Elements of the General Environment That Apply to the Bookshop Business - Case Study Example

Elements of the general environment that apply to my bookshop business The business environment is highly dynamic and is likely to be affected by a great variety of environmental factors. Accordingly, a business must be in a position to adapt to the effects of the environment in order to enhance profitability. In starting my business, the general environmental factors are likely to affect my business in the following ways: Competition The effect of competition is highly apparent and is expected to affect my business to a great extent. Competition is expected both locally and internationally such that I must devise ways of making my bookshop stand out among competitors (Frank, 2006, p. 291). There are several bookshops in my area and these are a source of competition for my business. Aspects of competition include a wider variety of books, more favorable prices and favorable vicinity such that they are likely to attract more customers. The sale of second hand books is also bound to be a source of competition. A competition aspect that is becoming increasingly popular is online trading which in most circumstances offers better prices to customers. Examples of online bookstores include AMACOM, BetterWorldBooks, Kalahari, Books-A-Million Inc, Dymocks Booksellers, Half Price Books, Booksite, Books Now and Powell’s Books among others, all which may affect the popularity of my business. The issue of online goods has attracted a major controversy with business owners increasingly calling on the government to levy tax on such goods in order to minimize competition. According to Harvey Norman’s CEO, Gerry Harvey, overseas online traders were placing local retailers at a disadvantage because they provided goods at lower prices (WAtoday, 2010). This was attributed to the fact that goods under $1000 bought online from overseas do not attract duty. He therefore called on the government to levy a goods and services tax to such commodities as witnessed in other countries. The challenge identified by Harvey presents one of the general environmental factors that are likely to affect the bookshop. As more people become technologically savvy, it is highly probable that online shopping is bound to increase vehemently, which would thus threaten the continuity of my bookshop. Legal factors The legal factors in business environment are bound to affect the business operations significantly. This is because a business must comply with the legal and regulatory standards as provided in the country’s constitution (Alewa, 2006, p. 548-549; Davidson and Griffin, 2009). In setting up my bookshop therefore, I would need to ensure that the business complies with all Australian business legal requirements. Before setting up the bookshop, I would be required to register the business name in my State. This may cost about $150, which is usable for 3 years. I would also need to acquire an Australian Business Number and obtain a Tax File Number (TFN) to facilitate the payment of tax from the Australian Tax Office (Tax Laws, 2007, p. 58). It is imperative that the name used in registering a business has not been used by any other business in the country (Claydon-Platt, 2010). Other legal issues that are bound to affect the business include price controls, payment of tax, registration renewal, consumer protection laws and ethical issues that the state expects a business to observe. Economic factors Economic factors play a vital role in the success of a business; yet they are external factors and therefore beyond the business’ control (Davidson and Griffin, 2009). Economic factors include factors of demand and supply, price changes, foreign exchange fluctuations and economic instability such as inflation or deflation. Factors affecting demand There are a number of factors that affect demand including the price of goods, income, season/time of the year, state of the economy, presence of substitutes and changes in income. The price of goods largely affects demand for goods and services. Accordingly, an increase in price due to a combination of factors is likely to lead to reduced demand as indicated by the law of demand (Frank, 2006, p. 290-293). Similarly, lower prices would lead to higher demand. Given that the price of books may be affected by various factors such as the manufacturer’s price, taxes and transport costs, the demand may not be stable thus impacting on the bookshop’s profitability. Demand for books is highly dependent on the needs of the customers. At the beginning of the year for example, there is increased demand for goods and services as students begin their academic year. Demand is highly affected by the presence of substitutes; such that people are likely to purchase commodities that tend to be cheaper. The availability of cheaper online books for example could impact on the demand for locally available books. Factors affecting supply Factors affecting supply would certainly affect the profitability of a business due to the fluctuations in price that are likely to result when supply factors are affected (Ciarreta and Espinosa, 2010, p. 138-139). These may include the price of goods, the cost of production, price of related goods and seasonality factors. Notably, suppliers may vary supply depending on the cost of production. The cost of goods is likely to be higher when production costs are high thus affecting a business’ profitability. Depending on the season, price and the availability of substitutes, supply could change such that the business operations may be highly affected. Currency fluctuations Currency fluctuations are