Factors that are external to a company impact its performance much as internal factors. Some are economic factors. Economic factors in the remote environment are not within the control of a company, but its management has to make decisions keeping them in mind such factors. They include economic growth, inflation and unemployment.
Economic growth is the rate of growth in a nation’s economy. A nation’s gross domestic product measures its economic growth. GDP is the market value of the goods and services that an economy produces during a period. When an economy is growing, there is likely to be greater demand for a business’ goods and services.
Unemployment refers to a situation in which someone who is ready to work and is able to work is not able to find suitable employment. The unemployment rate gives an idea about the extent of unemployment in an economy. This is stated as a percentage, and the higher the level of unemployment in an economy, the higher the unemployment rate. Unemployment is another factor in the remote economy that impacts a business’ performance. When more people are unemployed, there will be in general less demand for a company’s products and services.
Inflation refers to a continued rise in price levels in an economy. There are price indexes, such as the consumer price index, that provide an idea about the level of inflation in an economy. This sort of index looks at the prices of some selected goods over time. If an economy experiences inflation, its consumers’ buying power declines. Even if a company raises its prices to account for inflation, it may not be better off than before, since its costs of production have likely gone up too.