BUSINESS CONDITIONS



Business conditions are determined by a number of variables such as politics, regulations, economics, and the natural environment. These conditions are evaluated in the context of a country, region, or city. The success or failure of a business can depend to a large extent on a combination of these factors. Government policies, laws, and regulations at the federal, state, or municipal levels can directly affect a business. Property taxes, income taxes, payroll taxes (social security, unemployment insurance, health insurance, etc.), and various licensing fees, all add to the cost of doing business. Economic and market factors—such as demography, suitable workforce, wage rates, availability of capital and raw materials, transportation, communication facilities, energy sources, and the presence or absence of competitors—influence the success of a business. Business conditions are usually related to the location of the business and to the industry sector in which it operates. Reliable and up-to-date information on the factors that constitute the business conditions is a prerequisite to the efficient functioning of a business.

In these days of globalization, the international economic environment plays an important role in the viability of a business. As an example, the instability in the Far Eastern economies in 1998 not only bankrupted many businesses in that region but also affected the economies of other countries in varying degrees. The resource-based industries in Canada suffered as a consequence of the decreased demand for these commodities in the Far East. Likewise the North American Free Trade Agreement led to the collapse of some industries (for example, furniture manufacturing in Collingwood, Ontario) while other more competitive and export-oriented industries flourished in Canada. Some businesses can become susceptible to economic and market factors elsewhere in the world.

ECONOMIC INDICATORS AND DATA
SOURCES

Definitions of economic indicators can be found in an introductory publication such as Guide to Economic Indicators (2nd ed., 1994, by Norman Frumkin), which describes about 48 indicators, or the more recent, Handbook of Key Economic Indicators (1998, by Mark Rogers). Data on economic indicators are available by geographic jurisdiction (country, state/province, city, etc.). The relevance of these indicators to a particular business situation will vary. The main indicators are: labor force, employment, unemployment, wages, personal disposable income, savings, consumer price index, gross domestic product, housing starts, retail sales, manufacturing shipments, mineral production, and business bankruptcies.

Statistical data on these economic indicators are usually collected by the statistical organizations of national governments. For example the U.S. Bureau of the Census in the U.S. Department of Commerce annually publishes the Statistical Abstract of the United States. The U.S. Bureau of Economic Analysis in the same department publishes the monthly Survey of Current Business, which helps to monitor the economic indicators on a more current basis. Increasingly many countries are making this data available in the Internet through their web sites. International governmental agencies such as the United Nations (UN) or the Organisation for Economic Co-operation and Development (OECD) publish statistical data for their member countries. Examples are the Statistical Yearbook of the United Nations and the Main Economic Indicators, which is published monthly by the OECD. The International Monetary Fund (IMF), a sister organization of the UN, has among its numerous publications a monthly, International Financial Statistics.

As noted above, many of the print publications from international agencies and national statistical organizations are available in electronic forms as well, such as online databases, Internet web sites, and CDROM. Electronic format is often more up to date (in some cases in real time) and flexible, able to perform analysis using statistical software packages. For example, the database of the Bureau of the Census, CENDATA, is available online and as an Internet web site. It is updated daily. A publication such as the Gale Directory of Databases will help in identifying data bases by country or subject. A number of private organizations have created their own databases. Even when the basic statistical information comes from national governments and international agencies, these databases are often value added and user friendly. Examples of such databases are CITIBASE, DRI (McGraw-Hill), and D&B-Donnelley Demographics. These databases are accessible through the Internet, but users may be required to pay for the data.

There are a number of business services that provide analysis and guidance on business conditions in various countries. The Economist Intelligence Unit based in London and New York produces quarterly Country Reports and annual Country Profiles for most countries in the world. World Outlook is an annual forecasting publication from the same institution. Exporter's Encyclopedia, published annually by Dun & Bradstreet International with updating bulletins, gives concise and informative reports on all aspects of doing business in a country. Reference Book for World Traders is a loose-leaf service that provides factual background information on the business conditions by country. The Global Competitiveness Report, published annually by the World Economic Forum in Geneva, assesses the competitiveness of countries. International accounting firms such as Price Water-house publish guides for doing business in several countries. Overseas Business Reports, issued by the U.S. Department of Commerce's International Trade Administration, is another source emphasizing business opportunities in a number of countries. Both OECD and the World Bank publish annual economic surveys for their member countries, which are considered authoritative commentaries. All these publications are excellent sources to obtain an overview of the business conditions in a country. Organizations such as the Economist Intelligence Unit publish weekly newsletters that provide more up-to-date sources to monitor the business conditions in several countries.

POLITICAL AND ENVIRONMENTAL
FACTORS

The political situation in a country significantly influences the business conditions. Government policies determine the framework in which a business operates. Many of the sources suggested in the previous section analyze the political conditions as well. Business newspapers such as the Wall Street Journal, the Asian Wall Street Journal Weekly, the Nikkei Weekly, and the Financial Times (London) are the best sources to keep abreast of fast-changing political situations. The political stability of a country, its government policies, and its laws and regulations determine how hospitable the business climate is in that country. Political Risk Yearbook, published annually in several volumes, provides competent analyses and five-year forecasts.

The infrastructure under which businesses operate in a country is determined by government policies. The infrastructure includes such factors as communication, transportation, energy supply, and basic industries. Intangible factors such as a fair judicial system, strong environmental regulations, and a good social safety net are also important in the long run for stable business conditions. Some view environmental regulations and social security provisions as weakening the competitiveness. If the social cost of environmental cleanup or the productivity loss due to stress, ill health, or economic insecurity are taken into consideration, these measures can be seen as economically sound. Newspapers and magazines periodically report country rankings based on the quality of life. This information can be retrieved either through printed indexes/abstracts or through electronic databases that often provide the full text of articles. The United Nations Development Programme publishes the annual Human Development Report, which ranks countries according to the human development index created by them. Among factors that contribute to favorable business conditions, the quality of human resources is certainly one.

OTHER FACTORS

Reliable capital sources, availability of raw materials, and efficient distribution systems are other factors to investigate. Governments at various levels offer investment incentives in the form of tax holidays, leasing of land at discount rates, or low interest rates on capital loans. Simplifying and relaxing the regulatory environment help in creating favorable business conditions. Taxation is perhaps the most important regulatory concern. A loose-leaf reference service, Foreign Tax and Trade Briefs, published by Matthew Bender, specifies the tax regime in different countries and monitors changes.

The labor relations system of a country has a major influence on business conditions. Systems that encourage speedy and amicable resolutions of conflict foster good business conditions. Labor unions can lend stability to the work situation or they can create considerable disruption.

Factors that are commonly applicable to broad-based business conditions are discussed in this article along with how these conditions can be evaluated in a balanced manner. Sources of information on the different indicators are provided. It should be pointed out that the sources mentioned are only examples of the types of information available. For specific countries, places, and industry sectors, more in-depth sources can be found.

SEE ALSO : Forecasting

[ Divakara K. (Dik) Varma ]



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