BUSINESS ENVIRONMENT & CHARACTERISTICS OF
BUSINESS
Introduction
Businesses exist within an external environment of opportunities and
threats and an internal environment under their control. The Kenyan
business environment includes physical, historical, economic, political,
legal, sociocultural, competitive and technological factors. Businesses also
face ethical issues like corruption, taxes, product quality, and social
responsibility to stakeholders. Environmental forces influence
organizational operations and decisions. Firms also undertake social
responsibilities.
Meaning of Environment
Environment refers to the aggregate conditions influencing organizations,
communities and individuals. It includes social, cultural, economic and
physical factors.
Types of Environments
Internal Environment
The internal environment comprises organizational policies, culture,
leadership styles, and resource availability that management can control.
External Environment
The external environment includes:
Political-Legal: Laws, regulations, taxes, stability
Physical/Geographical: Location, infrastructure, climate
Historical: Colonial influence on systems
Economic: Development stage, business cycles, policies
Sociocultural: Social factors like family, education; cultural factors
like values, lifestyles
Technological: Materials, processes, machinery, skills
Competitive: Rivalry from similar and substitute product.
Business Ethics
Ethics deals with moral principles guiding human actions. Business ethics
apply moral principles to business situations. Unethical practices like
dishonesty harm society and business goodwill. Ethical practices like
recalling harmful products build goodwill.
Social Responsibility
Businesses are responsible to societal stakeholders beyond
owners/shareholders. Arguments for responsibility cite business reliance
on society and need to address problems it causes. Critics cite costs and
business's economic role. Responsibilities exist in areas like employee
relations, pollution control, honest advertising, and community welfare.
In summary, the business environment comprises diverse internal and
external forces that managers must address through ethical, socially
responsible conduct. Environment analysis aids adapting to opportunities
and threats.
CHARACTERISTICS OF SMALL BUSINESSES
Getting started in business is relatively straightforward for small
operators. They don't require huge capital outlays that larger corporations
do, making entrepreneurship an accessible path. This low barrier to entry
has led to intense local competition as multiple sole proprietors recognize
opportunities in their communities.
While competition is fierce, independence is the prime incentive for many
small business owners. Being one's own boss, calling the shots and
reaping the rewards of one's work directly is a big draw. Of course, it also
means being responsible for all aspects of the operation from production
to marketing.
Small businesses tend to specialize in techniques suited to local
conditions rather than cutting-edge technology. A culture of sharing craft
knowledge informally among peers helps fill training needs on a limited
budget. Reliance on locally available materials and labor pools keeps costs
manageable too.
Lacking access to traditional loans, small business people generally
finance their ventures exclusively from personal funds. Startup and growth
capital is scarce as a result, constraining the scale at which they can
develop their models. Most end up catering to the immediate
neighborhood.
Challenges Facing Small Firms
One major constraint small enterprise face is financial. With narrow capital
sources, opportunities for expansion and resilience during downturns are
limited. Reinvesting profits can only take the business so far.
Another challenge is fragmentation of expertise. As sole operators
balancing many roles, owners may not have in-depth experience in every
functional area like large managers. Hiring help addresses this but also
costs money they often don't have to spare.
Long-term continuity is uncertain without a succession plan. If an owner
falls ill or passes away unexpectedly, will the business outlive them?
Sustained viability relies heavily on one person's sustained involvement
and drive.
The legal setup of sole proprietorships leaves personal finances vulnerable
too should business liabilities pile up. There's no distinction between
private and commercial assets.
Small Business Contributions
Despite difficulties, small firms collectively make substantial economic
impacts. As the backbone of sectors like agriculture, trade and
manufacturing, they power industry across the nation.
Their labor-intensive character has significance for employment as well.
By absorbing workers where big corporations may not, small businesses
play an important socioeconomic role locally and nationally.
Although constraints persist, entrepreneurship remains an attractive
proposition for those seeking independence and control. With low barriers
to participation, small businesses also promote opportunity and
participation in development on a local scale. Their grassroots impacts are
undeniably far-reaching.
CHOOSING THE BUSINESS STRUCTURE
When starting your enterprise, figuring out what legal form to adopt is an
important consideration. Let me walk you through some of the main
options and factors involved in making this decision.
Sole Proprietorships: The Simplest Option
Running a solo venture where you, and perhaps your family, fully own and
operate the company is called a sole proprietorship. This requires the least
paperwork legally. However, as the proprietor you personally take on all
financial risks without limit. Your personal finances could get tangled up in
any business debts. If you leave or something happens to you, the whole
operation shuts down too.
Something else to note - you alone provide all startup capital from your
savings, assets or loans. Profits are entirely for you alone as are any
losses. Legally, there's no distinction between you as the owner and your
company.
Simple Setup but Total Responsibility
Getting permitted by local authorities is usually the main legal hurdle.
Your business registration simply uses your name or a tradename. Bank
loans, gifted capital or flexible payment terms from suppliers can supply
initial funding.
For tiny grassroots ventures, the low barrier for entry is ideal. Personalized
customer service thrives in smaller scales too. However, unlimited liability
understandably deters some. As a solitary operator, growth prospects and
continuity rely entirely upon you remaining able and willing to run things.
When Sole Proprietorships Make Sense
Industries like consulting where one-on-one relationships matter tend to
suit this format best. Very small initiatives operating on minimal capital
also fit. Higher risk tolerance makes you comfortable handling all financial
responsibility alone. Short-term, temporary ventures value flexible
formation over more permanent legal structures too.
Entrepreneurial Growth and Changes
Choosing a format factor in current conditions. Times of layoffs fuel
unemployment-driven business booms by necessity entrepreneurs. A new
enterprising spirit encourages more grassroots startups due to lowered
barriers. Large retailers subdividing into convenience stores proliferate
sole proprietor opportunities. Overall, solo ventures continue enabling
market entry for many situations successfully. Thoroughly understanding
the pros and cons empowers choosing optimized registration for your
particular business circumstances.
