BY
SUNDAY OMOJUYIGBE PhD, FCA, FCTI
&
PECULIAR SHOTONWA
Abstract
This article provides an overview of the business world, defining what constitute a business and exploring the various forms of businesses that exist. Importantly, it delves into the concept of policy, categorizing forms and perspectives to policies and examining their impact on businesses. It further explains how changes in policy can significantly affect businesses, influencing their operations, strategies and overall success. By discussing the dynamic interplay between business and policy, this article provides valuable insights for business leaders, policymakers and stakeholders seeking to understand the far-reaching consequences of policy changes.
Keywords: Business, Policy, Internal and External Environment.
How to Cite this Article:
Omojuyigbe, S. T & Shotonwa, P. (2024). Business Response to Policy Change. Sunday Omojuyigbe & Co Publications, 1(24), 6-11. www.sundayomojuyigbe.com
The world is being swept off by an entrepreneurial wave where almost everyone dives into. Individuals are motivated into the world of business for different reasons. For some the motivation is just to be their own boss so they can make their own decisions and have control over their work life, some start their own business to pursue their passion, for some it could be to gain financial stability, for some it could be to build a legacy or family name and pedigree, for some it could be to diversify income streams and the example remain endless.
A business is any economic exertion or operation which combines and proficiently utilizes economic resources for the purpose of producing one or more products or rendering services at a profit. Beyond profit making a business may have other objectives like promotion of welfare of the workers and or that of the society, environmental sustainability, rendering critical services like health provision and so on. A business is a vehicle for identifying and satisfying needs, wants and creating value, jobs and income. According to Nasrudin (2024), businesses achieve these by procuring input such as raw materials from vendors. They process the input into output, which they can sell at a higher price than the amount they pay the vendors. Nasrudin called this process value-adding, wherein they convert lower-priced inputs into higher-priced outputs.
Therefore, business is essential in enhancing economic growth (Alabi et al., 2019). This is because it fosters innovation, generates employment and raises productivity. As businesses grow and expand, they contribute to the overall economic output, generating revenue and stimulating economic activity. Companies and Allied Matters Act [CAMA] (2020), organizes business into various types. They include: business name, private company, public company, unlimited company, company limited by guarantee, partnership, limited liability partnership, incorporated trustee etc.
To ensure going concern, regardless of the nature of business organization, a business must function within the framework of the policies that are currently in place, which can either facilitate or impede its continuous existence. By understanding and adapting to policy changes, businesses can leverage opportunities and minimize risks, ultimately contributing to sustainable economic growth. A policy is a plan of action agreed upon and chosen by a group of people, organizations levels of government or political party. It also refers to a set of guidelines, rules or principles that guide decision-making, behavior and actions within an organization. In business, policies can be categorized as internal or external policies. The internal policy is a set of guidelines instituted by the management to streamline how business activities are run.
Some examples of internal policies are salaries and wages ceiling, resumption time, sales and credit policies, recruitment policy, code of conduct, dress code, safe use of computer, policy on gender equality within the management team, employment of disable persons, policy on health and safety at work place etc. Even though these policies are internal and specific to each business entity, yet it is good to know that they are often influenced by external (government) policies within the economy in which the business operate. External policies are rules and regulations that are set and implemented by different levels of government (Federal, State and Local Government). In addition, external policy can also be policy of other business entities which have business relationship with a particular business entity.
Some external policies and regulations are targeted at specific businesses while others aim at all the businesses in all the sectors of an economy. For instance, in Nigeria, some businesses in some selected operations are exempted from tax during the first four to five years of operation. This is subject to some conditions like timely application for Pioneer Status. Another example is increase in value added tax (VAT) rate from 5% to 7.5%. More example is Finance Act 2019 disaggregation of companies into small (N25M or lesser annual turnover), medium (above N25M to N100M annual turnover) and large companies (above N100M annual turnover) for the purpose of charging 0%, 20% and 30% company income tax (CIT) rates respectively. Further example is frequent review and changes in Central Bank of Nigeria (CBN) Monetary Policy Rate (MPR), which directly affect prevailing market interest rate.
