Socioeconomic Factors Affecting Business and Industry

Socioeconomic factors are characteristics that define the quality of life in a

society. They influence the behaviours, attitudes, trends, tastes and lifestyles of
individuals. In fact, the different class segments of the society – that is, upper
class, middle class, lower class, - are attributable to the socioeconomic factors.
Education, income and occupation are the main parameters of socioeconomic
status, according to the American Psychological Association.
Income
Income is the amount of money individuals earn from their daily economic
activities, be it employment, business or investments. The availability of disposable
income (net income after tax) influences spending habits. Your customers are likely
to purchase expensive or luxurious items whenever there is an increase in their
disposable incomes. However, when income is scarce, customers tend to restrict
their spending to essential items.
Education
Education equips members of the society with the skills and knowledge they
require to be employed in different jobs and professions. The standards of
education in your society depend on the availability and accessibility of educational
amenities. A society that has a well– educated population flourishes because
individuals are employable in well–paying jobs. Education further determines the
availability of skilled workforce when seeking employees for your small business.
Occupation
Occupation refers to the type of jobs people perform by virtue of their skills,
experiences or choices. You may be self–employed or work as an employee of an
individual or organizational entity. The different types of occupation dictate the
income earned by people in the society. High salaried individuals are normally
associated with skilled occupations such as, doctors, engineers, lawyers and
accountants. Self – employed individuals owning successful businesses also
generate huge amounts of income. Unskilled occupations such as menial labor do
not pay much. Therefore, the ability of customers to afford the different products
you offer in your business depends on types of their occupation.
Note: It is important to consider the implications of these socioeconomic factors on
your small business. Your decisions should be sensitive to the prevailing economic
conditions when pricing and stocking your business.

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Other Factors Affecting Business and Industry
Aside from the different factors mentioned above here under are other factors affecting
businesses and industry.

15. Economic Conditions- Before creating business plans or when evaluating existing
ones it is important to ‘scan’ the external environment. Is the environment
conductive to business you are going to establish or there are some problems to
be encountered in the future?

16. Social Environment- Social factors relate to pattern of behavior, tastes, and
lifestyles. A major component of this is a change in consumer behavior resulting
from changes in fashions and styles. The age structure of the population also
alters over time (currently we have an ageing population). An understanding of
social change gives business a better feel for the future market situation.

17. Government- This is continually updating laws in a wide range of areas, such as
consumer protection legislation, environmental legislation, health and safety and
employment law, etc. businesses need to take a proactive approach and be ahead
of these changes, rather than hurriedly making alterations to products and
processes in a reactive way.

18. Economic Changes- These are closely related to social ones. The economy goes
through a series of fluctuations associated with general booms and slumps in
economic activity. In a boom nearly changes that affect business include changes
in the interest rate, wage rates, and the rate of inflation (i.e general level of
increase in prices). Businesses will be more encouraged to expand and take risks
when economic conditions are right, e.g. low interest rates and rising demand.

19. Political Changes- These relate to changes in government influence. In recent

years these changes have been particularly significant because as members of
the European Union we have to adopt directives and regulations created by the
EU which then become part of the UK law. Political changes are closely tied up
with legal changes.

20. Changes in technology- These have also become particularly significant in the
post – millennium world. This is particularly true in terms of modern
communication technologies. The creation of databases and electronic
communications have enabled vast quantities of information to be shared and
quickly distributed in a modern company enabling vast cost reductions, and
often improvements in service.

21. Environmental Factors- The locations of countries influences on the trades that
businesses do. Adding to that, many climatic changes alter the trade of
industries and the way consumers react towards a certain offering that is
launched in the market. The environmental factors include geographical location,
the climate, weather and other such factors that are not just limited to climatic
Business Viability and Its Impacts on the Community

The goal of community sustainability is to establish local economies that are

economically viable, environmentally sound and socially responsive. Achieving this
goal requires participation from all sectors of the community, both to determine
community needs and to identify and implement innovative and appropriate
solutions. Business sustainability is a goal for most enterprises. Sustainability in
business generally addresses two main categories which are the effect business has
on the environment and the effect business has on society. Sustainability focuses
on meeting the needs of the present without compromising the ability of future
generations to meet their needs. The concept of sustainability is composed of
three pillars: economic, environmental, and social—also known informally as
profits, planet, and people.

As a micro business owner, making the case for a sustainable business is simple.
An environmentally friendly business can be a profitable one. It can easily done by
attracting green conscious consumers and publicity, create value for employees,
customers and public, reduce energy use and improve public health.

Viability is defined as the ability to survive. In a business sense, that ability to

survive is ultimately linked to financial performance and position.

