STELLA MARIS COLLEGE, CHENNAI

MCom - GLOBAL BUSINESS ENVIRONMENT

VISMAYA M

Dept No: 134

EXTERNAL FACTORS AFFECTING THE BUSINESS ENVIRONMENT

There are many factors that affect the business from the external environment. In order to face
these factors business must try to create and develop strategies.

The following are the factors of external environment:

ECONOMIC ENVIRONMENT
Since business is essentially an economic institution it is surrounded by economic environment.
This economic environment consist of factors like GNP, inflation rate, balance of payments,
employment, corporate profits, forces of demand and supply determine the price and quantity
of goods or services etc. Economic activities create business cycles that affect the business.

Eg: Gross National Product in India averaged 11577269.70 INR from 2011 until 2020, reaching
an all time high of 14522931 INR in 2019 and a record low of 8659505 INR in 2011.

Latest case: China’s factory inflation hits 13-year high amid high material cost. PPI rose by 9.1%
from a year earlier in August.

POLITICAL ENVIRONMENT
The economic environment and political environment are mutually dependent. The political
stability, attitude of the ruling party and the policies set by them will affect the working of
business as a whole. This basically depends on the ideology of the politicians. For e.g.: A
company preparing to start a plant in another country will look on to the political climate of the
preferred country.
Latest case: KITEX Co of Kerala facing an issue to run their business due to the political
intervention: link to refer

SOCIO-CULTURAL ENVIRONMENT
It refers to values, attitude, beliefs, lifestyle, custom, religion, arts etc followed by the people in
a society. They complicate the business environment because business needs to study the
culture, customs etc .which are part of the society. These values of the society will be
determined when a firm set up their value system because this helps to earn their trust and
goodwill in the market.

TECHNOLOGICAL ENVIRONMENT
This factor depends on the technology available in a country. It provides capital intensive but
cost effective alternative to traditional intensive method. Technology helps to influence the
competitiveness, production capacity, research and development projects and many more.
When a new technology is used in a company it requires a lot of preparation from the side of
business regarding training the employees, making sure that employee happy to adapt,
installation cost etc.

LEGAL ENVIRONMENT
This environment deals with code and procedure put forward by the law. All these law must be
followed by the firms if not certain penalties and punishment will be imposed. E.g. Companies
act of 2013, Consumers protection act, Income tax act etc.

Latest case: Vijay Mallya to PNB Scam

DEMOGRAPHIC ENVIRONMENT

The word “demography” relates to the population. The population of a country will affect the
business scenario. Population consists of mass of people with different taste, preferences, age
group, gender, ethnicity etc.  Companies use demographic environments to identify target
markets for specific products or services. Targeting consumers with similar demographic
characteristics helps maximize a company's sales and profits. For eg:
People of age group between 18-30 may need gadgets, beauty products , automobiles but in
case of a age group of 50 above may need insurance policies, medicines etc.

In case of gender, Female always requires beauty products, fashionables etc but Males may be
into automobiles, games etc.

Eg: Development of mask manufacturing companies during this pandemic, producing different
mask in different sizes for all.

CONCLUSION

All the above mentioned factors affect the business function in one way or other. These factors
are connected and they interact with each other resulting into new threats to the business. The
success of a business is to analyze and study these factors so that a strategy can be framed to
tackle them with the internal strength of the business.