How Economic Environment Can Affect Your Home Business

Published: 29th August 2012
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The economic environment is an important component of the business environment in which you run your home business. It refers to the nature of the economy and how it affects the demand and ability to acquire goods and services in the country where you do your business. Most developing countries have small economies whereby the majority of the population does not have enough money to spend on luxuries and their basic needs as well. It's therefore important for you to consider the ability of the population to buy the products and services you offer when setting up a business.

When starting a business, you should pay attention to the nature of the economy in which you want to do business. Some of the key issues to consider under the economic environment include the following:

1. The interest rates of the banks

When commercial banks charge high interest rates, it generally discourages borrowers from accessing credit. As a business person, you should ask yourself as to how easy it's going to be for you to borrow money from the bank to finance your business. For instance, in developing countries, commercial banks are not so much be willing to lend money to farmers because they think that they run high risk businesses. This is mainly because agriculture is normally affected by weather conditions. In very dry seasons, farmers may realize poor yields and those who borrow from banks may find it so hard to pay back the borrowed money.

2. Per capita income

The economic environment influenced by per capita income. Per capita income usually refers to the average amount of money or income that is available for spending every year by each person in any given country. As you start a business, it's important for you to know how much of the income your targeted customers are willing to spend on the products or services you are offering. In developing countries, most people do not have enough money to spend on their basic needs.

For example, most online advertisers offer a very low cost per click on online adverts in developing countries simply because most people in those countries do not have the ability to spend on the products or services advertized online as opposed to their counterparts in developed countries where a click usually turns into a sale. The same advert may have a higher cost per click in a developed country than in a developing country.

3. Availability of Infrastructure

Infrastructure usually refers to the availability of road networks, communication system, schools and hospitals among others.

While online businesses rely heavily on a good communication system, agricultural businesses depend largely on good road networks. If you want to start an online home business, for example, you will need to have a very good and fast internet connection. However, in most developing countries, the internet is limited to urban areas and it's so slow that it frustrates the users in addition to wasting their valuable time.

But if you want to do farming, you will need a good road network so as to market your farm or garden products as soon as possible before they perish. However, many farmers in developing countries experience excessive delays due to poor road networks. Consequently, some of the produce rots on the way before it gets to the market.

4. Competition

It's difficult to be in business alone without other competing businesses. You will always have competitors who keep you unsettled. You will always have competitors in your marketplace that offer better prices, better quality products and services, better skills, etc… They will always endeavor to do business better than you so that they can have an advantage over you and take your customers.

Since there will always be competitors in any kind of business you will venture into, it's a good practice to look at them positively because they actually give you an opportunity to relentlessly think about new ways of doing business now and again. There is also something new you will always learn from your competitors. It could be marketing techniques, customer care and support, innovativeness, quality standards and many others.

Knowing the economic environment, in which you want to operate, is so important because it enables you to plan in advance to avoid risks and any unforeseen consequences. Always focus on the economic environment to succeed in your home business.


Charles Kiyimba helps people to discover Great Home Business Ideas needed to start and to grow a home online business. Visit today to find out more about the secrets of building a Successful Home Business.

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