A business is viable where either: it is returning a profit that is sufficient to provide

a return to the business owner while also meeting its commitments to business
creditors; it has sufficient cash resources to sustain itself through a period when it
is not returning a profit.

A viable business has great effects to the community. Some of this are:
1. It provides community jobs in the business sector;
2. It produces taxable income for the community from both the business
establishment and the workers,
3. Government continuously makes improvement in the community
infrastructures such as bridges, roads, sewers, water or electric to entice
other business to invest in the community;
4. It helps in the establishment of better schools, more business and even more
jobs for its citizens.
5. It leads to improved business services to the community;
6. It improves community life.

The economic contributions to the societies in which business operate are

significant. These include payments to host governments in the form of taxes and
royalties, which in turn directly support long – term regional and national
development, including public services and infrastructure. Business provides
broader economic contributions to society through salaries, procurement and
community investment.

Across the globe, businesses expect resource companies to maintain strong ethical
standards. This includes strong anti–corruption measures, as well as transparent
disclosure around interactions with governments, including lobbying and the
payment of taxes and royalties.

There are also strong societal expectations around the need for business to respect
human rights. This recognizes that many companies are in a position to potentially
undermine or support the human rights of their community of interest. In this
context, companies are expected to carry out human rights due diligence in order
to better understand and manage their potential and actual negative human rights
impacts.

Impact of Entrepreneurs and Community Development

Business entrepreneurs play a critical role in the development of the economy as
this is the key contributor to innovativeness and product improvement. It is one of
the important ingredients to the creation of new employments and in the building
of communities in ways of offering them jobs. By contributing to local charities,
taking part in local business, investing in projects in communities and creating and
participating in different networks in entrepreneurship, they buildup robust
communities which contribute to the community development. Governments
should develop policies which will enhance entrepreneurship by understanding the
critical difference existing between small business owners and entrepreneurship.
At the same time, a misconception about entrepreneurs and where entrepreneurs
can be found can also help the local people to create the right picture of
entrepreneurship and thus become aggressive and contribute to economic
development.

Recommendations in Maximizing Positive Impact to Community

Most businesses in the country have responsibilities to our community. It is their
social obligations to help the community through:
1. Divert a proportion of revenues to good and worthy causes for community
development and outreach programs;
2. Find creative ways to improve the life of the firms’ employees and the
community;
3. Establishment of linkage between business and community to thresh out
some problems regarding social and environmental issues and consultations;
 4. Establishment of scholarship grants to poor but deserving students in the
community;
5. Help build customer attraction, satisfaction and loyalty, at a time when
customers are increasingly exercising their right to choose;
6. Reduce risks of negative publicity, boycotts and tarnished public image,
7. Improve product image, brand name and reputation.

Minimizing the Negative Impact on Business

There are many factors that will influence the holistic perceptions of a negative
impact and will influence the customer toward or away from a purchase or
engagement. For most businesses, aspiring for a perfect score is simply a utopian
dream, and even if it is possible it may not be desirable as having a perfect score.

But if a business believes its product or service is suffering the consequences of

negative online reviews, and consumer feedback, there are several actions that will
help minimize the impact and correct a trend of reduced sales or customer
engagements.

HERFINDAHL – HIRSCHMAN INDEX (HHI)

As a final note to help guide the proponents of a business proposal in choosing what type
of industry to enter, the use of the Herfindahl – Hirschman Index – HHI would be useful
since it helps the proponent identify markets are highly competitive and saturated and
those markets with high market concentration.
The HHI is a commonly accepted measure of market concentration. It is calculated
by squaring the market share of each firm competing in a market, and then summing the
resulting numbers. Market share is equal to the Revenue of the Firm/Revenue of the
Industry and is actually a percentage. However, the whole numbers of the market share
are used to compute the HHI.
The HHI number can range from close to zero to 10,000. The HHI is expressed as
HHI = MS² of Firm 1 + MS² of Firm 2 + MS² of Firm 3….. + MS² of Firm n.
The closer a market is to being a monopoly, the higher the market’s concentration
(and the lower its competition). If, for example, there was only one firm in an industry,
that firm would have 100% market share, and the HHI would equal 10,000 (100²), nearly
0% market share, and the HHI would be close to zero, indicating nearly perfect
competition. This means the market is highly competitive and is characterized by the
existence of numerous competitors.
Results of the HHI would indicate the following:
1. HHI below 100 indicates a highly competitive market.

2. HHI below 1000 indicates an unconcentrated market.

3. HHI between 1000 to 1800 indicates moderate market concentration.

4. HHI greater than 1800 indicates high market concentration.

The business proponent should therefore seek to enter an industry where HHI is greater
than 1800 since the market is not characterized by too many firms. (Investopedia, LLC
2015)