The business environment keeps on changing in any category, and you should keep in mind various factors while planning and executing operations. It’s the responsibility of business managers to analyze various internal factors and how they would impact the company’s decision. They should also keep in mind the external environment, their impact, and how to manage them. Today, we’ll discuss the external environmental factors that affect businesses, their types, and the competitive factors.
Understanding the Business Environment
If you want to understand the business environment, then it’s better to analyze the term individually. First of all, the environment is the business area or the condition in which the company is carrying out its business activity. Secondly, the business of the company is a social entity that follows the hierarchical structure where various elements work together towards achieving the common goal and objective.
Every internal and external factor relevant to the business has a great impact on the company’s operational activities. In other words, we can say that both internal and external factors create the company’s business environment.
What are External Environment Factors?
External environment factors are elements that are outside of the company’s internal environment and they could impact its operations. The external forces could either present challenges in your existing operations or help your business. The business managers have to track various outer environmental factors in order to identify and resolve issues and make relevant changes accordingly.
Importance of External Environment for a Business
The external environmental factors play a significant role in terms of directly and indirectly impacting the company’s revenue stream and business operations. The consistent changes brought by the external environment are way beyond the control of the company. The executives and business managers would track these changes and minimize their impact.
When you keep on evaluating the dynamic external factors, then it would allow you to minimize the impact of unexpected changes and protect yourself against predictable events.
10 Types of External Environment Factors
Some of the ten types of external environmental factors are as follows;
Every new political party comes to the government with its new policies and gets rid of old policies, and their change in policies would impact relevant businesses and companies. With the inconsistencies in the political environment of the country, businesses and companies have to pay heed to the legislation and the upcoming bills in order to prepare themselves for the potential changes. Some of the policies that could influence the business are as follows;
- Intellect Property Rights
- Import Restrictions
- Competition Regulations
- Employment Laws
The political regulations have a great impact on the company’s operations, and the business has to comply with the new legislation in order to keep things going.
The economic factors play a significant role in terms of impacting our daily life to the growth of the company. When the country’s economy is in recession, then the unemployment rate would be higher. Companies have to work extra hard in order to retain their workforce and make changes in order to maintain their revenue stream. If the company is in the business of manufacturing retail products, then it has to decrease its prices to amplify the sale to maintain its profitability.
When people live together in a society, then their social status and personal choices would influence their purchase decision in terms of what and where they should buy. While developing the product/service, companies keep in mind various social factors because various social issues, events, and movements impact their decision.
For instance, a feminist organization that endorses the women’s cause and movement would earn the trust and loyalty to the women’s customer market. When you’re targeting a specific segment of the market, then you should keep in mind their preference and potential influences on them in recent years. You can use such factors for your business growth and satisfy the needs of customers.
Technological developments are making significant changes in every industry, and companies need to adopt technology to gain a competitive edge in the market. For instance, a GPS manufacturing company for the vehicle would have to face decreasing sales because of the integration of mobile devices with GPS. But it can deal with this challenge by launching new integrated products.
Healthcare companies should come up with the latest methods and techniques in terms of gathering information from the patients. The patient record and care system should be in alignment.
Legal factors comprise the law of the country impacting the company that how it should operate its business and behavior of customers. Some of the main areas that fall under its category are the viability of the certain product in certain markets, profit margin, and product transportation.
When it comes to the sale of sharp objects, drugs, and others; the legal factors help you to decide whether the company should offer it or not. Some main laws that fall under its category are as follows;
- Import and Export Laws
- The legality of Pyramid Scheme
- Fraud Law
- Employment Law
- Health and Safety Laws
- Copyrights Laws
- Discrimination Laws
- Consumer Laws
Many companies conduct a demographic analysis to evaluate their target market to make sure whether it’s meeting their needs or not. It allows them to understand their target market and find ways to serve customers better. The demographic could impact your business process and decision. It comprises of following elements;
- Education level
- Marital Status
- Belief System
Many telecom companies became operational in the 1990s, and their target market is young professionals that are succeeding in their lives. Nowadays, people from various backgrounds all use mobile devices daily. That’s why telecom companies have been modifying the products/services in terms of features and using various marketing approaches to target them.
Different people have different concepts of morality and ethics, and it has become challenging for companies to maintain a balance between staff expectation and their personal lives. It’s the responsibility of the company’s sales staff to avoid such activities that would have a negative impact on the company. The managers should address workplace ethical issues like harassment and sharing the company’s confidential information and take disciplinary actions against them.
The customer market has cautious about the planet earth and the impact of businesses practices on the natural environment. Some customers support such companies that promote eco-friendly practices and products. The conscious choice of eco-friendly products has created a lot of opportunities and challenges for businesses. The goal is to amplify revenue, retain customers, and protect the environment.
If the company is launching its product in the international market, then it should keep in mind various global and local issues. The company should keep on analyzing the economic status, consumer trends, cultural norms, and social issues; and offer training to deal with such issues. It allows them to develop such products that would meet their needs and requirements.
Companies could amplify their market share and profitability if they keep on tracking the market trends and competitors. It would allow them to recognize the challenges and find ways to deal with them in order to deal with loss.
After the study of external environment factors; we’ve learned that they play a significant role in a company’s growth. If you’re developing a company’s strategy, then you should keep in mind the external factors and their impact on the business.