MG309 STRATEGIC MANAGEMENT

ASSIGNMENT 1

Essay: Explain the importance of analyzing and understanding the

firm’s external environment.

Name: Victoria Fisiihoi

Student ID: S11152196
Campus: USP Tonga

Introduction
Today's business world is competitive in the market through many organizations to become more
successful and thrive. Organizations are required to be familiarized with the obstacle of their
external environment. Organizations “are groups of people deliberately formed together to serve
a purpose through structured and coordinated goals and plans'' Bright S.D., Cortes A. H.…
(2019). Hence, every organization should have a plan as their mission and vision to find out that
the external environment has been chosen for operating their business will give an opportunity
for the organization to survive and grow. Therefore, an enormous depiction of a business or firm
is their external environment. External Environment or General External Environment “is an
inclusive concept that involves all outside factors and influences that impact the operation of a
business that an organization must respond or react to in order to maintain its flow of operations''
Bright S.D., Cortes A. H.… (2019). However, in this paper will explain the importance of
analyzing and understanding the firm’s external environment. Firstly, I will explain the
importance of analyzing and understanding the elements of a firm's external environment
nowadays based on the PESTEL Analysis Module. This will analyze the impact and influence of
Analysis Module for the firm’s external environment.  Secondly, will explore the most common
issues in the external environment nowadays and the changes the employers will make to
recurring these factors. Furthermore, the setting will focus on the Pacific Islands as an example.

To begin with, every workplace expected to be established must explore the external
environment and suitable space for the organization to be located. We know that the important
role of the external environment of a firms to determine the future of the organization. Hence, in
strategic management there are six segments of external environment as known in acronym,
PESTEL, Morris, J., & Hodges, T. (2016) such as political, economic, social, technology,
environment and legal. Therefore, these model elements have helped a lot for analyzing a firm's
external environment in the most understandable way for the organization to become more
successful. On the other hand, these elements will also have an impact that will influence firms'
general external environment in different issues that occur within government during operating
the organization.

Political is the first element to be analyzed and how it’s important for the firm’s external
environment. Political factor it’s a non-market factor but it still provides an impact for the
organization. In a country or government political factors are a major element for an organization
to become more successful. For instance, political factors have to establish a regulation, taxation
policies, etc. for all the firm’s to be followed by both government and non-government
organizations. Although, political factors should establish regulation for taxation policies for
local firms and they would seek what could be the impact will face with the organization. What
should be the regulation that the political parties create for a trade agreement between
foreigners? If this regulation is suitable with the environment that your organization currently
operates in, then the organization will thrive. For example, according to Gee, E. (2020), in Tonga
increased policies of taxation for the import of tobacco from overseas together with the local
tobacco that farmers are growing here locally. Therefore, due to a highly taxing charger for local
tobacco may affect growers when they compete in the market either they earn more profit or
loss.

Economic factors have always played an important role for every organization by considering
how they make decisions, usually financial circumstances to see that the organization is
successful or failure. Hence, there are two factors of economics such as “macroeconomic” and
“microeconomic”. Macroeconomic it is a “factor that either directly or indirectly affects the
entire economy and all of its participants” (What Is the Economic Environment in Business? -
Definition, Importance & Factors, 2014) such as, interest rate, inflation, saving rates,
unemployment rate, recession, depression and currency exchange rate. For example, many
countries in the world faced with the pandemic of Covid-19 leads to a highly rate of
unemployment people who lost their job due to this difficult time. In Tonga when the Covid-19
has been started and the government of Tonga needs to close the borders in March 2020 leads to
a highly rate of employees who lost their job due to a restriction of Covid-19. According to the
Radio & TV Tonga (2020), there are 60 staff of Tanoa International Dateline Hotel in Tonga
where they were suspended due to a closing of the border. Also, a same issue that face with the
Real Tonga Airlines Company during Covid-19 lockdown according to Tevita Palu (the owner
of the airlines) Kalafi Moala (2020) “he says that this is the worse things for the airlines because
several number of staff including pilot have been laid off because of the suspension during the
State of Emergency''. Therefore, a high rate of unemployment leads to an economic recession.
Also the customer does not have enough to spend may lead to a fewer sales of product to keep
the organization survive.

Microeconomic “referring primarily to an organization’s industry, and the upstream and

downstream markets related to it” Morris J., & Hodges T. (2016) such as, market size, suppliers,
competitors and demand. This factor has given a choice for the consumer at the market to
analyze what is the product (goods and services), should the consumer demand for that product
or they review what is the price for that product in the market.  Microeconomics strives to
determine the policies and resources that are shared on an individual basis, as well as to explain
what is the result when certain environments change. Thus, microeconomics has modified
organization to understand how could be the firm’s handling business financial circumstances,
what kind of product that the company is willing or decided to produce and sell in the market,
when will the organization enlarge, reduce and close down. For instance, if the organization has
to use their financial report each year just to identify how the business will maximize their
product and the range of their accomplishment just to minimize the price of their product and
“become more competitive” Business & Management, Finance (2019) in the market. 

