The Environmental Factors of the Manager/Legal Environment advantages and disadvantages

In one of our working definitions of management, that is, the one given by Weihrich and Koontz, the purpose of management is to create an environment. But the manager operates in two environments. These are the internal environment and the external environment. The manager has control over the internal environment in the process of managing. Such internal environmental factors include: the employees, arranging the roles of the employees, assets of the organizations, supplies including raw materials. But while doing all these, he takes into careful consideration the external environmental factors which he has little or no control on/of. He responds to them and the responses have to be decisive. We are going to consider these external environmental factors and management responses to them in the process of managing.

 Physical Environment

This relates to the land area, climate, topography, drainage system, vegetation and soil types as they affect the sources of inputs, the conversion of inputs to output, the location of business and the consumer locations. Nigeria has an estimated area of 941,849 square kilometer, incorporating a wide area of arable land. The manager has to find out which resources, available in the country are relevant to his business. For example, agro allied business can be established using such raw materials as: cassava, yam, rice, maize, Soya beans, ground- nuts among others; building and road construction can be established using bitumen, timber and wood, sands, clay materials, limestone, iron among others; and petrol chemicals can flourish using crude oil, natural gas, chemical derivatives, electrodes, rubber, metals, iron scraps etc.

 Legal Environment

The manager must comply with the legal requirements for establishing and operating his business. For example, he has to register his business through the appropriate Nigerian law, such as: the Registration of Business name Act of 1961; the Partnership Law of the various states of the federation; and the Companies and Allied Matters Decree (CAMD) of 1990. The appropriate Law(s) to register the business depends on the type of business and we have different forms of business organizations. They include: Sole Proprietorship or one man business or one woman business.

Advantages

1.  It is simple to start 
2.  Small registration fee is required 
3. There is minimum government regulation 
4. The owner is the over all boss 
5. All profits belong to the owner 

Disadvantages 

1. There is difficulty in finding suitable partners 
2. There is difficulty in raising capital 
3. It may need the experience of others 
4. There is unlimited liability 
5. There is high failure rate 

Partnership which is formed by at least two persons.

Advantages

1. More capital is put into the business 
2. More experience of others are received 
3.  Liability is shared 

Disadvantages

1.  Finding suitable partners may be difficult 
2. There may be disagreements between partners 
3. Partnerships agreements (deeds) require legal fees 
4. Profits are shared 
5. Death of a partner brings the partnership to an end. 

Limited liability Company

Advantages

1. There is access to additional capital 
2. There is ease of ownership transfer 
3. Limited liability is possible 
4. There is continuity 

Disadvantages 

1.  It costs more to set up 
2. More legal requirements are involved 
3.  More government regulations 

Co-operative Society

You are well familiar with what a cooperative society is. It is also a form of business. In our previous courses (BHM 101 and BHM 104) the advantages and disadvantages of cooperatives have been well explained. 

Financial Environment

This is an important factor. And the manager has to take decisions connected with capital investment, operating capacity, prices of his products, sources of funds and how the funds will be applied among other decisions.

Social Environment

The social environment concerns the norms, tastes, and habit of the target population in the community.
These must be taken into consideration in deciding what product and/or service to produce.

Political Environment

Government policies determine business practices and investment climate in the economy. As a result, the stability of government, the priority of the political party in power etc. would definitely affect business operations.

Demographic Environment

Population and its distribution constitutes the target markets for goods and services. The manager has to take into consideration the composition of the population and work out which area(s) e.g men or women or children his market lies.

Technological Environment

Technological changes make previous practices obsolete, such as the use of computer in business operations. The manager has to adjust positively  to changes in technology. Remember that technology is simply the manner of doing something. It has to be updated from time to time.

Economic Environment

The manager, in order to ensure that the business is viable has to be familiar with

1. The general state of the economy. If the economy is buoyant, there will be more demands for goods and services and as a result, more revenue for the organization. Similarly, if the economy is depressed, fewer goods will be demanded and fewer revenue for the organization. 
2. Income distribution, expenditure patterns, saving capability of consumers all affect demands. The manager should always find out information concerning all these. 

Cultural Environment

such as the values of the people which affect consumption of goods and services.

SELF-ASSESSMENT EXERCISE 2
You are required to list all the external environmental factors. Give two reasons why a manager should pay attention to them.