Developing and growing a company depends a lot on the steps that are carried out within it. But in addition to that, it is essential to take into account certain variables that, although beyond the control of the company, can influence it; these variables are known as Economic factors.
Although these factors do not directly affect the operation of the company, they can do so in achieving the objectives set. This influence can be for better or for worse, this will depend a lot on the approach given to them during management.
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¿What are economic factors and how they influence the development of a company? Keep reading to get to know the subject in depth.
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In this article you will find:
What are Economic Factors
Economic Factors are certain elements that, although not closely related to the business, can impact you positively or negatively. They refer to the most relevant aspects of an economy and that in some way dictate its growth.
Due to the way in which these influence a company, they can be categorized into three large groups: Permanent economic factors, National temporary factors and International temporary factors. Each of these categories includes a series of very important elements.
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Permanent economic factors
These types of elements can be taken into account in the decision-making of a company, since their duration is relatively long. Therefore, their study allows to make accurate predictions and focus management to use these factors in favor. Among them are listed:
Relevance of economic activity
In this aspect, the value of the good or service offered by the company in the place where it is developed comes into play; The ability to obtain raw materials and the ability to obtain labor in the region must also be taken into account.
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Level of economic development of the territory
This element refers to the competence of a region to generate wealth. To determine this level, a calculation can be made by dividing the country's Gross Domestic Product (GDP) by its estimated population.
Population growth rate
This index makes it possible to determine whether the population that consumes the good or service offered by the company has increased or decreased. Knowing this result allows the company to determine an estimate of the consumption of its product and, therefore, of its economy.
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Level of industrialization of the region
The level of industrialization of a country determines its capacity to produce goods and the scale on which it does so. In addition, it is closely related to the specialized training that the workforce of that country has.
Taking this element into account is the possibility of drawing realistic strategies that allow the company to achieve long-term objectives.
Distribution of wealth
Knowing in which sector is most of the wealth of a country, a company can determine its market; In addition, it will allow you to make estimated predictions of the growth or profitability of your business.
National temporal factors
As its name indicates, the national temporary factors are elements that are developed in the short term in the country where a company is developed. Some of the most relevant are:
Short-term economic activity degree
The short-term trend of a country's economy is determined by its monthly growth. This indicator can establish if the economy will have an early growth, will stagnate or will have some fall.
This should directly influence the decision-making of the company, so that it can take the relevant actions based on the objectives.
Interest rates
The interest rate implemented in a country has a direct influence on its economic stability and its solvency. With this, the company can know how it affects the sector in which it develops and if it has any financing opportunities.
Balance of payments
It is a registry in which transactions between the residents of a country with other countries are recorded. A balanced record is indicative of a better economy.
International temporal factors
The international elements that develop in the short term also influence the progress of a company, even if it only develops in one country. The most relevant are:
World economic development
The world economic level directly affects the economic stability of a country. Therefore, it can be concluded that it can affect the profitability of a company. That is, it can affect the customer's ability to purchase or not the product offered by the business.
Level of competition between companies
Despite the fact that a company only offers its goods or services to a certain region, there may be companies in the international arena that constitute its competition. Knowing the costs and the quality of what these companies offer will allow you to have offers that are competitive and attract the public.
Tax rates
For export and import, specific duties or taxes are imposed to protect the economy. This should be taken into account especially when imported raw material is used to make a product.
Other Economic Factors
Other elements that, in some cases, are categorized as Secondary economic factors, they also exert some influence on the growth of a company. This category includes:
Technological resources
It can refer to artifacts or procedures that are in constant progress due to advances in technology. To have a good level of competition, the company must keep up with these advances.
Cultural factor
The sociocultural elements of a region influence the preferences of its population. Offering and presenting a product that is consistent with these preferences will increase the chances of sale; and, therefore, it will directly affect the growth of the company.
Taking each of these factors into account will not only allow estimating the direction of the management of a company. In addition, it will allow them to have backup strategies in case of an unexpected change, so that they do not have a negative influence in the long term.
Sources and references
- Thakur M. (2020, September) Economic Factors
- Mckeown A. (2019, November) Economic Factors - an overview
