What is Economic Environment?

Economic environment refers to all economic factors affecting business and external to and often beyond the control or influence of individual business enterprises. Business is an economic activity and it conducts its activities in the market system. Hence, a business is greatly influenced by economic environment of business which is the primary consideration in decision making of a firm.

Economic environment consists of the following factors :

1. Economic Development – The development of marketing in a country depends on its economic development and highly developed economy offer a large sized market of a variety of products. Besides, a highly developed economy has a better infrastructure and more developed marketing systems. Hence, it is more flexible to do business in such nations. On the other hand a less developed economy does not have much market. In this way economic development is directly related to the development of marketing in a country.

2. Gross National Products and it’s Distribution : GNP and it’s distribution have lot of implications for foreign market decision. It has significant bearing on the nature, size of demand, government policies affecting business etc. If the majority’s of country’s gross national product comes from primary sector, it implies that it shall have great market potential for agricultural inputs such as fertilizers, pesticides, agricultural tools and machinery seeds etc. A country having a predominant secondary sector shall have good market for raw material, plant and machinery and also for consumer goods.
Distribution of national income is also an important factor of economic environment influencing foreign market decision.

3. Expenditure Pattern – The market potential of a product depends on expenditure pattern of the people of country. Expenditure pattern of a country determines how the disposal income is being spent on different products. Some products are given more weightage than other products. Expenditure pattern of a country has non – economic.

4. Infrastructure – Literally infrastructure means structural below. Foundation with reference to business, infrastructure means the supporting services. Economic infrastructure includes transportation, telecommunication, advertising, marketing research, banking facilities. Companies finds it difficult to co-ordinate and control their business in the countries, which have poor transportation and communication system.

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