One of the external environmental factors that affect the decision making is economic environment of the nation. Economic environment in modern world is very dynamic .It includes various external factors as well as internal factors like employment, interest rates, which effects the business. With the growing economy, countries experience an increase in per capita income, which allows for the purchase of more consumer items such as an automobile and vice versa. For example, as global crude oil prices increase, accompanied with an uncertain future supply and global competition for other raw materials that comprise automobiles, the necessity of micro cars for basic transportation will increase. Consequently this will help in increasing the sales and the overall business performance.
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Managers have to deal with the changing economic environment factors frequently and has to consider it which making any decision of the organization.Prevailing economic conditions of the nation will have an effect on the spending patterns of citizens. Increases in interest rates and/or a high level of unemployment will depress consumption. Global economic recession of 2008 is the fine example of such factor.
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While making any financial or non-financial decision managers needs to observe this factor especially hiring of workforce and production decision with respect to the prevailing and potential demand in the economy. Since such decision have a direct impact on the finances of the organization thus it is true that such factors havefinancial requirements that must be considered when processing decision within a company.
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