Social or Socio-cultural and Technology factors both influence an organization's external

environment. Social elements may include culture, lifestyle, behaviour, beliefs etc. of the
organization. The importance of socio-cultural for the organization is that the company will gain
opportunities together with difficult challenges will be faced with the firm’s. However, when
globalization has been developed in many islands in the Pacific it has pushed our tradition to
closer with the other islands culturally. Anyhow, some of the organization does not know that
socio-cultural is one of the main factors that the business will be competitive in the market. For
example, in Tonga traditionally we wear tapa (ngatu) as our clothes but nowadays it is rare to see
anyone wearing tapa clothes. That’s the strong change of tradition that gave opportunities for the
organization to be successful. Therefore, is there any threatening remarks that may affect the
organization than rapidly try to protect your organization as fast as possible. Moreover,
technology has played an important role throughout every organization nowadays. It can make
everything easy and fast during operating business daily duty such as the internet, computer,
engine, etc. Hence, if your organization does not understand how technology is used in your
business is one of the effects of the technology to your company. For example, as we can see, the
internet has become the number one market that many organizations are using to connect with
their clients about their selling product. Therefore, a highly using of the internet for
communication may lead nowadays organizations to not overly concern about the past traditional
services of communication. For instance, even though Tonga, Samoa, Tuvalu etc. is a developing
country. But today’s internet has become a technology that is hastening the work in many Pacific
industries. 

Environmental factors may influence the organization's marketing such as climate change,
energy consumption. Geographical location of the organization etc. When there is a change in
these factors we know that it will affect organization in the competition market. Also if the
customer will have any feedback on the specific contribution there must be an issue. However, if
we analyze the environmental factors its purpose is to modify clear or recognize elements that
are currently done for your organization. The PESTEL analysis module has given an opportunity
to view the firm's external environment. These tools many businesses are using to estimate the
effective growth of their company. Therefore, the environmental factor of climate change has
been playing a role in organization competition. For instance, when every environmental issue
that occurs in Tonga like how hurricane Harold damages many resorts on the west side of
Tongatapu. Hence, the role of competitors in the market for these organizations is only affected
because of the natural disaster that occurs. A result happens in this situation that the resorts have
been closed down and rebuilt again to serve their customers.

Legal factors are the laws that change most of the time. And this change may affect the
organization's external environment according to the regulation that has been established.  If the
body of the tribunal already established organization regulation, then it will have an impact that
may cause the economy of the business. Therefore, here are some of the important factors that
every organization must care about such as health and safety, employment, product regulation,
etc. just to make sure that it will not provide any issues for the organization.

To conclude, PESTEL analysis module is an important factor for every firm’s general external
environment to be their guideline for their business success in the competitive market. This could
be an important challenge for every organization to protect their business when they face any
difficult issues during operating their business according to an impact occurring from the outside
environment. Therefore, PESTEL analysis has allocated a framework for the organization to
understand the external environment. When the organization follows the framework and uses
these tools carefully, their business has achieved their goals of being successful and thriving.

Referencing
Bright S.D., Cortes A .H., Hartmann E., Parboteeah K .P., Pierce J .L., Shah A., Terjesen S.,
Weiss J., White A .M., Gardner D .G., Lambert J., Leduc L .M., Leopold J., Muldoon J.,
O'Rourke J .S. (2019) Principles of Management, Rice University: OpenStax.
https://d3bxy9euw4e147.cloudfront.net/oscms-
prodcms/media/documents/PrinciplesofManagement-OP_mGBMvoU.pdf

Morris, J., & Hodges, T. (2016) Strategic Management, 1st edn., Oregon State University:
Corvallis.

Teik T. C. (2013) Importance of The External Environment, Available at:

https://m360.sim.edu.sg/article/pages/Importance-of-the-External-Environment.aspx (Accessed:
19th August 2020).

What Is the Economic Environment in Business? - Definition, Importance & Factors. (2014,
October 13). Retrieved from https://study.com/academy/lesson/what-is-the-economic-
environment-in-business-definition-importance-factors.html.

Radio & TV Tonga (2020) Suspended Hotel Staff Request Assistance From National Retirement
Fund, Available at: http://www.tonga-broadcasting.net/?p=17963  (Accessed: 21st August
2020).

Kalafi Moala (2020) Questions emerge over the future of Tonga's domestic airline, PACIFIC
TONGA: Radio New Zealand 2020, Available at: https://www.rnz.co.nz/international/pacific-
news/416070/questions-emerge-over-future-of-tonga-s-domestic-airline (Accessed: 21st August
2020).

Business & Management, Finance (2019) Microeconomics and Macroeconomics:

Understanding the Difference, Available at: https://www.getsmarter.com/blog/career-
advice/microeconomics-and-macroeconomics-understanding-the-difference/  (Accessed: 21st
August 2020).

Gee, E. (2020) 'New NCD crisis study recommends tax on local tobacco', Matangitonga Tonga's
Leading News Website, 23 August, Available at: https://matangitonga.to/2018/09/05/new-ncd-
crisis-study-recommends-tax-local-tobacco