a major economic factor which often impacts on the prices of goods. Notably, changes in currency value against the currency of countries where the goods are being sourced could result in plummeting of prices thereby reducing demand for goods and services (Zhang and Buongiorno, 2010, p. 2070-2072). On the other hand, the exchange rates may favor local businesses thus reducing the buying price for goods. Fluctuations in the exchange rate in most cases however are not desirable because they lead to uncertainty which could highly affect the business. Harvey Norman’s CEO, Gerry Harvey, makes note of an undesirable effect of currency fluctuations as illustrated by the online shopping business. According to Harvey, online purchasing has been made easier by the appreciation of the Australian dollar against the US dollar such that it is cheaper for citizens to purchase goods online (WAtoday, 2010). Inflation and deflation During inflation, the prices of goods tend to appreciate such that people’s purchasing power is reduced (Christensen, 2009, p. 2). Accordingly, a business may not do well during inflation because demand is expected to be low. On the contrary, deflation leads to persisted decline in commodity prices; which indicates that businesses may not obtain adequate profits. In essence, such fluctuations in the economy are not desirable as they are likely to affect the business’ productivity. Social factors Social factors in the general business environment consist of changes in the social order that is likely to affect the use and consequent demand for goods and services. Notably, customer needs are highly dynamic such that new goods are demanded as these needs continue to evolve. A bookshop like any other business will most definitely experience the effects of social factors. The internet is one of the most notable trends that are expected to impact highly on businesses. It is notable that people are increasingly using the internet such that the availability of information on the internet has improved significantly. As a matter of fact, books are now available on the internet and individuals can freely access such information as long as they have internet access (Yoo-Kyoung and Norton, 2008, p. 187-188). This will most definitely impact on the demand for books, with declining demand for books gradually leading to the extinction of bookshops. In the near future, it is possible that students will be doing their studies online such that there will be little demand for books. This could mean that the bookshop’s lifecycle may be highly limited depending on the speed at which technology continues to evolve. Business location/Environment This has to do with where the business is located and how it is expected to gain from that location. Factors to consider include the vicinity of the location, population of the area, the income bracket of this population and the presence of target customers (McCann and Mudambi, 2004, p. 279-285). The fact that the bookshop will be located in a busy mall indicates that the number of customers is expected to be high. For example, the business could attract shoppers and inners visiting the mall. It therefore means that the business is well located and it is therefore likely to succeed. Before setting up the business, it is important to conduct a feasibility study in order to ensure that the population will provide adequate market for the books and stationery to be sold at the bookshop. Most importantly, the survey should establish the presence of students and adept readers in the locations so as to determine whether there will be an adequate market for the business. In conclusion, the discussion on the general environmental elements above undoubtedly illustrates that a business is likely to be affected by a variety of factors. Changes in the environmental factors could also affect the profitability of the business. Unfortunately, the business has no control over such factors and therefore it must be effectively prepared to deal with such changes through adopting proactive strategies. Reference List Arewa, OB 2005, ‘Comment: Corporate Governance Events: Legal Rules, Business Environment and Corporate Culture’, Case Western Reserve Law Review, vol. 55, no. 3, pp. 545-550 Christensen, J 2009, ‘Inflation Expectations and the Risk of Deflation’, FRBSF Economic Letter, vol. 2009, no. 34,pp. 1-4 Ciarreta, A & Espinosa, MP 2010, ‘Supply Function Competition in the Spanish Wholesale Electricity Market’, Energy Journal, vol. 31, no. 4, pp. 137-157. Claydon-Platt, A 2010, Things to be wary of when starting a business in Australia, viewed 30 November 2010 Davidson, P & Griffin, R 2009, Management, 4th Australasian Edition, John Wiley & Sons, Brisbane. Frank, R 2006, ‘Corporate foresight: integrating the future business environment into innovation and strategy’, International Journal of Technology Management, vol. 34, no. 3/4, pp. 278-295. McCann, P & Mudambi, R 2004, ‘The Location Behavior of the Multinational Enterprise: Some Analytical Issues’, Growth & Change, Vol. 35, no. 4, pp.491-524. ‘Tax rules’, BRW, vol. 29, no. 39, pp. 58-58. WAtoday 2010, Gerry Harvey calls for GST on online purchases, viewed 30 November 2010 < http://www.watoday.com.au/business/gerry-harvey-calls-for-gst-on-online-purchases-20101123-1850x.html> Yoo-Kyoung, S & Norton, MJ 2008, ‘College Students' Perceived Attributes Of Internet Websites And Online Shopping’, College Student Journal, vol. 42, no. 1, pp. 186-198. Zhang, S & Buongiorno, J 2010, ‘Effects of exchange rate volatility on export volume and prices of forest products’, Canadian Journal of Forest Research, vol. 40, no. 11, pp. 2069-2081. Read More