Business

Section 1

Introduction: Definitions

To start the discussion of the essay topic, it is imperative to define and know what the term business environment refers to. Business environment refers “to a set of political, economic, social and technological (PEST) forces that are largely outside the control and influence of a business and that can potentially have both a positive and a negative impact on the business” (Varian, 1992, p 4 ). Today's world is a rapidly changing place. Developments across a range of factors will have an impact on a business or industry. The classic PEST framework (political, economic, social, and technological) identifies four major categories of external factors that affect the ability of an organization to survive and prosper. The reason for this framework is that business does not function in a vacuum. It has to act and react to what happens outside the factory and office walls. These factors that happen outside the business are known as external factors or influences. These will affect the main internal functions of the business and possibly the objectives of the business and its strategies. An important concept to understand before going further into the essay is political risk. Political risk has been defined “as a type of risk faced by investors, corporations, and governments. It is a risk that can be understood and managed with proper aforethought and investment” (Barnett, 2003,p8).

Broadly speaking, political risk refers to the complications businesses and governments may face as a result of what are commonly referred to as political decisions—or “any political change that alters the expected outcome and value of a given economic action by changing the probability of achieving business objectives.”[ Middleton, 2002, p2 ] . Political risk faced by firms can be defined as “the risk ofa strategic, financial, or personnel loss for a firm because of such nonmarket factors as macroeconomic and social policies (fiscal, monetary, trade,...