One of government policy`s most distinguishing features is how unstable and changeable it is (Adeniran et al., 2023). The stability of government policies is essential for the viability of businesses as an unstable policy environment can undermine business operations (Abbas et al., 2024). The interdependence between businesses and government policies highlights how businesses rely on inputs such as finance, raw materials, and labour, while also being subject to regulatory frameworks set by the government. The nature of government policies influences the strategic choices made by businesses to navigate the operating environment effectively. If policy changes are imminent, then businesses must learn to develop adaptive mechanisms to cope with the dynamic nature of government policies and the ever-changing business environment; thereby ensuring operational continuity and achieving desired outcomes.
Government policy can be further explained from the political and technical perspectives. From the political point of view, according to Boyles (2022), politics can enormously impact business as laws and regulations can determine how a company operates or the magnitude of profit it makes. For example, announcement of public holidays and the frequency of such holidays can affect businesses, frequency and fairness of elections can affect businesses. Transparency and accountability of the government can also affect businesses. To mention a few, the relationship government keeps with other countries and multinational organizations also have effect of the local businesses.
From the technical perspective, government policies can impact on business both directly and indirectly. For example, in Nigeria the recent floating of the exchange rate, removal of petroleum subsidy, segregation of electricity subscribers into Bands A to E for the purpose of imposing different tariffs all have direct impact on the cost of operation and profit of business. Therefore, aspiring entrepreneurs, business leaders, accountants, risk experts, consultants and strategists in heavily regulated industries such as banking, energy, insurance, oil and gas, trading, hospitality and so on should familiarize themselves with current and intending policies of the regulators.
Key areas of government policy that affect businesses are: economic, social, security and political. Example of economic policy determined by government is interest rate. A rise in interest rate discourages borrowing and also affect the immediate purchasing power of consumers and businesses. In Nigeria, MPR was 13% in July 2015, 14% in July 2016, 14% in July 2017, 14% in July 2018, 13.5% in July 2019, 12.5% in July 2020, 11.5% in July 2021, 14% in July 2022, 18.75% in July 2023 and 26.75% in July 2024 (CBN Monetary Policy Decisions). This data depicts upward trend. Even though increasing interest rate has potential to attract investment (Adegboyo et al., 2021; Salami et al., 2023), on the other hand, this article suggests that smart business leaders need to fashion-out alternative means to their capital structure if highly geared.
Government policy on social life include provision of education and welfare. These provisions have effect on businesses also. For example, provision of quality education readily provides skilled labour for businesses to employ, otherwise businesses will have to incur excessive cost of training. Government policy on security is another very important policy of government that has come to the limelight in Nigeria because of banditry, kidnapping and the likes. Political policy of government equally affects businesses both directly and indirectly as it touches the wellbeing of businesses.
In conclusion, this article discussed the nature of government policies from different perspectives within Nigeria’s context. Hence, to ensure the smooth going concern of a business, there must be a swift, smart, proactive and adaptable response to government policies. The response has to digress every external policy and identify the dexterity the policy has on the business. This includes closely monitoring changes in taxes and tariffs, regulations on employment, wages and labour law, regulations of fair competition, exchange rate policy, profit repatriation, interest rate, foreign exchange policy, regional or multilateral agreement and so on with keen interest in assessing their impact on operations, finance and developing internal contingency plans or policies to mitigate potential disruptions.
By taking a strategic and informed approach, businesses can minimize the impact of policy changes and maintain their competitive edge by making technological investments, optimizing operations and leveraging consultant’s know-how. Facilitating seamless transition to new policy change also need effective communication with stakeholders, including consumers, employees and regulators. Through this, businesses can navigate the complexities of government policies and ensure the long-term sustainability of their operations.
In summary, government policies play a pivotal role in shaping the operational landscape for businesses, exerting a significant influence on their success or failure. It is expedient for every business to always have internal policy mechanism to checkmate government policies to ensure going concern. Doing this reduces risk, preserve their competitive advantage and guarantee long-term sustainability. In the end, being knowledgeable and adaptable is essential to navigating the intricate and constantly shifting terrain of government policies.
References
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