The Company and Its Environment: A Comprehensive Guide

Posted on Oct 27, 2024 in Economy

ITEM 1. THE COMPANY AND THE ENVIRONMENT

The Company as an Economic Unit

Companies, in order to perform the production function, need families to have the function of consumption, but also to provide some of the factors of production (labor, capital). Therefore, consumption and production are the two key activities in all the exchange relations that are generated in the economic system, where the company is the hub of all activity. We can define the firm as an organized set of elements coordinated by the management, aimed at obtaining a set of goals, always working under hazardous conditions.

Objectives of the Company

We differentiate between the end of the business or general purpose, goals, and subgoals themselves.

The End of the Company or General Objective

It is the mission or the reason for the company as an economic unit. It would be the starting point of business activity but has to realize the goals themselves. For example, the mission of a company that manufactures cars is to supply the population with private transport.

The Objectives Themselves

These are what the company wants to achieve for a certain period. These tend to be moody but without losing sight of the end of the company. For example, a car company with the aim of releasing a new model. Normally, its basic objective is to maximize profits, while respecting and preserving the environment. To a lesser extent, the company also aims at certain social purposes, as it creates jobs, caters to the population, and creates wealth.

The Sub-Objectives

They are usually smaller and more specific in the short term. A sub-objective of the car company would be the promotion they can do of the new model.

Elements of the Company

A company that produces goods and services must take into account several factors to function properly. They can be classified into four groups:

  • Human Factors: The natural or legal persons having a direct link to the company, from owners, workers, managers, etc.
  • The Material Factors: Economic assets of the company. We can distinguish between goods that are capital assets (not current), which last more than one fiscal year (machinery, office furniture, etc.) and the goods that make up the working capital (current), which is all the capital that is renewed each year (raw materials, pens, etc.)
  • Organization: Appears as a set of authority relations, coordination, and communication. This structure is defined by the employer.
  • The Environment: We understand all those environmental factors affecting the performance of their employer, from government regulations to customers or suppliers.

Roles of the Company

To coordinate all elements of the company and achieve the targets, the company is divided into several functional areas.

  • Business Area: Includes all the activities necessary to bring consumers the goods and services produced.
  • Area of Production: On the one hand, it controls the supply of raw materials and, on the other, manages the production of goods and services.
  • Area of Investment and Financing: In addition to capturing the necessary funds for the operation of the company, it carries out the investment policy.
  • Human Resources Area: Its functions are to select and recruit, train, and manage all documents (contracts, payroll, etc.).

Some companies, due to their size, sector, etc., do not explicitly have all the departments listed here, and in some cases, their functions are outsourced to other specialized companies (hiring administrative agencies for payroll, social insurance, etc.).

INFLUENCE OF ENVIRONMENT ON THE COMPANY / THE ENVIRONMENT

The company is not an independent entity outside the system structures and infrastructures, i.e., the environment. The company is a productive element within an economic system. For that reason, it is conditioned by the economic structure in which it is immersed. Therefore, the company is a system that is part of an environment that we can differentiate:

  • The General Environment: Affects all companies in general. (Crisis affects all firms in a country as well).
  • The Specific Environment: Affects each of the companies in a particular way, which varies by type of business. (A regulation on the hygiene of vegetables).

The company, as an economic unit, must face the challenge of constantly adapting to the requirements of a changing social environment.

CORPORATE SOCIAL RESPONSIBILITY

As time has passed, the company has become a source of power and influence on the environment in which it operates, but it is also responsible for social problems such as air or water pollution and land speculation. Until recently, the company was asked to be efficient in obtaining goods and services. Currently, however, it is of interest not only to increase the NP (National Product) but also to improve the socio-economic context in which the product is meant. The company should consider, in addition to the purely economic aspects, social aspects. Some of these social aspects move society in the form of so-called social costs. The negative social costs are costs incurred without compensation by persons outside the company as a result of this activity. For example, smoke from the chimney of a company directly affects the people living nearby. Therefore, the negative social cost is one that has a negative impact on the company. A company, through social costs, makes society pay for the wrongs of companies. We can define social responsibility as the active and voluntary integration by firms of social and environmental concerns in their business operations and their relationships with their partners, with the aim of improving their competitive position and its added value. In the field of corporate social responsibility, business organizations can perform many actions with the idea of improving, for example, the quality of working life and the environment. For example, some companies provide daycare for the children of workers.

