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OBJECTIVES
By the end of this subtopic learners should be able to:
Define business constraints.
Identify business constraints.
Explain the business constraints.
Business constraints
It is any restriction that limits or interferes with the success of an
enterprise.
Business constraints holds back a business’s ability to achieve its
objectives.
These are factors which a business has no control over and which need to
be understood by every organisation.
These factors can be called external factors or influences.
For a business to be successful it need to identify external factors within
their environment that could impact on their operations.
Political factors
These are factors which determine the extent to which a government
policy impact the business.
It consists of law, government agencies and pressure groups that
influence business operations.
A government can change its rules and regulations (legislation), which
impacts the relationship between the firm and its customers, suppliers
and other organisations.
The political environment (political condition whether stability or
instability) has a great impact on business organisations.
For instance, wars could add risks which leads to business loss.
Political factors which affect a business are:
Tax policy
It affects the price of goods through Value Added Tax (VAT).
A government can impose a new tax or duty which will affect the
generating structures of an organisation.
Political instability
It is a situation whereby there are forms of violence within a country.
This can lead to business malfunctioning.
Economic factors
Business activities are affected by consumer disposable income and other
financial resources.
Economic factors affecting business activities include interest rates,
inflation, recession, demand and supply etc.
Inflation
Increase business expenses, for example, cost of materials used in
production, rent and utilities.
Inflation also reduces consumer purchasing power.
Exchange rates
Exchange rate affect exportation and importation of products within a
country.
Recession
It refers to a period where there is a temporal decline in the economy
which results in reduced activities.
During this period, business make great loss in sales and profits.
Trade control
This is whereby quality and quantity of products are regulated within an
economy through legislative measures.
Social factors
They are also known as socio-cultural factors.
There is no doubt that the society is changing each day and businesses
should meet demands of the society.
The socio-cultural factors that relate to society are attitudes, beliefs,
opinions, behaviours, interests that directly affect how a business
operates.
Demographic factors such as level of education, population, lifestyle and
social classes may be included in the socio-cultural factors. .
These include:
Population growth
The population structure of a country has an impact on business
operations.
Population growth affects demand and supply for certain products.
Lifestyles
A business should aim to offer products which benefit different people’s
lifestyle.
Multiple lifestyles increase the complexity of consumers’ buying habits.
Customers choose goods and services that meet their diverse needs and
interests.
Education level
Poor education system limits innovation and productivity.
Values
Values are a key determinant of what a person want or do not want.
Values affect demand for goods and services.
Technological factors
Technology refers to how the rapid pace of change in new inventions and
development.
Technology is continuously advancing and the advancement has a great
impact on business activity.
These factors affect the operations of the businesses in a favourable or
unfavourable way.
Technological factors that affect businesses are:
Internet connectivity
Cloud computing
Automation
These are factors which relate to how the legislation affect the way
businesses operate and customers behave.
Businesses need to know legal and illegal factors for them to run
smoothly.
These factors include consumer law, employment law, trade policies,
health and safety, tax etc.
Consumer laws
Competition law
Tax
Trade policies
Climate
Location
Resources