Businesses are dependent on the market conditions no matter what is the mode of operations. A lot of businesses operate at the local level while others at the national and yet others operate at the international levels. No matter what is the level at which the companies operate they are bound to be influenced by the factors like demand and supply, recession and others. Let us look at the different factors and the extent of their impact on the businesses.
Businesses operate with a simple aim and that is to earn maximum profit. There are multiple activities that are carried out by them which include keeping an eye on the market dynamics, the way the demand and supply of their products or services are being affected, sales of the company and the ways to augment it, analyzing the threat and the opportunities which might come their way. These are just some of the factors and we need to understand them by taking a better look at them.
Demand and Supply This is one of the major forces which determine the way the businesses will move further and perform. Demand is the willingness of the consumers to purchase a product. Supply is the capability of the producers to make available the products to its consumers. The performance of the companies depends on the demand and supply pull and push theory.
The more the demand, the higher the production will be to keep the balance between two. In case the demand is high but the producers fail to meet them with proper supply there are chances that the consumers will move to purchase another product since they are easily available.
Let us take an example to understand it better. Suppose extreme weather conditions led to damage to the sugar crops. This will mean that in the market the availability of sugar will be less. However, the demand for sugar remaining the same and the supply being on the lower side one can see steep rise in the price of sugar making it expensive. However, the market forces will see supply coming in from different sectors trying to meet the demand and this will further lead to the reduction in the price of sugar.
Marginal and Total Utility Utility of the products is defined as the demand of the products and the extent to which it is cherished and the amount of satisfaction it offers to the users. No matter how popular a product is, over a period of time the consumers get used to the products and they look for new products.
Companies too understand the market dynamics and work their way to keep introducing new products so as to remain in the favorite list of the consumers. New products and their launch ensures that the margin of the producers do not witness a decline.
Money and Banking The availability of money both to the consumers and the producers and the businesses depend on the flexibility offered by the banking institutions. This will further depend on the government and the banking policies.
If the loans are easily available to the banks they would further lend it at better rate of interest to it borrowers which can be both the businesses and the consumers and in this case both are going to benefit. However, if the norms are tough and the lending is difficult one can witness a tough market and are bound to face constraints on the profit margins they can expect. Income and Employment The growth trajectory of the factory decides the availability of money in the markets. Higher growth will see companies rewarding their employees with bonuses and higher salaries and perks.
The flow of this money will increase the purchasing power of the individuals and thus they can spend more. This will push the demand for the products and the companies will see the increased revenues which will further lead to the development of the economy and the country. General Price Level The price levels of the commodity decides the way it affect the demands and the way it will push the profits of the companies. The price decision of the commodities will depend on the cost of the raw materials, the availability for the same, transportation costs and the way the consumers react to them.
Recession Recessionary phase affects the revenues of the companies which decline. Sales figures squeeze and the companies are left with little choice but get on to cost cutting measures which includes salary cuts, retrenchment of workforce, cutting down on the advertising costs of the company. This affects the overall economy and there is a downward trend in every field with consumers getting into a shell and moving away from making any expenditure.