Comprehend and Explain About Various External Environments of Business.

Comprehend and Explain About Various External Environments of Business.

Business Environment is a collection of internal and external factors like employees, customers,

suppliers, etc. All these factors have an effect in the functioning of the business. Business

environment also helps in recognizing business opportunities, identifying useful resources, etc. It

helps in improving the overall growth, performance and profitability of the business (Ebert, R.,

& Griffin, R. 2018).

The external forces can be categorized into six different categories:

 1. Economic Environment

2. Legal Environment

3. Competitive Environment

4. Technological Environment

5. Social Environment

6. Global Environment

1. Economic Environment

Different economic factors like taxation, interest rates, government spending, general

demand, etc. affect a business. Economic factors are related to goods and services, these factors

have an effect on the financial state of the economy – local and global. Demand and supply,

inflation, interest rates, etc. also affect the way the business makes its financial decisions. Global

economic events like the great depression or the great recession or a pandemic also have a direct

effect on businesses irrespective of their size (Ebert, R., & Griffin, R. 2018).

2. Legal Environment

Legal environment of a business is the most complex and maybe potentially dangerous

external factor that can have an impact on a business. The legal factors that can affect the

business are consumer laws, discrimination laws, health and safety law, employment law, etc.

Other legal factors like global trade policies, foreign exchange policies, etc. also have an impact

on businesses and their operations (Ebert, R., & Griffin, R. 2018).

3. Competitive Environment
 Competitive environment includes the competitive factors that affect the business-like

companies selling similar products and services, price wars, etc. Imitators also have an impact on

the business, imitators are competitors that copy a successful product of the business and create

cheaper versions of the product and impact the demand of the original product. Price wars reduce

the profit margins of the business as the companies try to reduce their prices and make their

prices less than the competitors. Price wars benefits the consumers but not businesses

(Cherunilam, F. 2007).

4. Technological Environment

Technological factors can be characterized as the variables which associate it to the

availability, existence and development of technology. Technological factor might not have

direct impact on a business but they do have an indirect impact on businesses. Software that is

used to run the machines to the social media outlets that are used to market those products are all

run using different technology which indirectly have an impact on the business and its

environment. It dictates the way many things are done in a business (Ebert, R., & Griffin, R.

2018).

5. Social Environment

Social factors are the factors that focus on the forces that are part of the society. Social factors

like lifestyles, buying habits, education level, social class, family size, spending habits, religion,

etc. have a major impact on the needs of the customer and the businesses too. Family, friends,

neighbors, social media all indirectly have an impact on the business and its profitability

(Cherunilam, F. 2007).
6. Global Environment

Global factors like labor supply, global trade laws, supply chain reliability, consumer

demands, around the globe, import and export regulations, etc. all have an impact on the business

and its operations. These factors have an impact on the profitability as well as decision making

aspects of the business (Cherunilam, F. 2007).

References

Cherunilam, F. (2007). International Business. Retrieved on 11 April 2021, from

https://www.mybooklibrary.com/pdf/francis-cherunilam-business-environment.pdf
Ebert, R., & Griffin, R. (2018). Business Essentials (What’s New in Intro to Business). Pearson.

Retrieved on 11 April 2021, from

https://www.yumpu.com/en/document/read/63843821/pdf-download-business-essentials-

12th-edition-whats-new-in-intro-to-business-full-format