In this paper, I will investigate economic, social, and legal environments which are necessary for the formation and development of any business and prior to the start-up of any business. Different types of business such as sole proprietorship, corporation and partnership, their advantages and disadvantages have always been discussed. Basically, there are three types of business entities namely sole proprietorship, partnership, and corporation. In the following lines, I have discussed the pros and cons of each business entity.
Economic, social and legal are the most essential factors in the formation of business environments. Economic environment refers to the overall nature of economic system of the country. From structural framework of the economy to the economic policies of the government, the nature of factor endowment, business cycles, the socio-economic infrastructure are the important factors that one should consider before the start-up of any business.
A successful businessman always keeps any eye over the external economic factors that may influence or affect the business and foresees the marketability of his product to ensure maximum profit at minimum cost.
Sociological factors including costs structure, customs and conventions, cultural heritage, and mobility of labour always have sweeping effect on the business. Legal environment encompasses the flexibility and adaptability of law and other legal rules that govern the business. Rulings and verdicts of the courts regarding the limitations of any business also affect the business and its mangers immensely. Moreover, demographic make-up of a society also influences the formation and running of any business.
The favourable economic, social and legal environment is always pre-requisite before the start-up of any business. These factors must be considered because they have a lasting effect on the nature, profitability and marketability of the business one is going to develop. A sole proprietorship is a type of business which is owned by one individual without any legal distinction between him and the business. The owner is entitled to all profits and responsible for all the losses and debts. As opposed to partnership, the owner owns every asset of the business. In the paper, I have also chosen McDonalds and its operations to demonstrate how business and marketing strategy should be designed by the starter business man.
Sole Proprietorship is a business entity owned by a person requiring no registration other than the notification of local tax office. This kind of business is always vulnerable to greater personal risk. Being a sole proprietorship, the individual owner is responsible for all aspects of the company. He/she has unlimited liability to all debts and legal issues and complexities of the business. With this kind of entity, it is usually harder to attract desirable amount of business and investment.
However, the major advantage of sole proprietorship is that it makes business cheaper and relatively easier to handle. With no legal expenses or taxes, the business can still be set up or ended in low-cost setting. The sole owner has absolute control over the business. As for its disadvantages, raising capital for a proprietorship is more difficult because an unrelated investor has less peace of mind concerning the use and security of his or her investment and the investment is more difficult to formalize. (Jeremy, 2004) More importantly, the personal assets of its owner are not protected from liability or debt.
A corporation is a formal business association with a publicly registered charter recognizing it as a separate legal entity having its own privileges, and liabilities distinct from those of its members.(Sheffrin,Arthur 2003) Corporation can have many stakeholders whose liability is usually limited to the investment in the corporation. Its major advantage is that the assets of its stakeholders are protected from liability or debt. Corporations may exist even after the death of some of its owners. Stakeholders enjoy tax-free benefits such as travel, insurance, retirement provident funds. It is easier to raise capital for a corporation. Any change in the ownership or stakeholders does not affect management. As for its disadvantages, corporation is always more expensive to establish than proprietorship or partnership and includes more legal complexities. States usually places more rules and regulations on corporation.
The advantage of partnership business is that the partners involved have a shared financial commitment and can garner their respective resources, expertise and strengths for the growth of their business. Its disadvantage is that partners may have opposing visions or goals for the business. They may have unequal commitment in terms of time and finances. Each partner will share liability for business debts or losses incurred.
Which is better?
In my opinion, sole proprietorship will suit for a nonstarter business man. The business can be set-up even in the low cost setting. Plus, the risk factor involved in this kind of business is far easier to negotiate. You are the boss of your trade and this very fact keeps you in motion.
Education provides a ladder to climb toward a greater share of society’s rewards. It is increasingly the determining factor in success or failure in the emerging global, post-industrial economy. The educational attainment holds a central place in the status attainment process. To function as a true catalyst for social mobility, education must provide complete equality of opportunity.
It has been proved by research that private learning centers are more conducive to academic achievements than public schools. These institutions owe their success partly to the smaller ability gaps and the greater ease with which students can move from one track to another. To function as a true catalyst for social mobility, education must provide complete equality of opportunity.
The basic purpose to establish an organization is defined by its business mission that defined what features and services will be rendered through the company. The formulation of objective of company depends on its mission and by the help of its objective there are some desired goals that company has to achieve.
Demographic trends such as the characteristics of the population, their size, ages and growth etc. are going to affect every kind of business entity you opt for.
To be successful in the selected market the purchase decision influencers are very important to focus in the areas which need attention in order to profit from the market segment. Some of the decision influencers are
· Preference for channel of distribution
· Financial strength of the prospect
· Quantity/volume requirements
· Ability to use the offering
· Commitment required
· Brand awareness/users
· Attitude toward a personality or enterprise
· Attitude toward price versus value
· Experience with other products/services your enterprise has offered
· After sale support expectations
An important issue to reckon is the company’s comparative position in its industry’s competitive market.
New business cannot allow itself to become complacent over its present market share; as such complacency might lead to a fetal do-nothing complex. In addition, overall success, reflected by a satisfactory market share, may cover up a failure in one or more territories.
By the revelation of business strengths and weaknesses, for the growth of a wide range of strategic plans for the successful administration of environmental openings and threats is called the Strategy Formulation. Researchers explain about the factors which can affect the sales of the products (Linneman & Stanton, 1991):
· Economic Conditions: economic conditions of the area or territory where the company market their product can affect the sales of the product. Thus it is important to understand the economic conditions such as unemployment rate, inflation rate, interest rate etc. before launching the product
· Competitors: companies have to formulate a comprehensive strategy to cope with its competitors because it is not easy to penetrate and take the desired market share
· Demographics: demographic trends such as the characteristics of the population, their size, ages and growth etc. are also going to affect the sales of the products of companies.
Market Segmentation for McDonalds new burger
McDonald has been in the fast food industry for a long time and it has ample experience of new food products. Statistics have depicted that the size of fast food industry has reached to $102.4 billion and a volume of 80.3 billion transactions all over the world and the size of the fast food industry grew by 4.8% annually (Adams, 2007).
This new burger of McDonalds target customers having low income. This new burger will first be introduced in Chicago’s inner-city outlets of McDonalds, especially in Chicago's South Side outlet as well as two other Chicago outlets, and it plans to open in four more cities this year. MacDonald will advertise this new burger using local radio stations.
McDonalds can reduce risks by first investigating the market reaction to this new burger. This can be done by test marketing. The important thing is to discover the probable reaction of customers as early as possible. If their response is negative, the launching of the product can be delayed - or even abandon the project.
The proper starting point for the selling of the product is an accurate determination of the profit potential. McDonalds has already tested the market for this new burger and decides to introduce this new burger in the McDonalds outlets located in the inner city of Chicago.
McDonalds chooses this target market because this city provides typical consumers with average incomes, all the normal advertising media, and a full quota of retail outlets. Another reason for choosing this test market is its independence of the trading areas nearby cities in order to avoid distortion of results.
Adams, Catherine. (2007). Reframing the Obesity Debate: McDonald’s Role May Surprise You.
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Chiappinelli, Eric.(2006) Cases and materials on business entities, Aspen Publishers
Jeremy Berkowitz & Michelle White, (2004). RAND Journal of Economics. Vol. 35, No. 1,
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Sheffrin, Steven M.(2003). Economics: Principles in action. Upper Saddle River, New Jersey
Linneman, Robert, E. & Stanton, John, L. Jr. (1991). Making Niche Marketing work: How to grow bigger? New York: McGraw-Hill.