SMALL BUSINESS ENVIRONMENT

What is a Small Business Enterprise? According to Small Business Administration a small business is one that does not dominate its industry, and has less than 10 Million in annual sales and less than 1000 employees But this not true always. For example Mc Donalds generate Millions in sales with only a few employees. On the other hand firms with several thousand workers may have a low sales volume. In general small businesses seldom dominate their industry and rely on filling a niche in local or regional markets. The term business environment connotes external forces, factors and institutions that are beyond the control of the business and they affect the functioning of a business enterprise. These include customers, competitors, suppliers, government, and the social, political, legal and technological factors etc. Understanding the environment within which the business has to operate is very important for running a business unit successfully at any place. Because, the environmental factors influence almost every aspect of business, be it its nature, its location, the prices of products, the distribution system, or the personnel policies. Hence it is important to learn about the various components of the business environment, which consists of the economic aspect, the socio-cultural aspects, the political framework, the legal aspects and the technological aspects etc. Small business Enterprises constitute the largest economic and business entities and assume a major role in employment generation. Developing countries place great importance on the development of the competitiveness of SBEs so that they can serve as the engine of growth for national economies. Competitiveness of small business Enterprises can be enhanced through entrepreneurship development. Entrepreneurship is regarded as a type of business insight which may be enhanced through improvements in know-how, skills, and competency In the new millennium, liberalization of trade borders has accelerated the flow of goods and services in the global markets; technological advancement and scientific development have had a multiplier effect on the opportunities and

choices available to consumers, thus increasing competition and putting pressure on the performance of the individual firms and businesses within economies. The private sector can contribute to economic growth, job creation, and national incomeand hence to national prosperity and competitiveness. Invariably, domestic private sector resources in any economy are much larger than actual or potential external resources. Small and medium enterprises (SMEs), the major component of the private sector, can be engines of economic growth, cornerstones for creativity and innovation, and seedbeds of entrepreneurship. More than 90% of enterprises in the Asian countries are SBEs. They account for about 75% of the Gross Domestic Product, compared to 50% in the rest of the world. They play an important role in economic and social life, and they generate a large number of non-agricultural jobs, exports, sales, and value-added. Business competitiveness has been strongly determined by the prevailing business environment in a country. A strong domestic macro-environment with political stability and policy predictability, transparency, and governance, along with a physical and social infrastructure and an efficient legal framework and administrative system, are the basic foundations that will enable the private sector to flourish and will foster entrepreneurship in a country. Additionally, a level playing field, access to finance, and knowledge and skills are indispensable pillars for entrepreneurship. Development of SBEs is strongly linked to the presence of a supportive environment. Initiatives ranging from implementing a receptive regulatory environment to establishing access to technology and finance have been at the forefront. The environment of small business is often defined by the type of business or service rendered and in most instances the opportunities for small business are defined by the characteristics of a community. Small business typically provide goods and services to local markets: however there have been a growing number of small businesses involved in global trade. The environment of small business is described by local or regional conditions. Thus national trends such as unemployment may not have direct effect on local companies. Competency of SBEs is influenced by both external and internal or personal environment factors. The external environmental factors are Economic business cycles Fluctuating interest rate Interrupted supplies

Labour market trends Inflation Government regulation Unstable financial markets

The most important external environment factors are financing and taxation. Smaller enterprises are far more susceptible to these forces than a large firm. Small business are vulnerable to some national phenomena such as financial changes, because they often have heavy debt requirements; swings in interest rate rapidly consumes firms cash flow. The internal environmental factors are Inexperience Arrogance Mismanagement o Over investment o Poor inventory control\ Poor Business philosophy Lack of planning Development of entrepreneurship and of the private sector is the key to enhancing productivity and competitiveness. Recognizing the size and complexity of this challenge, it is imperative that various actors in an economygovernment, development partners, and private-sector institutionsformalize partnerships to work together towards common goals. The three basic pillars of entrepreneurship are the availability of a level playing field, access to financing, and access to skills and knowledge. Since they carry the core responsibility for overall economic development and strengthening of the private sector in a country, governments need to assemble the basic pillars of entrepreneurship: a level playing field and a favorable environment with infrastructural and regulatory support.