EXTERNAL BUSINESS ENVIRONEMENT PROBLEMS AND OPPORTUNITIES IN REZEKNE CITY

Entrepreneurship is an essential driving force for the social and economic development of any city. Well-arranged external environment is a fundamental prerequisite in order to motivate local entrepreneurs and to attract investors for establishing new businesses and development of the existing ones. An important role in the development of the external business environment is played by the political position of the local government and the process regulations at the city. The paper aims to carry out the assessment of the external business environment factors and their impact in Rezekne City. The external business environment analysis was performed using PESTEL analysis method; the document “Analysis of the Current Situation” elaborated for Rezekne City in 2014 was used as the base for the current research. The external business environment was evaluated based on six factors: political factors, economic conditions, sociocultural forces, technological factors, environmental factors, and legal/regulatory conditions. Results of the research indicate that the development priorities are defined in Rezekne; the appropriate measures are being performed to achieve the objectives. Overall, it enables entrepreneurs to plan their activities.


Introduction
Entrepreneurship is an essential prerequisite for successful development of the territory, as it encourages investments, creates jobs, taxes and fees are transferred into the local budget, the business environment is developed, the social situation improves.However, overall business development varies in different cities.It is influenced by the specific geographical location, particular legal regulations, socioeconomic and demographic situation, and other factors.All of the above mentioned factors create the so-called external business environment.
Rezekne is situated in Latgale region, which has one of the lowest development indices among all regions of Latvia.Promoting entrepreneurship is a tool to improve the socio-economic situation in the city.Therefore, it is necessary to evaluate the current business environment in order to identify gaps to assist in finding appropriate solutions to eliminate them.
The paper aims to perform an assessment of the external business environment factors in Rezekne and their impact.
To achieve the objective, the following tasks are set forth:

