The Changing Market Conditions and Its Impact on the Behavior of Firms and Consumers - Essay Example

The Changing Market Conditions and Its Impact on the Behavior of Firms and Consumers Introduction The only thing certain in this world is change. Change in the business environment is one vital area of concern that fuels the occurrence of changing market conditions. This generation emphasizes that the world has now gone into the recent age, where the old rules of civilization are becoming less appreciated. Thus, as the world experiences these changes in the market, a ripple effect is felt from the firms down to the final consumers that leads to the creation of new rules or trends in the market. This paper seeks to explore the impact of changing market conditions. In particular, it seeks to illustrate how firms and consumers are affected by these changes in market conditions. The Ever Changing Business Environment The old rules in doing business are different from the rules that are applied in the recent times. In spite of intense competition in many industries, markets have become open to new entrants due to the lessening of barriers, which used to impede free trade in the once confined and protected markets (Wangwe, 1995). According to Albrecht & Sack (2000, p. 5), there are three major developments that have paved the way to the transformation of the business environment. These developments point out to technology, globalization, and power that is vested to some market investors, who hold the majority of the shares in large companies. Technology advancements resulted in a dramatic transformation of communication and culture. Technology has connected the seven continents, which has made transactions simpler and faster in the business environment. Information preparation and dissemination are now made economical by technology that diminished the traditional constraints of communication (Albrecht & Sack, 2000, p. 5). Globalization, on the one hand, enabled the consolidation of the different worldwide markets into one immense marketplace (Albrecht & Sack, 2000). The global market is dominated by big companies that give rise to globalization and fuel stiff competition. The third development is connected with the two aforementioned developments. Powerful multinational companies are now considered powerful because of how they have conquered many industries due to their advanced technology and extensive participation in globalization. Figure 1- Changing Market Conditions Graph The graph above shows changing market conditions in three markets. Three hypothetical markets were pointed out in the graph. The rising of demand that results in the rising of price and quantity is shown in market A. The rising of supply that results in the rising of quantity and lowering of price is shown in market B. The rising of demand, and long-run lowering of supply that results in an increase in equilibrium price and less likely short-run change in quantity is shown in market C (Myers, 2004, p. 77). As a whole, the above change drivers have two main contributions to the transformation of the market. Firstly, they have invalidated the past notion that information is high-priced (Albrecht & Sack, 2000). Secondly, they have incited healthy competition among international firms (Albrecht & Sack, 2000). There is healthy competition because firms are obliged to offer only excellent products to gain competitive advantage. The business developments that were brought by market changes include reduced product life cycles and competitive advantages, emanation of new firms and industries, and the complexity of business transactions (Albrecht & Sack, 2000, p. 5). Market Changes and Firms Changing market conditions have a huge impact on firms. This happening may influence the perception of the market, thereby, prompting firms to also change their strategy not to be left out of the latest trends. Determining the latest trends allows an effect on firms for them to discover opportunities that will aid in attaining a competitive edge (“The Impact,” 2012). The emergence of market trends is an evident proof of changing market conditions. When trends affect the demand for a certain product in the market, this may have a positive or negative impact on a company depending on how it responds to the situation (“The Impact,” 2012). In the event of changes in market conditions, a company is compelled to carefully monitor things, such as interest and exchange rates, competitors, and the recent developments in technology and innovation in order to prepare for its impact. Interest and exchange rates affect firms because these are essential in general trading, particularly, in the different industries (“Identify Potential,” n.d.). Foreign exchange rates also have to be considered because these hint the ease and profitability of doing business in a foreign country (“Identify Potential,” n.d). As for the competitors, changes in the market will always have something to do with how the competitors respond to market demands, and for this reason, firms need not be too lenient in monitoring their market movements. Equally important, emerging technologies and innovations also aid in the process of enhancing products or services to maintain the demand of a firm’s product or service in the market. Figure 2 - Demand Graph A simple illustration of a demand graph is shown above. The shift of the demand curve