Industry and general environments are terms economists use to describe conditions of a specific financial sector or broad external conditions that can affect organizations. For example, florists and car manufacturers have other concerns as far as raw materials, production process and distribution are concerned, but they are both concerned about customers' purchasing power and taxation. Therefore, the difference between industry and general environments lies in scale and universality.
Industry Environment Defined
An industry's environment describes all conditions that can affect a business within the strict boundaries of a financial sector. It encompasses "Porter's Five Forces," such as rivalry between the industry's firms, the threat of new entrants, the threat of substitute products, the bargaining power of customers and the bargaining power of suppliers. These forces determine the industry's degree of competitiveness and price pressure.
Differences Between Industry Environments
Industry environments may have huge differences between them, as serious topics of one sector can be non-existent for another. Gas providers don't have to care about the bargaining power of customers for example, as without an alternative, people must buy gasoline for their transportation and gas heat, no matter what the cost. On the other hand, food producers must provide competitive prices, as with an abundance of substitutes, consumers can go for other products when, for example, the price of tomatoes rises dramatically.
General Environment Described
The general environment refers to external conditions that may affect an organization and go beyond the boundaries of a single industry. It describes how society can affect a business or industry in general. These can be government regulations on trade practices, employment and taxation or even the economic climate: whether consumers have the purchasing power and willingness to buy products and services.
Examples of External Conditions
The general environment can be beneficiary or harmful for different types of organizations. Industries based on unskilled manual labor have little room for profit in societies with a relatively high minimum wage. On the other hand, in such societies, businesses can try their luck on advanced, but expensive, products and services, such as information technology and pharmaceuticals. Furthermore, low tax rates can give a boost to budding entrepreneurs, while high educational standards guarantee an ever-existing skilled workforce.
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