LOCATION AND DIMENSION OF THE COMPANY

Normally, when a company decides to create, two of the problems that arise are where to locate it and what size to give it.

Location

To choose the right place, we must evaluate several variables:

  • The Market Demand: It should be analyzed whether the population or the area where the company wants to install is interested in the product to be offered and also what the competition situation is.
  • Procurement of Raw Materials: It should assess the quality of raw materials, cost, and ease of availability.
  • Communications and Transport: It should consider whether it is a readily accessible place. Today, companies are usually at the periphery of major cities. When these companies are characterized by high technology, we talk about parks. Department stores are located on the outskirts of the city, for example, at the exits of highways, where both customers and suppliers can easily access.
  • Supplies: It should have information on the availability of supplies such as electricity, water, telephone, etc.
  • Cost of Construction and Solar: For example, in an industrial area, the price is different than in an urban area.
  • Legislation: It should be familiar with both the legal and taxation matters, commercial and social, as well as all aid.
  • Investment and Financing: It is interested in locating the business in a place where access to financial institutions is easy.
  • Economic Development of the Region: It has to assess the development of the region that is chosen. In regions where there has been steady growth in recent years, it will be more difficult for a company to prosper.

Dimensions

It relates to the production capacity. To decide the size of the company, we must first know what the needed capacity is and its location. The capacity is understood as the maximum level of production that can be obtained over a given period. Outside the initial size, among the aims of the company is going to increase its production capacity over its life, i.e., its dimension. The company can grow in two ways:

  • Internal Growth: Refers to increasing its production capacity through new investments.
  • External Growth: Refers to the acquisition, control, the merger of existing companies, or cooperation with other companies. When the market is not sufficient for the external growth of firms, they are internationalized, that is, trying to make their way abroad.

MULTINATIONALS

Multinational companies are those that operate in two or more countries. For example, Movistar. They are corporations that have a large production capacity or are the result of a merger and the merger of companies seeking new markets. It is convenient to differentiate between mergers and takeovers of companies:

  • The merger is the union of several companies to create a new one. (Banco Santander Central Hispano).
  • Absorption means that a company acquires another.
  • Multinationals are formed by a group of companies. One is the parent company, which remains active in the country of origin; the others are branches of this, they are in other countries, and they are interrelated.

These companies have several characteristics:

  • They are companies that, thanks to the results of their joint offset, have great resistance in the market.
  • They have technology, so they are constantly growing and gradually absorbing the market, and smaller companies are merging.
  • Offshoring is a new phenomenon but is already widespread.
  • Some companies decide to move production to another country, usually less developed than their own, with lower wages than workers in the country of origin, with the sole purpose of minimizing costs. By minimizing costs, companies are producing cheap price competition and being more competitive since they can sell at lower prices.

THE SMALL AND MEDIUM ENTERPRISES (SMEs)

This group of companies accounts for 90% of Spanish companies. Therefore, they are of great importance, both socially and economically, because many families depend on them. Normally, the SME capital is owned by a single person or a few partners. The basic features of SMEs:

  • Little Business Training: The employer has little technical knowledge, which is often acquired in the actual management of the company. To manage it, he moves forward with pulse and that appropriate academic training.
  • Low Financial Capacity: Normally initiated in family businesses with few resources at the start, and this makes it difficult for them to grow cash flow generation.
  • Skills and Technical Training of Personnel and Technological Obsolescence Logic. Retraining of staff is not progressing as fast as company technology. This is made worse by the rapid technological development and advances in research. All this may mean that these companies are outside the markets, as obsolete equipment entails more costs and lower quality of production.
  • Flexible Organization: Because the number of workers is reduced, and this allows communication and creating a good team.
  • Integration of Staff: The staff is usually integrated into the company, shares responsibilities, and this means they are more motivated by their work.
  • Interstitial Markets Development: That is, use the empty spaces left by larger firms in the markets. There are areas in which SMEs can dominate large companies, such as marketing the product, taking more direct contact with the customer.
  • Creating Employment: SMEs are a group of companies that have more resources working capital, thus generating more jobs than large firms.