Explain the interaction between economic and Don-economic environment
Interaction Between Economic & Non Economic Environment:
The economic environment of business exercise a strong influence on the non-economic environment of business just as the non-economic environment can influence the economic environment. The economic environment is thus both exogenous and endogenous, it is determined as well as determining. A few specific interactions are as follows:
The sociological environment affects and gets, affected by the economic environment of business. The social attitude towards business and management influences, how many people get attracted to private business as an activity or to management as a career. If business gets a social sanction as a respectable profession, the occupational structure of a country will reflect a sizeable category of professional managers. On the other hand, if more and more of active labour force joint professional management service, the social attitude towards business and its management also change. Social movements largely determine the economic system. If the workers cultivate the attitude of confrontation rather than cooperation with management, a repressive economic system may be needed to cope with industrial disorder. On the other hand, if the attainment of rapid economic growth is the aspiration, the labour productivity revolution must be brought about and for that, payment may be based on productivity of labour rather than profitability of the business. To operate on the productivity-based wages is to operate on the system of incentive and attitudes of labour. The attainment of a specific economic objective is thus conditioned by a specific social attitude and discipline.
The educational-cultural environment and the economic environment of business are also interdependent. The stage of economic development is a decisive factor for the available system of education; only a relatively high income country can afford to impart costly higher education in science and technology. The system of education, on the other hand, may be responsible for a given economic environment; the emphasis on liberal arts, education and the lack of vocational training courses may be held responsible for the economic problem of unemployment in many countries. At the corporate level, the interdependence between educational and economic environmental factor may at times work out to be a vicious circle For example, a low profit-making business concern may not find resources to finance management training or executive development programme. As a result, there may be skill deformation among its staff-managerial inefficiency may cause low business efficiency a measured in terms of profitability of the business.
The political-legal environmental and the economic environment of business are also interlocked so much, so that we sometime think political economy of business. In a situation of political stability business enterprises happened to grow better, businessmen venture to shoulder more economic risks. But if there is political instability, business uncertainties multiply and therefore, individuals may not like to step in business ventures. In the same way, the ideology of the ruling party influences the economic system. The Government which believes in socialism (Swadeshi) as a strategy and nationalization of enterprises (closed door to Videshi multinationals), as a tactic, may remove the private business sector and kill the business incentives to expand its scale of operations. On the after hand, sometimes a series of political legislations may be necessary to cope up with the economic environment To fight economic crisis and industrial recession, streamlining of administration and simplification of procedural matters may be evoked, fa fact, different legislations of the Government like MRTP Act. Urban Land Ceiling Act, are often politico-economic in character. This is borne ont by the analysis of content and intent of different legislations and political announcements. The states of economic environment decides the continuity or discontinuity of a particular political administration: the state of political environment, in its turn, decides the pattern of economic legislations.
The historical environment and the economic environment of business are also interdependent. The present (economic) environment of business can be treated as a legacy of past (historical) environment. Every business has a history, every history has a lesson. As such, the present is a reflection of the past, and the present can also be handled in terms of the experience of the past. A number of examples may be quoted. The economic environment of a country today is partly constituted in terms of the available structure of industry in that country. Suppose we find there presently a number of attractive industries such as mines and plantation; these industries can be traced back to the colonial pattern of investment in the past, the empire country was interested in the colonies to get raw materials for her industries which produced finished manufactured goods which could be dumped in the colonial markets. Colonies supplied market as well as raw materials. In other words, the economic environment of business in the newly independent nation-states-states is the outcome of the colonial status which those countries have enjoyed/suffered in the past. Similarly, the past history is a record of events-storehouse of lessons which can provide guidelines for present economic policy decisions. The achievement of the Five-Year Plans in the past may provide direction to the formulation and implementation of the present Five-Year planned programmes of an economy. And the present performance of a plan will make the course of history of planning. This suggests that the environment factors are interrelated on the time scale.
Finally, we come to the interaction between the physical environment number of legislations have been enacted in many countries to conserve natural resources and to preserve the natural physical environment. These environmental legislations may impose a constraint for the expansion of a given business concern like a factory. Thus, environmental consideration limit the expansion activities of a business firm. On the other hand, the size of plant the scale of output, the organisation of firms the structure and location or industries may lie at the root or either environmental improvement of environmental decay. Thus, the social responsibility of business to-day is to take care of the environmental impact of its economic and technological activities. To the extent this social responsibility is not discharged, laws relating to the business and industry will increasingly turn out to be laws relating to the physical environment of business. From this standpoint, one may feel that in addition to the existing functional areas of management i.e. production, finance, personnel and marketing. we are soon going to have a new area-environment. The point remains that the physical environment as a factor is assuming so much significance today, that it may be treated as a critical element within the economic environment of business, rather than outside.
In short to state that the economic environment in general interacts with the non-economic environmental factors. If we think a little deeper, we will discover that in particular each critical element of the economic environment (namely, economic system, economic structure, functioning of the economy though sectors, economic politics, programmes and controls) interacts with each critical element of the non-economic environment (namely, sociological, political, historical and physical) and their respective sub-elements.