Changing Environment of Business

Our environments are changing constantly. There is no exception in business world too. Globalization and information technology has changed the way companies do business. That is to say, business environment has become more complex and competitive. Major reasons for these changes are: Political changes, economic changes, social changes, and technological changes. A fundamental shift is occurring in world economy. National boundaries are becoming irrelevant for business. Gone those days when businesses were developed country centric. Developing countries such as China, India are rising as leader of world economy. According to FDI index 2005, in 2005, China, India and Eastern European countries reached new heights of attractiveness as destinations for FDI as they competed for higher value-added investments, including R&D. The United States dropped to 3rd place. For business this is the best of time. Globalization has the increased the opportunities for firms to go global and expand its revenue by selling around the world. But this has increased the complexity of business too. As the living condition of people increasing so is the demand. They are no longer satisfied with mass produced goods. They want choice, option of customization.

Political Changes. Since the collapse of communism at the end of 1980s, the world economy has moved toward free market. Regulations and government barriers to do business in foreign country have come down. But this did not reduce the problem, largely due to various government regulations. A very prominent example is foreign direct investment (FDI) policies in India. Indian government does not allow foreign companies to operate multi-brand retail stores. If any foreign company wants to operate retail chain in India they have to do so with a 51-49 percentage joint venture with an Indian company. Because government fears that this will seriously harm Indian unorganized retail stores (kirana store) and create unemployment.

Economic changes. Economic conditions of people increasing. Purchasing power of the consumers are increasing. They are spending more for better living. This has created an opportunities for companies to come up with new products and sell more. But consumers are no longer satisfied with mass produced goods. They want customized goods according to their preferences. This has increased the manufacturing complexities.

Social changes. Though globalization has increased business opportunity, differences in culture and preferences is a challenging issue. For example, McDonald use beef for various dishes in USA but in India they use chicken because of cultural differences. So it’s a challenge for a company to understand the cultural values in which it wants to operate. Failing to do so can have severe consequences for the company. Environmental issue has become a new major challenge for companies.

Technological changes. Technology has changed the way we see the world, communicate, and do business. Now days in this busy life people do not have time to stand a long queue and do shopping. They prefer to do online shopping. It is a challenge for a company to make well online presence. A major wave that changed the business environment and in fact made challenging is environmental issues and health consciousness among consumers. No wonder fast food companies such as McDonald, KFC are under pressure to offer healthier items in their menus.

Business consultant, lecturer, and author, Daniel Pink has written about the global economy and its effects on people worldwide in two well-received books, A Whole New Mind and Free Agent Nation. In an interview he said

“In my view, globalization is good, not perfect. And we can't let perfect be the enemy of good. Globalization in general has lifted living standards throughout the world. Now there have been obviously some dislocations from that. If you are an American worker and your manufacturing job goes to a country in the developing world where someone is going to get paid one-fifth of what you're earning, then you have been in some fashion harmed by globalization.”

Ultimately it’s the globalization and information technology which has changed the business environment and made it more complicated. Cut-throat competition has become more intense and international presence has become a necessity.

A very interesting study in changing business environment in Indian context is in Indian aviation industry. Indian Air was monopoly in Indian aviation industry. But when government lifted the regulations, many private operators jumped into the industry. Competition became intense. But it did not stop there. A new player “Air Deccan” came up with a new strategy – “no frill” airline. The competition became intense and cut-throat. This is a real world example showing how business world can be unpredictable and competitive.

In conclusion, we must all remember that the need to grow drives the decision to transform and change. A business needs to grow; otherwise, it will die or become marginal.