Research results
Operations of each company are affected by the environment where these operations are performed.A.Vedļa points out that, if the term "environment" is used to define a set of surrounding circumstances enclosing a living or a public body, subsequently, the "business environment" is an objective reality, i.e. economic, legal, administrative, ecological, demographic and other settings and actual existence of the processes that are independent from the will of individuals; a set of active economic subjects, objects, processes and powers (Vedļa, 2000).V.Abizāre defines the business environment as a set of objective and subjective factors affecting the business situation within a specified time period.The business environment can be divided into micro and macro environment.Business microenvironment is the company's internal environment established by the company itself, where certain business decisions are made.This environment relatively can be divided in two levels: internal microenvironment and external microenvironment.The internal microenvironment is determined by the corporate objectives (strategy, routine tasks), employees (their knowledge, skills, perceptions, abilities), the organizational structure (division of labour, structural units, division of functions and their performance), technologies (use of equipment, information systems), organizational culture and the management style.The company's external microenvironment consists of suppliers, competitors, consumers, and target audiences.Business macro-environment is the company's external environment indirectly affecting the business decision-making and effectiveness of the business performance.Macro environment is formed by the following main factors: economic situation in a country, public policy, social, cultural and demographic factors, scientific and technical progress, international relations, institutional and informative environments (Abizāre, 2004).
The macro environment, in which a firm or sector operates, influences its performance, and the amount of that influence depends on what share of the sector's business are dependent on the health of the overall economy (Itani, O'Connell, Mason, 2014).Favourable business environment is characterized by the following features: structured and stable business legislation, a stable macroeconomic situation, efficiency of the tax system, international competitiveness, effective functioning of capital and financial markets, developed infrastructure, an effective education and innovation system, favourable conditions for competition, efficiency of the state aid system (Abizāre, 2004).
SMEs play dominant roles in terms of employment generation and economic development, in this regard the effects of globalization on them and their prosperity in a new business environment created by globalization is of a particular importance to both developing and developed economies (Savrul, Incekara, Sener, 2014).Assessing the situation in the international context, the small and medium enterprise development is positively affected by the factors as the ease of entry, the effectiveness of credit information sharing and the sophistication and innovation of the business environment (Rocha, 2012).
For the businesses that want to succeed in the global competition, the key factors are knowledge and ability to make the best use of the knowledge (Marešová, Drahokoupil, 2011).Living at the time that is declared to be the information age, it is important to create the business environment that is able to grow and develop as fast as modern information technologies do, thus creating innovative and competitive environment that will ensure sustainable national and economic development in Latvia.An adequately structured business environment that is favourable to the new entrepreneurs is one of the most important elements to increase competitiveness of the national economy (Uzņēmējdarbības vide un tās..., 2013).
Favourable business climate is not only a very important issue but one could say that it is even a principal one, especially in the modern marketplace.Targeted improvement of the business environment serves the interest of the whole society because it is reflected in many areas.This is not just about economic growth or prosperity but favourable business environment has a significant impact on employment, where the business sector has become a key factor, innovation, the state budget and last but not least it affects the external economic balance as well (Hamplová, Provazníkov, 2014;Marešová, 2010).
Up to now, the most widely used tool for the assessment of the business environment in Latvia is the World Bank international study Doing Business.Among 189 world countries, Latvia ranks the 24 th , and the 9 th among the EU countries (Doing Business, 2014).Concurrently, the other tool that allows to assess the business situation in Latvia qualitatively and quantitatively is the Survey of Entrepreneurs on the impact of administrative procedures on the business environment carried out by the Ministry of Economics every two years.According to the results of 2014, Latvian entrepreneurs spend on average 13% of their working time dealing with the issues related to administrative requirements.While evaluating the ease of running business, the problems related with starting up businesses, taxes (accounting), and solutions of commercial disputes have been identified in the survey (Par Uzņēmējdarbības vides..., 2014).
In the "Action Plan to Improve the Business Environment for 2014-2015", the aim "simple and qualitative services in business: more eservices" is defined and the measures to be taken are included, which are identified as burdensome to the entrepreneurs in the areas of establishing businesses, tax administration, real estate registration, foreign trade, e-government, improvement of the legal regulation in the construction sector, and others.
The local government, or better known as the local authority, vested with the power to plan, develop, and regulate businesses in the area within its jurisdiction, plays a significant role in creating a favourable environment for businesses to grow and flourish.In playing this role, employees in the local authority must possess a certain degree of innovative work behaviour (Yunus, Bustaman, Rashdi, 2014).The analysis of the external business environment in Rezekne City was performed based on the Document available on the municipal website.The positive and negative aspects of the external business environment in Rezekne have been evaluated in the Document.The macro environment encompasses the broad environmental context in which a company is situated and is comprised of six principal components: political factors, economic conditions, sociocultural forces, technological factors, environmental factors, and legal/regulatory conditions (Gamble, 2014).(See Fig. 1) The external business environment determines each city development possibilities; changes in one of the external environment factors result in consequential changes in others.The PESTEL analysis was used to evaluate the business environment.This method of analysis can be used to assess the strategic relevance of the six principal components of the macro-environment: political, economic, sociocultural, technological, environmental, and legal forces (Gamble, 2014).
In the research, the external business environment factors were evaluated on the scale of the city and not at the national level.
The authors have carried out grouping of the external environmental factors in accordance with PESTEL criteria, still emphasizing specifically the positive and negative aspects of the business environment.(See Table 1) The Document analysis indicates that, in Rezekne, there is a relatively large number of positive aspects affecting the external business environment.The authors consider that each entrepreneur aspires for the so-called sense of security that may result from the availability of information.In Rezekne, the Sustainable Development Strategy of Rezekne for 2013-2030 and the Development Programme of Rezekne for 2014-2020 are elaborated.Planning their activities, the entrepreneurs should familiarise themselves with the documents referred to above, as they provide ideas on the city's development.Taking into account the socio-economic situation in the city, it has to be concluded that the negative aspects of the external business environment exist as well, significantly affecting the business development.According to the authors, the distance to Riga, to the airport and other strategic business sites do not provide for adequate business development in Rezekne.