inward is an indication of a decrease in demand (Global Development and Environmental Institute et al., 2008). Now, the changes in demand are the effect of changing market conditions. If demand for a product increases, then profit for companies is also likely to increase, but if demand decreases, then profit, as well, decreases. Therefore, companies have to be flexible in meeting the demands of a changing market, or else, they will end up compromising the demand for their product that will decrease the profitability of their business. Apparently, firms are affected by changing market conditions because they comprise the business environment, and they also fuel these changes. Firms respond to market changes that, in turn, create new trends and a new cycle of change for the industry. Thus, it is a never-ending process, with the firms responding to changes as demanded by the situation. Market Changes and Consumers Consumers also feel the pressure of changing market conditions. They are susceptible to these changes because consumers are the main target of the changes the companies implement. As market condition changes, consumers tend to change preferences, and this prompts companies to innovate and change strategies only for consumer satisfaction. In particular, changing market condition creates a “dynamic shift in consumer demand” thereby increasing the demand for the latest products while decreasing the demand for products that are no longer a trend in the market (“Optimise Your Response,” 2009, p. 28). In recent times, consumers choose products that offer something new to them, such as features, tastes and preferences, which require companies to offer a variety of products (Rowles, 2000). Figure 3 - Supply Graph Shown above, is a simple illustration of a supply graph. In the event that sellers supply a lesser quantity of products, supply decreases (Global Development and Environmental Institute et al., 2008). The quantity of product that a company supplies depends on the demand of products in the market. Demand for products is dependent on the buying behavior of the consumers. Consumers have a huge influence on the supply because its availability is dependent on their demand of an existing product or service. If the demand of consumers on a certain product increases, the number of sellers will also increase that will eventually have an impact on the location of the supply curve (Global Development and Environmental Institute et al., 2008). Changing consumer needs are consequences of changing market conditions. Consumers are easily influenced by market changes that result in transitions in their buying patterns. Thus, the ultimate goal of every business is to provide the needs of consumers and earn customer satisfaction toward their product or services (S. Erdil, O. Erdil, & Keskin, 2004, p. 2). By so doing, dynamic shifts in demand will not influence the dramatic increasing or decreasing of supply and will lead to the stable movement of the business environment. However, with the recent condition of the market, this is less likely to occur. In general, changing market conditions have an impact on the behavior patterns of consumers, where they shift choices from time to time depending on the changes in the business environment that influence their decisions. Conclusion The business environment will continue to evolve, through the years, with the market conditions also changing, and this will persist to have an immense impact on the behavior of firms and consumers. As changes occur, firms and consumers develop responses, which fuel further diversity and transformation in the global market. This cycle will carry on as long as the world engages in business and commercial transactions. On the other hand, changing market conditions also have an effect on the flow of supply and demand. The economic implications of these changes encourage competition among firms that may help companies enhance products to gain a competitive edge and aid consumers in choosing a valuable product that is worth the price. At the end of the day, market conditions will remain changing, and this is the only thing that is expected to happen any time. References Albrecht, W. S. & Sack, R. J. (2000). Accounting education: Charting the course through a perilous future. Florida: American Accounting Association. Erdil, S., Erdil, O., & Keshin, H. (2004). The relationships between market orientation, firm innovativeness and innovation performance. Innovation, 1 (1), 1-11. Global Development and Environmental Institution, Goodwin, N., Nelson, J. A., Ackerman, F., & Weisskopf, T. (2008). Supply and demand. Retrieved from http://www.eoearth.org/article/Supply_and_demand Identify potential cash flow problems. (n.d.). Retrieved from http://www.nibusinessinfo.co.uk/content/ how-changing-market-conditions-can-affect-your-business Myers, D. (2004). Construction economics: A new approach. New York: Spon Press. Optimise your response to changing market conditions. (September 2009). Procurement Asia, 28-29. Rowles, K. (2000). Adapting to changing markets with new products. Retrieved from http://hortmgt.dyson.cornell.edu/pdf/smart_marketing/rowles%203-00.pdf The impact of market trends. (2012). Retrieved from http://www.dsbn.com.au/Articles/impact-market-trends Wangwe, S. M. (1995). Exporting Africa: Technology, trade and industrialization in Sub-Saharan Africa. New York: Routledge. Read More