What Is The External Environment and Why Is It Important? 1. Components of The External Environment

What is the External environment and Why is it important?
1. Components of the external environment

In the globalized and interconnected world, any varied factors or
situations of the countries would effect on the others. For example, the
tsunami had occured in recent days in Indonesia, which would lead to the
export price of the Vietnam product is increased; therefore, the Vietnam
export industry is developed significantly. Because of “connected world”, being
aware of the external environment is vital to managers. The term external
environment refers to factors, forces, situations, and events outside the
organization that affect its performance. The external environment includes
several different components such as demographic, economic, global,
political/legal, sociocultural, and technological factors.
Demographic factor is connected with trends in population characteristics
such as age, race, gender, education level, geographic location, income, and
family composition.
For instance: The population in Chinese is in the millennial generation
who have big buying power interest in luxury affordable price products, thus
the Starbuck grows some store in Chinese with some new style and flavors of
the product.
Economic factor encompasses interested rate, inflation, changes in
disposable income, stock market fluctuations, and business cycle stages.
For instance: The average income of Indian is pretty low, this leads to the
Toyota company would design a new brand of car meeting the demand of
citizens is affordable price.
Global factor encompasses those issue (like a volcano eruption,
earthquake, tsunami) associated with globalization and a world economy.
For instance: The tsunami had occured in recent days in Indonesia, which
would lead to the export price of the Vietnam product is increased; therefore,
the Vietnam export industry is developed significantly.
Political factor is related to federal, state, and local laws, as well as laws of
other countries and global laws.
For instance: The government of China have set the law to control birth
giving that each family has only one children; therefore, a child could have
been nurtured with more good condition from parents. This is a potential
market of Starbuck to build more coffee shop and get higher sale.
Sociocultural factor includes values, trends, traditions, lifestyles, beliefs,
tastes, and patterns of behavior.
For instance: In recent days, the American tend to healthy lifestyle, which
means they prefer healthy food and beverage. Hence, understanding of
customer need, Pepsi has produced beverage without sugar for diet people
and added organic flavors.
Technological factor is concerned with specific or industrial innovation.
For instance: The trend of technology 4.0 impacts on agriculture in
Vietnam, which helps the famers harvest the crops faster increases the
productivity.
2. How has the economic context changed?
The lingering economic crisis called the “Great Recession” began with
turmoil in home mortgage market in United State. Turmoil in home mortgage
market is a result of too much borrowing and flawed financial modeling,
largely based on the assumption that the home price is only grow up. This
results credit market collapsed and credit was no longer available to fund the
business.
Due to the connected world, the problem from United State spread to
other countries and turned to massive matter because of excessively low
interest rate for a long period of time, fundamental flaws in U.S housing
market, and massive global liquidity. However, the liquidity dried up, it became
massive home foreclosures and expanded to unemployment, public debt, and
social problem. Due to the situation, the Word Economic Forum state that the
significant risk facing business leaders in next decades is economic inequality.
Economic inequality and economic context
According to Harris Interactive Poll, economic inequality is not a problem
with 10% the adults, but in some reports show that 57% people agree it is a big
matter. The reason of this disparity is hard workers accepted an income gap
because of their diligence and creative in work; however, the economy was
wavered, and people believe that anyone could grab the opportunity and have
decent shot at prosperity without working hard, which leading social
satisfaction to the gap has increased. The importance is that business leader
need to recognize how societal attitudes in economic context create the
constraints to them when making decisions.
How much difference does the manager make in how an organization
performs?
In reality, the manager is neither both all-powerful nor helpless, but their
decisions are constrained. External constraints come from the organization’s
external environment and internal constraints come from the organization’s
culture. However, the managers have to be accountable for their decisions or
actions that directly decide the success of the business.
What role does the demographics play?
The demography is a destiny. Demographics, the characteristics of
population used for purposes of social studies, can have a significant impact on
managers manage. The age is one of the main population features because
different age group are working together in organization. Age have been
divided into 4 fundamental groups:
Baby Boomers are those born between 1946 and 1964 have significant
impact on external environment as they have gone through various life cycle
stage.
Generation X are those born between 1965 and 1977.
Generation Y or Millennials encompass those individuals born between
1978 to 1994 have big imprint on external environment as Baby Boomers.
Moreover, from technology and clothing styles to work attitude, Millennials is
impacting on organizational workplace as well.
Post-Millennials or iGeneration or Generation C– the youngest identified
age group, including teens and middle-schoolers. They have grown up with
technology connected without location and time. Some people say that
iGeneration characteristic is their social interaction take place on the Internet,
where they can free to express their emotion, and their large knowledge about
mobile phone, the Internet, and social networking.
Demographic age cohort is important to study of management because
large number of people at certain stage in life cycle can constrain decision or
action taken by businesses, and depending on it can recognize future trends of
the world.

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