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External Factors That Affect Businesses
There are many instances where the performance of a business does not entirely depend on the management, the employees and activities inside the premises. There are some external influences that may be triggered by the government, society or natural phenomena. These factors may play a part in the internal functioning of the business. Some may trigger the business to alter its objectives and its overall plan. This paper explores such factors with specific recent cases.
Europe is going through an economic crisis that is affecting activities of many companies. As a result, many companies have taken cost cutting measures. This economic downturn has not spared Holloway White Allom, a high profile construction company famous for building The Bank of England and has been in existence for more than 100 years. The company had taken cost cutting measures by laying off some 175 workers but the slide continued. These poor results have been blamed on the current recession that is affecting many parts of the world. Many companies are finding it hard to stay afloat and make profits. Holloway White Allom had been struggling to remain in business but nonpayment of debts forced it into administration to prevent a further slide. The administrators called in are KPMG.
Recession comes about as a result of many administrative factors. Its effects are felt almost all over the world. It is characterized by almost stagnant economic growth and a failure by banks and institutions to pay debts that ultimately affects businesses.
Human beings, and indeed businesses, do not exist in a vacuum. The environment and nature play a vital role in our existence. However, there are many natural phenomena that occur that are not welcome. Tsunamis, floods, mudslides and volcanic activities are mostly destructive. When Hurricane Irene struck some parts of The United States, many businesses were ground to a halt. Scotts Miracle was no exception.
Scotts Miracle manufactures lawn and garden products such as grass seeds, fertilizers, soils. Therefore, its activities are influenced massively by weather conditions. When Hurricane Irene hit, its customers’ demand for its products dropped hence its sales. Its shares fell by almost 10% . The company projects that its sales for the year will drop as a result of the hurricane. Additionally, earnings per share will fall. Its shares on the NYSE fell.
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Natural disasters have a long running effect on companies. The Hurricane Irene also affected the functioning of companies such as Verizon Communications, Ruby Tuesday and Darden Restaurant Inc. Unlike recession, such occurrences as floods, tsunamis and hurricanes are not triggered directly by human activities. Thus, businesses can do very little to prevent them from occurring.
The price of fuel has been rising for the past few years. This rise is always felt by countries that are not blessed with abundant oil ores. The price of fuel dictates the prices of many products. Companies experience increased expenses as a result of rising transportation costs. For many companies that directly depend on fuel for their day to day activities, the rise fuels increases their operation costs. Trucking companies, bus companies and airlines are directly affected by fluctuating fuel prices.
The value of currencies affects greatly import and export revenues. If a currency becomes weak against a trading partner’s currency, it will reduce export revenues. For companies that operate using all currencies, a depreciating currency negatively affects their revenues.
The rise in Aviation Turbine Fuel price coupled with a weak rupee against the US Dollar all played a part in condemning Jet Airways into making losses. These two factors adversely affected the company’s activities due to increased operational costs and forex losses of about $52.7 million. The price rose by 41% greatly affecting the company’s profitability. The company has reacted to this by increasing fares and cost control measures. These measures were necessitated due to the fact that the company cannot influence the price of fuel or the value of the rupee.
Over the past few years, The United States has experienced a surge in the rate of unemployment. This simply means that more and more people are taking cost cutting measures. This high unemployment rate means that the buying power of many people is greatly reduced. Companies that sell luxurious home appliances have been affected as people are avoiding their products. Such companies have seen a decline in revenues. Whirlpool is one such company.
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Whirlpool is the biggest home appliance manufacturer and seller in the world specializing in refrigerators, washing machines and other home appliances. Due to high level of unemployment and economic uncertainty, the company has experienced a decline in demand for its products as weary potential customers are avoiding their products. As a result of these low revenues, the company is taking some cost cutting measures. It is in the process of laying off 5000 workers and it will shut down a plant in Arkansas. The company is also shifting its focus to emerging markets. The company hopes that this change will arrest the slide.
Recession, natural disasters, fuel prices, weak currencies and unemployment are some of the external factors that companies have to endure in the course of their operations. Other factors that affect businesses are government policies, political crises, security issues and other social factors. These factors cannot be controlled by a company. Therefore, any company should always prepare itself for any eventualities that may arise.
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