The Environment of Modern Business

Topics: Economics, Government, Investment Pages: 5 (1807 words) Published: May 2, 2011
The aim of this essay is to explore a list of ways how the government helps or hinders the development of a successful business environment. In order to achieve the clarification of this subject, PEST(LE) analysis is used.

There is no doubt to say that every nation state needs some form of government to regulate its business affairs. As a function of any organised society, the governments play a key role in the modern business environment. But the form of government differs from nation to nation. Whatever the form or structure, all governments have activities and objectives in common, namely political, economic, legal, technological, and social environment of business. We can use these PEST(LE) factors, mainly in political, economic, legal, technological factors to examine how the government helps or hinders the development of a successful business environment.

The political environment is one of the major effective factors in the external business environment, which has a tremendous impact on the business organisation. Governments frequently use their political power to influence the business environment. By examining whether or not a government is effective, we often consider its political stability, policies and the nature of the government. Take Singapore as an example, despite the inherent disadvantage of a small domestic economy and a lack of nature resources, Singapore aspired to be a “global city” serving the world market and major multinational corporations in the 1990’s, the Singaporean government led the country towards free trade, a free market and an open economy. Since then, the country has established itself as one of the top trading nations in the world and is consistently voted as one of the best business destinations. Singaporeans enjoy one of the highest qualities of life, with a per capital GDP of US$24,000. Singapore achieved this within only one generation. But during the same period of time, the communist government of North Korea did not lead its country’s economy into a positive direction. As a consequence of the government’s policy of establishing economic self-sufficiency, the North Korean economy has become increasingly isolated from that of the rest of the world. Its industrial development and structure do not reflect its international competitiveness ( Clearly, the nature of the government and its policies play an important role in the country’s business development.

Government also has a large impact on the national economic environment, it acts at both macro and micro levels and this has a significant implication for the organization of business. A successful business environment reflects an efficient economy. Therefore, government intervention is vital for the development of the country’s economy, particularly for democratic market-based economies. For instance, a large firm has extensive and frequent contact with the government at a variety of levels and tasks. At the macroeconomic level, a government’s exchange rate policy, or its view on interest rates can have a significant influence on the profitability of firms and even their ability to survive. As a result of this, the governments need to consider the feedback from firms before taking any action (Grant1987, P 36). At the same time when a government intervenes in firms and markets, firms also have the ability to shape their government’s policies. On 1st January 2002, the Euro became the sole currency in 12 of the European member states. The Euro has many advantages, such as greater transparency and cost efficiency. By introducing the Euro, most of the large firms will benefit from saving a huge amount of money on transaction fees and the convenience of paying, buying, and invoicing. These advantages attract large firms to negotiate with their local government in the hope of joining the Euro zone.

Some firms own a large part of the market share in their industry. In order to achieve a maximum...

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