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External Environment External Environment: An External Environment Is Composed of All The Outside Factors or

The external environment is composed of all outside factors that influence business operations and consists of the macro and micro environment. The macro environment includes political, economic, social, technological, legal, international, and natural forces. It also involves demographic factors like population size, density, and income levels. All of these elements are outside of a business's control but can significantly impact its performance.

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Himanshu Dargan
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268 views3 pages

External Environment External Environment: An External Environment Is Composed of All The Outside Factors or

The external environment is composed of all outside factors that influence business operations and consists of the macro and micro environment. The macro environment includes political, economic, social, technological, legal, international, and natural forces. It also involves demographic factors like population size, density, and income levels. All of these elements are outside of a business's control but can significantly impact its performance.

Uploaded by

Himanshu Dargan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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EXTERNAL ENVIRONMENT

External Environment: An external environment is composed of all the outside factors or


influences that impact the operation of business. The business must act or react to keep up its
flow of operations. The external environment can be broken down into two types: the micro
environment and the macro environment.
Macro Environment: A macro environment is a set of external conditions that affect a
business’ development efforts either positively or negatively. These elements are considered
uncontrollable and they have an impact in the company’s overall performance.
1. Political Environment: Every business is limited by the political environment. This
involves laws, government agencies and pressure groups. These influence and restrict
organizations and individuals in a society. Before entering a new market in a foreign
country, the company should know everything about the legal and political environment.
For example, laws covering issues such as environmental protection, product safety
regulations, competition, pricing etc. might require the firm to adapt certain aspects and
strategies to the new market.
2. Economic environment: Economic environment consists of economic factors that
influence the functioning of a business unit. Economic factors affecting the macro
environment relate to forces that affect how consumers spend and their purchasing power.
These factors include economic system, economic policies, trade cycle, economic
resources, gross national product, corporate profits inflation rate, employment, balance of
payments, interest rates, consumer income etc. Economic environment is dynamic and
complex in nature. Economic policies of the government monetary policy, fiscal policy,
industrial policy, trade policy and foreign investment policy. It is important to understand
a variety of metrics and data, including:
 Gross Domestic Product (GDP) and its real growth rate
 Unemployment rates
 Inflation
 Disposable personal income
 Existing spending patterns
3. Social Environment: The social forces link to factors that affect society’s basic values,
preference and behaviour. The basis of these factors is formed by the fact that people are
part of a society and cultural group that shape their beliefs and values. Many cultural
blunders occur due to the failure of business in understanding foreign cultures. For
example, symbols may carry a negative meaning in another culture.
4. Cultural Environment: Cultural involves knowledge, values, beliefs, morals, laws,
customs and traditions etc. Culture passes from one generation to another generation
through institutions like family, schools, and colleges. Business is an integral part of the
social system. Culture shapes the attitude and behaviour of the society. Business should be
organized and governed taking into consideration various values and norms of the society.
5. Technological Environment: Technology has brought about far reaching changes in the
methods of production, quality of goods, productivity and packaging. There is a constant
technological development taking place. The business firm must constantly monitor the
changes in the technological environment which may have a considerable impact on the
working of business. It also indicates the pace of research and development and progress
made in introducing modern technology in production. A perfect example of a strong
technological force today is wireless communication. Nearly everyone in the world owns
a Smartphone, tablet, or laptop that can quickly and easily be connected to the internet.
6. Demographic Environment: Demographic environment relates to the human population
with reference to its size, education, sex, age, occupation, income, status etc. Business
deals with people so they have to study in detail the various components of demographic
environment. Demographic environment differs from country to country. Demographic
factors like size of the population, age, density of population, urban rural distribution,
family size and income level have significant role and implications on business.
7. Natural Environment: Natural environment has a great influence on the working of
business. The business should consider the natural factors before starting the operations.
Resource availability like land water and minerals is the fundamental factor in the
development of business organization. It includes natural resources, weather, and climate
conditions topographical factors like soil, sea, rivers, and rainfall etc. Natural calamities
like flood, cyclone, and tsunami can also affect the business environment.
8. Legal Environment: The state sets the formal rules laws and regulations for the country’s
operational system. It creates framework of rules and regulations with in which a business
has to operate. The business should have complete knowledge of laws and policies to run
the business effectively. Some of the laws are:
 Consumer Protection Act 1986
 Factories Act 1948
 Workers Compensation Act 1923
 FEMA Act 1999
 Companies Act 1956 & 2013
 Environment Protection Act 1986
9. International Environment: The environment consists of those factors which have an
impact on foreign trade of a country. Those factors may be foreign policy, international
treaties and foreign investment policy and various acts which are concerned with the
dealings with other countries in trade matters. With the charges in government and their
policies, there will be change in international environment. With the introduction of
economic reforms and the policy of liberalisation in our country, our exports have
increased considerably and many foreign companies started to trade with our country.

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