ECONOMIC AND NON-ECONOMIC

ENVIRONMENT : THE INTERACTION MATRIX

The economic environment of business exercise a strong influence on the non-
economic environment of business just as the non-economic environment
influences the economic environment. The economic environment is, thus,
both exogenous and indigenous, it determines as well as it is determined by
the non-economic environment. Let us consider a few specific interactions.

The social environment affects and gets affected by the economic

environment of business. Social attitudes towards business and management
determine how many people get attracted to private business as an activity
and to management as a career. If business gets social sanction as a
respectable profession, the occupational structure of a country will reflect a
sizable category of professional mangers. On the other hand, if more and
mroe of the active labour force joins professional management, the social
attitude towards business and its management also changes.

Let us take another example : Social movements largely determine the

economic system. If the workers cultivate an attitude of confrontation, rather
than cooperation, with management, a repressive economic system may be
needed to cope with industrial disorder. On the other hand, if the attainment
of rapid economic growth is the target, the management must bring about a
labour productivity revolution and the wages may be based on productivity of
labour rather than profitability of business. To operate on productivity-based
wages is cooperate on the system of incentives and positive attitudes of
labour. The attainment of a specific economic objectives is, thus, conditioned
by a specific social attitude and discipline.
The educational cultural environment and the economic environment of
business are also interdependent. The state of economic development acts as
a decisive factor in the choice of a system of education. For example, only a
relatively high-income country can afford to impart costly higher education in
science and technology. The system of education, on the other hand, may be
responsible for a given economic environment. For example, the emphasis on
education in the arts and a lack of vocational course may be held responsible
for the economic problem of unemployment in many countries. At the
corporate level, the interdependence between educational and economic
environmental factor may at times take the form of a vicious circle. For
example, a business concern whitlow profits may not find resources of finance
management training or executive development programme. As a result,
there may be a shortage of highly qualified and trained management
personnel. Thus, lack of trained competent managers may lead to business
inefficiency.

The politico-legal environment and economic environment of business are

also interlocked to such an extent that we sometimes think of political
economy of business. In a situation of political stability, business enterprises
happen to be forthcoming and businessmen are willing to take more economic
risk. But if there is political instability, business uncertainties multiply and,
therefore, entrepreneurs may not like to take up new business ventures. The
state of business in Punjab during the period of terrorism is a recent example.
The ideology of the ruling party influxes the economic system. The ruling
party which believes in using socialism as a strategy and nationalization of
enterprises as a tactic to strengthen the economy may not be favorably viewed
by the private business sector. On the other hand, sometimes a series of
political legislations may be necessary to cope with the economic environment.
To fight economic and industrial recession, the strategy of streamlining the
administration and simplifying the procedure maybe adopted. In fact,
different legislations of the Government (like MRTP Act, FERA, and Urban Land
Ceiling Act) are often politico-economic in character. This is borne out by Ana
analysis of the content and intent of different legislations and political
announcements. Also the state of economic environment decides the
continuity or discontinuity of a particular political administrating. The state of
the political environment, in its turn, decides the pattern of economic
legislations.

The historical environment and the economic environment of business are

also interdependent. The print (economic) environment of business can be
treated as a legacy of its past (historical) environment. Every business has a
history, and history always has a lesson to teach. As such, the repent is a
reflection of the past, and the repent can also be handled in terms of the
experiences of the past. A number of examples may be quoted. The present
economic environment of a country is partly determined by the available
structure of industry in that country. These industries can be traced back to
the colonial pattern of investment in the past. The British Empire was
interested in the colonies so that it could easily (a) get the raw materials for its
industries, and (b) dump the finished manufactured products in the colonial
markets. The colonies, thus, supplied the market as well as the raw materials.
In other words, the economic environment of business in the newly
independent nation-states is the outcome of the colonial infrastructure which
those countries had in the past. Similarly, history is a record of events and a
storehouse of lessons which can provide guidelines for present economy policy
deisms. The achievements of the Five-Year Plans in the past may provide a
direction to the formulation and implementation of the current Five-Year Plan
of an economy and the present performance of a plan will decide the future
course of planning. It suggests that the environments factors are interrelated
on the time scale too.

Finally, we come to the interaction between the physical environment of a

country and the economic environmental business in that country. A number
of legislations have been enacted in many countries to conserver natural
resources and to preserve natural the physical environment. These
environment allegations may impose a constraint on the expansion of a given
business concern like a factory. Thus environmental considerations limit the
expansion activities of a business firm. On the other hand, the size of a plant,
the scale of output, the organization of firms, the structure and action of
industries may lie at the root of either environmental improvement or
environmental delay. Thus, the social responsibility of business today means
taking care of the environmental impact of various economic and technological
activities. To the extent this social responsibility is not discharged, laws rating
to business and industry will increasingly turn out to be laws relating to the
physical environment of business. From the standpoint, one may feel that in
that in addition to the existing functional Ares of management (prod finance,
personnel and marketing), we are soon going to have a few area of
environment. The point remains that the physical environment as a factor is
becoming so significant day by day that it may be treated as a critical element
within the economic environment of business.

In Interaction Matrix below we have listed the critical elements of the non-
economic environment along the rows and the critical elements of the
economic environment along the columns thus yielding a seven by five matrix.
When a given element of the economic environment influences a given
element of the non-economic environment, you draw a short line vertically,
and when an element of the non-economic environment influences a given
element of the economic environment, you draw a short line horizontally.
Thus in case of interdependence among the environmental elements, you end
up with a plus sign which suggests a two-way interaction. The Interaction
Matrix serves as ready reference for understanding environmental relations
and relations.