Environmental Forces That Affect Business
A business doesn't exist in a vacuum: Environmental forces can affect businesses positively by driving sales, or they can cause negative effects by increasing the cost of goods sold or by increasing a business's overhead. A business depends upon its ability to generate a profit despite the external factors affecting it. While most environmental forces may be outside of a company's control, it can still succeed as long as the potential impacts of such forces are recognized and a plan is put into place to mitigate these effects.
Agencies such as the U.S. Environmental Protection Agency (EPA) regulate businesses and the environmental impacts they may have. Regulations may dictate how a business manufactures its products, as well as how it disposes of waste material. Generally, the greater and more hazardous the potential impact, the more regulations a business may be forced to follow. Failure to follow these regulations can result in large fines and possible cessation of a business.
One of the key environmental forces a business must deal with it is its ability to deliver its product. While a business can control some factors, such as vehicles and transportation, it can't control those forces that exist within the infrastructure (including the transportation network of roads and railroads). The infrastructure must include roads adequate to support the area's traffic: Roads must be built to handle the type of traffic that will use them.
Production depends upon the availability of resources needed to manufacture a product. If resources are limited due to low crop production, for example, a business may suffer. Climatic environmental forces can affect how successful a business is and whether or not it can keep up with demand. Businesses dependent on nonrenewable resources such as minerals or fossil fuels are more likely to be negatively impacted by these environmental forces.
Perhaps the most unpredictable of the environmental forces that affect businesses is the occurrence of natural disasters. Flooding is the most common and widespread of natural disasters that can potentially affect businesses, according to the Federal Emergency Management Agency (FEMA). The National Weather Service reported that flooding caused more than $2 billion in property damage in 2007.
Changes in demographics are another external factor that can impact businesses. Shifts in demographics occur for a myriad of reasons, sometimes displacing a critical client base. Cost of living, the environment, or lack of green space may cause people to move elsewhere. For a business, this environmental force can have a tremendous effect. Likewise, a positive shift may occur, resulting in an increase in potential clients and customers. For example, new businesses may attract more people to move into an area, with the potential to benefit other business owners with the increased client base.