Economic Environment on business

Economic Environment on business

One of the most important factor affecting entrepreneurship is economic, environment. It comprises of capital, labour, raw material and market demand.

(a) Capital– Capital is one of the most important factor of production for the establishment of an enterprise. Adequate funds are required for bringing together other factors of production. It is with the capital that other factors of production like labour raw material, machinery etc can be arranged. Capital acts as a lubricant for the production process. Increase in capital investment in viable projects results in increase in profits which help in accelerating the process of capital formation. Entrepreneurship activity too gets a boost with the easy availability of funds for investment.

(b) Labour-Easy availability of right type of workers also effect entrepreneurship. The quality rather than quantity of labour influences the emergence and growth of entrepreneurship. The advantages accruing to an entrepreneur due to low cost labour are often offset by the disadvantages arising out of immobility of unskilled workers. The disadvantages arising out of immobility and high cost labour can be better tackled by resorting to capital intensive technologies. But a country like India, confronted with the twin problems of unemployment and shortage of capital, cannot afford to adopt capital intensive technologies. Labour intensive rather than capital intensive technology will serve our interests in a better manner. The problem of labour immobility can be solved by providing infrastructural facilities including efficient transportation, wherever entrepreneurship is to be promoted

(c) Raw Material– Raw material is one of the basic ingredient required for production. Shortage of raw material can adversely affect entrepreneurial environment. Without adequate supply of raw materials no industry can function properly and emergence of entrepreneurship too is adversely affected. Shortage, high prices and inferior quality of raw materials are the major problems confronting entrepreneurs. The more favourable are these conditions, better would be its influence on entrepreneurial emergence.

(d) Market– The role and importance of market and marketing is very important for the emergence and growth of entrepreneurship. Monopoly in a particular product line is more tempting to an entrepreneur than a competitive market. In the modern competitive world no entrepreneur can think of surviving in the absence of latest knowledge about market and various marketing techniques. The benefits of improved and healthy market conditions in the environment on entrepreneurial growth are self evident. Germany and Japan are examples where rapid improvement in market was followed by rapid entrepreneurial appearence. Entrepreneurs should keep track of main trends in the economic environment, Market demand depends upon purchasing power.Which in turn depends upon current income, prices, savings and availability of credit. Changes in major economic variables like money income, cost of living, interest rates, savings and credit availability have an immediate impact on the working of an enterprise.

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