Economic and Financial Environment Essay Example

  • Category:
  • Document type:
  • Level:
  • Page:
  • Words:

The economic environment is the totality of economic factors in a business. Such may include aspects like employment, inflation, interest rates, wealth, productivity and income. Such factors influence the buying behaviour of institutions and consumers. On an international level the business environment many include the social political and economic tax, legal and technological aspects that affect a business. In making decisions about such issues the company needs to look at the stakeholders and see how they affect the economic environment. Stakeholders are people that have an interest in the business. Some of the major stakeholders in a business include the customers, communities, customers and partners. These people affect the decision-making of the company. They constitute what is called the economic and business environment. An article Erin Mcclam shows how the international economic and financial environment affects local business1.

Uncertainty in the international market can affect the firm’s decisions on issues related to capital investment entry and exit, production, investment outlays and even expenditure. One theory that best explains, this is the real-options theory. Based on this theory, in the face of uncertainty, the sunk cost component of expenditure is affected adversely by inputs and production decisions2. Uncertainty in the financial and economic environment my include factors such as the prices, inputs costs, project returns, demand process, and cash flow among other factors. Such are the factors that are highlighted in the article.

China being one of the biggest consumers of U.S products and the world economic, engine experienced a slowdown, and this was replicated in the production of products in the local industry. It emerges that the international market affects the level of production, the inputs and the profit outcomes of a firm. When companies or stakeholders make a decision about the company they will have to consider the input of the target market. In this case, the article shows how the international market affects production in a business.

Political and legal environment

The political and the legal environment have an impact on the decision making of firms. It consists part of the stakeholders of a business. The legal system of a country will determine how the business runs, the kinds of products it can sell and other technicalities in business. The political situation in a country also affects how the business runs. When the political environment is stable, then business can run efficiently but a shaky political situation it is hard for a business to flourish. The governance system also forms parts of the stakeholders in a business. In a democratic system, for instance, the business environment is more efficient and fulfilling, but in a dictatorship, it might be hard to do business. When analysing the business environment, it is important to analyse the effects of the governance system.

The international market is greatly affected by the Chinese market. Being the world worlds number one exporter and the second largest importer problems in its economy affects the world directly. The challenge of Chinese government’s challenge is its communist government system that makes it opaque. The opaque nature of the Chinese government is what makes the international market volatile3. The US and the many of the Asian countries are dependent on the Chinese economy. The ripple effect of the Chinese economy if felt by all economies around the world.

It is evident that the governance system affects the business even the stakeholders. The opaque nature of the Chinese government affects how multinational and even small businesses in the U.S, and other countries have been struggling with the business. The evidence of state trading company (STC) is in China, and this has been the major reason for the economic downturn in world economies.

Technology Environment

Technology has a great impact in how business run. The impact of technology can be felt in how dramatic a business can transforms. Apart from providing a wider market for the business technology it also provides better communication between the businesses and the stakeholders. With the technological advancement, a stakeholders can easily coordinate and effect change in a firm. Technology is essentially the pillar of rapid expansion and development in a firm. Nevertheless, before firm delves into some technological advances stakeholders are supposed to set up the necessary infrastructure. Apart from the benefits technology has also brought a lot of threats to businesses.

Smartphone companies are launching new wearable devices such as watches that can track weight and other things. Such devices are expected to be warning in offices. The proliferation of this device is posing cyber-threats to many businesses. Cybersecurity experts warn that these devices will act as a new front for hacking in business. A trend survey shows that 80% of European organizations witnnessed an increase in wearable devices in the workplace. The real threat to these devices is that they are connecting to phones and will provide an avenue were hackers can access to local networks. It is then a threat and a challenge to stakeholders in many organizations.

The article shows how the technological advancements affect decision-making in a company. With changes in the technological advancement firms and stakeholders are often forced to make changes and adapt to the changes.


McClam, Erin. «Stock Market Turmoil: Shares Tumble Again Amid More Signs of China Slowdown.» NBC News. Accessed January 7, 2016.

Mullaney, Tim. «Five Reasons Why China’s Woes Are Shaking the World’s Markets.» NBC News. Accessed January 7, 2016.

Rauters. «Biggest Hacking Threat to Businesses? Wearables.» NBC News. Accessed January 7, 2016.

1 McClam, Erin. «Stock Market Turmoil: Shares Tumble Again Amid More Signs of China Slowdown.» NBC News. Accessed January 7, 2016.

2 Erin. “Stock Market Turmoil”

3 Mullaney, Tim. «Five Reasons Why China’s Woes Are Shaking the World’s Markets.» NBC News. Accessed January 7, 2016.