair for any business enterprise for examples, loss of market shares to quick reactors.

Further more, Lewis (2018) maintained that consumer preferences shift, often unpredictably. Business enterprise do their best to stay ahead of consumer buying trends, but all the research and marketing in the world couldn’t replace simply being   in the right place at the right time.

Nevertheless, the changing proportion of consumer’s tests and preferences can alter overall spending rates and habits, forcing business operators to adjust their business model to compensate.

Enterprise development materializes as an action, movement or activity that creates new business values.

Business operators who have interest in the result of the enterprise activity are responsible for funding and supporting the enterprise and also grinding it against economic and environmental factors in order to achieve its objectives.

Olena and Pavlyuk (2013) are of the opinion that to ensure a continuous  process of enterprise development, each enterprise strives for the rational use of resources, improvement of the quality of products, satisfaction of social requirements of their employees and population of the region where it functions (economic  environment) and has a goal-profit increase.

Here, there is a close look at the main  directions and derives main variant of enterprise development under modern conditions.

This considers development as a process, which is influenced by factors of  external and internal economic environment.

Business affected by different factors which collectively form the business environment. These include economic, social, legal, technological and political factors.

Business Environment is therefore, the total of all external forces, which affect the organization and the business operations  (Kotler and Armstrong, 2004).

It is therefore pertinent to analyze the possibilities of development of an enterprise and it operations under crises (influence of economic environment in it).

CSN Team.

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