EXTERNAL FACTORS

The nature of external factors

Businesses have to deal with issues and events that are completely beyond their
control. These external forces can impact businesses unexpectedly. Their effects
could be positive or negative. External factors are categories below:

1) Social

Businesses have to adapt to any changes that occur in a society. Some examples of
changes that have occurred in recent years include:

 Increased consumer awareness

Consumers have access to lots of information about products through the internet
and are more aware of their rights. As a result many businesses have to become
more customer focus.

 Changing demand patterns

Modern lifestyles mean many people expected goods to be delivered to their doors.
Therefore, take-away food becomes popular right now.

 Increased numbers of women at work

In many countries, more and more women have abandoned the traditional
childcare role and have combine family life with employment and running. This
has increased the supply of labour and increase the number of new businesses.

 More part-time workers

There has been a huge increase in the number of people taking on part-time work.
This has help to improve flexibility in business organisations because part-time
labour is more adaptive.

 Urbanisation

Numbers of people have left rural areas to live in towns and cities. This has
provided more labour and created additional markets to which goods and services
can be supplied.

2) Technology

Development in technology continues to have a huge impact on businesses. New

technology results in new products, which in turn provide new market
opportunities. Generally, technology have help businesses in the different sectors
to be capital intensive.

 In the primary sector, the use of tractors, mechanical harvesters, grain drying
machines, etc have help to lower cost in agribusinesses.
 In the secondary sector, the introduction of robot on a production line has
help to reduce cost.
 In the service sectors, hotels use automatic check-in machines to reduce cost,
internet banking has reduce cost because customers can manage their
accounts online. This has help to reduce baking cost. Online retail industry
has also reduce cost.
 The use of IT has help to reduce communication and administrative cost.
Computers can gather, store, process, analyze and access huge data.
3) Environment

When economies grows, it damage the economy. Some examples of other

environmental issues in the following:

 Global warming

Many governments are becoming increasingly concerned about global warming,

which may be affecting weather patterns and climates.

 Habitat destruction

Some business development destroys wildlife habitats and spoils the natural
environment (forest).

 Resources depletion

In addition to the loss of forests, many other resources are at risk of running out.
They include: Oil, coal, gas, minerals, are non-renewable resources and therefore
cannot be replaced. Fish sock are falling. Fertile soil needed to grow food is lost
due to deforestation, poor farming practice, over grazing, pollution and
urbanization.

 Sustainable development

Sustainable development is the idea that people should satisfy their basic needs and
enjoy improved living standard without compromising the quality of life of future
generations. Many governments are promoting the idea of sustainable
development. If businesses take a sustainable development approach, they will find
it easier to comply with regulations, reduce costs, improve their image, and
increase profit.

To help reduce resources depletion business could:

- Design packaging that can be re-used or recycled.

- Use more energy-efficient equipment or renewable energy sources.

- Explore ways of selling waste to other businesses as a by-product.

5) Political

Some parts of the world are politically unstable. Businesses need to be cautions if
they develop interests in such countries. Examples include Libya, Iraq, Syria, etc.
Some political factors include:

 A new government might be elected which is very pro-business.

 Pressure groups created to eliminate the harm done by smoking. This will
affect the tobacco industry.
 The issue of national security restrict the movement of goods, people and
capital. This will affect businesses negatively.