An economic system refers to the organization of economic activities of a country. It relates to the mode of production of goods and services and distribution of income between people. At one extreme there are the free markets or capitalist economies, where the government plays a minor role in the economic sphere. At the other extreme are the centrally planned or communist economies, where the government controls and directs all aspects of economic activity. Between these two extremes there are the mixed economies which openly prefer an economic order. In mixed economies like India, the nationally important industries are fully owned or dominated by the state. The state also reserves certain industries for joint sector enterprises. However, the new policy ushered in since July 1991 has opened many of the industries for private sector.
It consists of laws, government agencies, and pressure groups that influence business in a given society.
Political and government environment has a close relationship with the economic system and economic policy. In most countries, there are a number of laws that regulate the conduct of the business. These laws cover such matters as standards of product, packaging, promotion etc with a view top protect consumer interests. Regulations to protect the purity of environment and preserve the ecological balance have assumed great importance all over the world. In many countries including India, media advertising is subject to various types of controls. You must have noticed that advertisements of cigarettes must carry the statutory warning that cigarette smoking is injurious to health.
The industrial policy liberalizations in India have opened up new opportunities. A large number of enterprises have diversified and increased their product liens. This has increased competition for the existing products. This battle for the market has provided a splendid opportunity for the advertising industries as products which were seldom advertised before have come to be promoted heavily today.
Excessive government controls restrict the freedom of action of private enterprises. Very often managers have to delay their important and urgent decisions till they get a green signal from the government. However, it must be remembered that the purpose of control by the government will be effective only it is exercised within limits.
For any business to be successful, its business strategies should be appropriate in the social and cultural environment that it exists in. the cost of ignoring the customs, traditions, taboos, tastes and preferences of people could be very high. Due emphasis must be given to the habits of people, their language, beliefs, value, customs and traditions education and tastes, as all these factors affect business.
People of different cultures use the same basic product, but the mode of consumption conditions of use and perceptions about the products may vary so much that the method of presentation and promoting the product would have to be changed to suit the characteristics of different markets. The values and beliefs associated with color makes an interesting study. Blue is considered feminine in Holland, but is regarded as masculine in Sweden. Red is a popular color in the communist countries; but many African countries have a distaste for red color. Social stigmas and beliefs also come in the way of the promotion of certain product. A pertinent example is the social stigma attached to the use of bio-gas for cooking. In such circumstances, the success in changing such social attitudes or value systems determines success of the business.
Language also plays an important role especially in a multi-lingual country like India. This is emphasized by the fact that companies launching national products normally allocate more than 80 percent of their advertising budget to language advertising. Procter and Gamble for instance spends a mere five percent of its ad budget on English advertising, half on Hindi and the rest on other regional languages. Companies like Hindustan Lever, Wipro, Parle Products and Godrej also insist that presentations be made in Hindi.
While dealing with the social environment, we must also consider the social responsibilities of business and the role of consumers and of society at large.