City
Then, the authors have carried out the assessment of the external business environment factors in accordance with six PESTEL factors.
Political factors include political policies and processes, including the extent to which a government intervenes in the economy (Gamble, 2014).According to the authors, evaluating the external business environment in the city, it is necessary to take into account the strategic development priorities and directions determined by the local government, the overall vision of the city's development, local tactical decisions of the local government on the issues of municipal administration and development.
Economic conditions include the general economic climate and specific factors such as interest rates, exchange rates, the inflation rate, the unemployment rate, the rate of economic growth, trade deficits, or surpluses, savings rates, and per capita domestic product (Gamble, 2014).Assessing this factor of the external business environment at city level, the city's location and situation in the business sector should be considered as well.
Sociocultural forces include the societal values, attitudes, cultural factors, and lifestyles that impact businesses, as well as demographic factors such as the population size, growth rate, and age distribution (Gamble, 2014).
Technological factors include the pace of technological change and technical developments that have the potential for wide-ranging effects on society (Gamble, 2014).Opportunities provided by technologies are an essential competitive advantage not only as an internal business environment factor of the company but as an external factor as well.Analysis of this factor requires consideration of the technological opportunities in the city available for entrepreneurs.
Environmental forces include ecological and environmental forces such as weather, climate, climate change, and associated factors such as water shortages (Gamble, 2014).Evaluating this factor, it is necessary not only to consider the ecology-related issues but also to assess availability and quality of different types of energy in the city.The external environment factor affects the company's finances in terms of the costs.
Legal and regulatory factors include the regulations and laws which companies must comply with such as consumer laws, labour laws, antitrust laws, and occupational health and safety regulations (Gamble, 2014).Analysing this factor at the level of city, the attention should be paid to the regulations adopted by the local government to regulate specific areas of activities.
In Rezekne, the tourism industry is considered to be one of the development priorities.According to this priority, the need for development of the hotels and other tourist accommodations, the necessity for organization of the air traffic and development of the cycling infrastructure are emphasized.In Rezekne, the measures to improve environmental factors are purposefully organized, for instance, water quality control at bathing sites, centralized waste management, drinking water quality improvement, development of degraded territories, improvement and maintenance of "green" territories, etc.An important instrument for the city and business development is participating in the projects.At this point, Rezekne municipality actively participates in obtaining the European Union structural funding; it results in an improved urban environment that positively impacts entrepreneurship.Nevertheless, there is a lack of well-organized transport infrastructure in the city; as well, for the investors of the Rezekne Special Economic Zone (hereinafter -RSEZ), a structured engineering infrastructure in the area is essential.Elimination of these problems would positively impact the external business environment in Rezekne.
Economic conditions in Rezekne can be assessed as dual.On the one hand, there are positive trends in some areas that actually indicate a favourable external business environment.Nonetheless, some economic indicators point to the contrary.Rezekne's geographical location and the RSEZ area with the preferential tax regime should be viewed as a positive external business environment factor.Most of the businesses in Rezekne are service sector companies, though the biggest turnover is generated by the companies in the manufacturing, forestry, and agricultural sectors.Fairly lot of companies are registered in the cargo transportation sector in Rezekne.Statistical data reveal that the number of economically active statistical units of market sector per 1000 inhabitants in Rezekne has increased providing the fourth best result in the country.Comparatively low wages contribute to the departure of skilled labour force, negatively affecting the supply of human resources of appropriate qualification, relevant skills, and competencies to the enterprises.
Manufacturing is the sector that generates real added value, yet, in Rezekne, the smallest number of employees is in the manufacturing sector.Overall, the city has a relatively high unemployment rate; the average net wage is lower than in the country.In theory, entrepreneurs would not have a problem of finding the necessary staff, however their qualifications do not correspond to the labour market needs.
The economic situation in Rezekne contributes to the deterioration of certain demographic indicators, such as decrease of the total population, and increase of the demographic dependency ratio.Human resources are essential to any company; nonetheless the above mentioned situation can lead to significant problems for successful business development in the future.
Rezekne city has the necessary prerequisites for development of ebusiness, since there is good availability and speed of the optical network.Significant support for the entrepreneurs could be provided by the present higher and vocational education institutions; in a result of cooperation, development of new study programmes according to the needs of entrepreneurs is possible.
Rezekne Municipality has implemented a number of projects by means of the European Union's structural funding, thus restructuring the waste management sector, upgrading water supply and sewerage systems.Still, significant investments are required in this area since there is a need to modernize and improve heating services in the city.The municipality requests the employers to maintain and improve the territories adjacent to the business location.From the urban development point of view, it is a positive fact, though it creates additional costs for entrepreneurs and raises the costs of the project.

Conclusions and suggestions
In general, it shall be concluded that the entire external business environment factors are closely related, the changes of one factor result in consequential changes in another, for instance, the economic situation of the external environment is significantly affected by the other factors such as sociocultural forces, environmental forces, etc.
The external political factors of Rezekne should be regarded as a targeted strategic action for the successful development of the tourism sector.The companies operating in this area can plan their development being aware of the municipal support.
Overall, it can be concluded that, in Rezekne, the development priorities are defined, and the appropriate measures are performed to achieve the objectives.Furthermore, the entrepreneurs evaluating and considering the positive and negative aspects of the business environment have possibilities to successfully plan and develop their activities in Rezekne.
Research hypothesis that has been put in Rezekne business external environment has been confirmed.

Fig. 1
Fig.1The components of City's External Environment (Compiled by the authors, based on:Gamble, 2014)

Table 1 .
Evaluation of the External Business Environment of Rezekne City in 2014, based on the Document (Source: compiled by the authors, based on "Rēzeknes pilsētas...", 2014)