Economic environment: concept and general characteristics

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:40

An organization should be understood as an open and complex system that receives resources from the external (economic) environment, and also delivers its product to it. In our article, we will consider the concept and characteristics of the presented category, as well as other equally important aspects of the issue.

The concept of the economic environment

The environment for the functioning of an enterprise should be considered as a complex of relationships with economic entities, infrastructure links, natural and social systems, as well as with government agencies. The economic environment of the structure is classified as follows:

• Microenvironment. In this case, the areas of direct impact on the organization are such subjects: suppliers of resources of the material and technical plan; competitors; consumers of the company's product or services; marketing and resellers; state bodies and laws; institutions of a financial and credit nature; other contactaudience.
• The macro environment differs by its indirect influence. The following components take place here: the state of the economy; international events; political factors; NTP; socio-cultural conditions.

How to determine the state of the environment?

Next, we will analyze the factors of the economic environment. So, the state of the structure functioning environment is determined by a number of factors:

• Economic factors. It is worth noting that through them the state of the economy is revealed, which affects the goals of the organization and ways to achieve them. It is advisable to include inflation rates, the level of employment of the population, the international balance of payments, and so on.
• Political factors. It must be borne in mind that the level of investment inflow and other resources to a particular region depends on political stability in society. The attitude of administrative management structures to business is expressed, first of all, in the establishment of various duties or benefits that can develop entrepreneurship in the region or crowd it out, creating unequal conditions for different enterprises.
• Socio-cultural factors. In this case, we are talking primarily about the traditions and life values that prevail in society.
• Scientific and technological progress. This factor reveals the possibility of increasing the efficiency of production processes, and, consequently, the effectiveness of methods for meeting consumer needs.
• Factors of international importance. If there was previouslyopinion that the international environment is considered an object of attention exclusively for those structures that carry out economic activities for export, then at present changes in the world community concern almost all enterprises.

Intensive and extensive economic growth

Today, it is customary to distinguish between two types of growth in the economy. We are talking about intensive and extensive economic growth. In the latter case, the increase in the social product is carried out by increasing the production factors in quantitative terms: the involvement in the production process of labor resources of an additional type, production assets (capital), land.

It is worth noting that the technological basis of production remains unchanged. Thus, the plowing of virgin lands to obtain the maximum amount of grain, the involvement of the maximum number of employees for the construction of power plants, as well as the production of the maximum number of combine harvesters are all examples of an extensive option for increasing the social product.

Intensive variety of economic growth, first of all, is characterized by an increase in the scale of output of marketable products. It is worth noting that the latter is based on the widespread use of more efficient and qualitatively perfect production factors. Increasing the scale of production is usually achieved through the use of the best technology, scientific achievements, advanced technologies, the maximumeconomical resources, as well as by improving the skills of employees. Thanks to these factors, an improvement in the quality characteristics of products is achieved, as well as an increase in resource conservation, labor productivity and other indicators of the economic environment.

During the scientific and technological revolution, that is, from the middle of the 20th century, it is the intensive growth in the economy that gets the advantage in the Western countries of the industrial type.

Characteristics of the environment

Next, it is advisable to analyze the characteristics of the economic environment. The main ones are uncertainty, complexity, mobility, as well as the relationship of factors. The last category represents a kind of economic ties or the force with which a change in factor A affects other environmental conditions.

Complexity in this case is interpreted as the number of factors that the production mechanism must respond to for its own survival. In addition, this is the level of variation of each of the factors.

Mobility and uncertainty

Among the characteristics of the socio-economic environment are uncertainty and mobility. The latter is also referred to as dynamism. It should be understood as the speed with which changes are made in the economic environment of the commercial structure. For example, in some industries (chemicals, pharmaceuticals, electronics, and so on), these changes are being implemented at a relatively fast pace. In others (for example, the extractive industry), they are somewhat slowed down.

Uncertainty should be understood as a function that depends on the amount of information that a company has regarding a particular factor of the economic environment, as well as a function of confidence in the accuracy of the available data. The more uncertain the external environment is, the more difficult it is to make decisions that are considered effective.

Dynamism of relations

The company's relationship with the external environment is defined as dynamic. The economic environment is characterized by a large number of links between its components, which are conditionally classified into horizontal and vertical. It is advisable to consider the presented categories in more detail.

Vertical and horizontal links

Vertical ties appear immediately after the state registration of the structure, since each economic entity performs the relevant functions in accordance with the legislation in force in the country.

Horizontal connections primarily ensure the continuity of production processes and the sale of marketable products. They reflect the relationship of producers of material resources with suppliers, buyers of the product, business partners and, of course, competitors. Schematically and enlarged connections of a business entity in the external environment will be analyzed below.

Category of horizontal links

So, the main link of horizontal connections iscommodity manufacturer. He interacts with the following persons and structures (in other words, with contractors):

• Public formations and organizations.
• Elements of market infrastructure (exchanges, employment services, etc.).
• State authority of federal (republican) significance.
• Suppliers.
• Consumers.
• Competitors.
• Business partners.
• Regional (local) government structures.

Final part

So, we have analyzed the category of the economic environment, its features, factors and other equally important points. In addition, we considered the classification of links in the economy, which is relevant today in the territory of the Russian Federation. In conclusion, it should be noted that in the external environment of the activities of business entities, it is customary to distinguish between the macro level (in other words, the macro environment) and the micro level (nothing but the micro environment).

It is worth noting that at each of the presented levels there are relevant factors that affect the subject of economic activity. So, at the macro level, it is customary to single out political, natural, socio-demographic and environmental factors.

At the micro level, the following factors influence economic management: market conditions, closeness and form of partnerships, the level of market infrastructure development, relations with consumers and suppliers, and so on.