The economic environment is one of the components of the business environment in which you operate your business. Knowing the economic atmosphere helps you understand how your country’s economy affects the demand for goods and services. Secondly, it permits you to comprehend how it affects your ability to acquire goods and services.
The economies of most developing countries are so small that most people don’t have enough money to spend on luxuries. At times they even don’t have enough to spend on the necessities of life. It means that when you are setting up a business, you need to consider the ability of the population to buy the products or services you intend to offer.
What Aspects of the Economic Environment Should You Consider When Starting a Business?
When starting a business, you should pay attention to the nature of the economy in which you want to do business. Some of the aspects to consider under the economic environment include the following:
1. The Interest
When commercial banks charge high-interest rates, it usually discourages people from borrowing. You should, therefore, ask yourself how easy it is going to be to borrow money from the bank to finance your business enterprise. For example, in developing countries, commercial banks may not be willing to lend money to farmers because they think that they run high-risk businesses. It is mainly because agricultural activities are usually affected by weather conditions. Farmers may realize poor yields in dry seasons, and those who borrow from banks may find it hard to pay back the borrowed money.
2. Per Capita Income
Per capita income is another fundamental component of the economic environment. It generally refers to the average amount of money or income available for spending every year by each person in any given country. As you start a business, you need to know how much of the income your targeted customers are willing to spend on the product or service you are offering.
In developing countries, most people do not have enough money to spend on their basic needs. For example, most online advertisers offer a low cost per click on online adverts in developing countries. Why? Because most people in those countries cannot afford the goods and services advertised on the internet. But in developed countries, every click usually turns into a sale. The same advert may have a higher cost per click in a developed country than in a developing country.
3. Infrastructure
Infrastructure usually refers to the availability of road networks, communication systems, schools and hospitals, etc. While online businesses rely heavily on a communication system, agricultural enterprises depend mainly on good road networks. For example, if you want to start an online business, you need a fast internet connection.
However, the internet is limited to urban areas in most developing countries. Secondly, it is so slow that it frustrates the users and wastes their valuable time. But if you want to do farming, you will need a good road network. That is when you will be able to market your farm/garden products as soon as possible before they perish. However, many farmers in developing countries experience excessive delays due to poor road networks. Consequently, some of the produce rots on the way before it gets to the market.
4. Competition
It is hard to be in business alone without competitors. You will always have competitors who keep you unsettled. You will always have competitors in your marketplace that offer better prices, skills, quality products and services, etc. They will always endeavour to do business better than you to have an advantage over you and take your customers.
Since there will always be competitors in any business you start, it is good to look at them positively. Why? Because they allow you to think relentlessly about new ways of doing business. There is also something new you will always learn from your competitors. It could be marketing techniques, customer care and support, innovativeness, quality standards, etc. Knowing the economic environment in which you want to operate is so important. It enables you to plan to avoid risks and any unforeseen consequences. Always focus on the economic environment to succeed in your business.
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