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An environment can be defined as anything which surrounds a system. Therefore, the business environment is anything which surrounds the business organisation.
It affects the decisions, strategies, processes and performance of the business.
The external environment includes all elements existing outside the boundary of a particular business that have potential to affect the business.
Types of external environments:
Two major divisions have been made in the external environment:
1. General/mega Environment 2. Task Environment
1. General/mega Environment
Socio-cultural Technology The Economic Dimensions Legal and Political International Factor
Includes the attitudes, values, norms, beliefs, behaviors, and associated demographic trends that are characteristic of a given geographic area. a. The socio-cultural element is of particular importance to multinational corporations. b. Socio-cultural trends can result in important shifts in demand for products.
Includes scientific and technological advancements in a specific industry as well as in society at large. E.g. Computer industry, etc. Technological advances can change the rule of the game; thus every business must be ready to respond.
The Economic Dimensions
The economic element encompasses the systems of producing, distributing, and consuming wealth. a. In a capitalist economy, economic activity is governed by market forces and the means of production are privately owned by individuals, either directly or through corporations. b. In a socialist economy, the means of production are owned by the state and economic activity is coordinated by state plan. c. In practice, countries tend to have hybrid economies, incorporating elements of capitalism and socialism.
Legal and Political
The legal-political element includes the legal and governmental systems within which a business must function. a. Business must operate within the general legal framework of the countries in which they do business. b. Businesses are subject to an increase in lawsuits filed by customers or employees. c. The political issues which affect businesses include those which influence the extent of government regulation.
International factors far beyond the direct influence of a particular business can have profound effects on its ability to operate successfully. a. Fluctuations of the dollar against foreign currencies influence the ability of an business to compete in international markets. b. Free-trade agreement, such as the NAFTA, GATT can affect a business either positively or negatively.
2. Task Environment
Customers Competitors Suppliers Labor Market
Those people & organizations in the environment who acquire goods or services from the business are customers. As recipients of the business’ output, customers are important because they determine the business’ success.
Other firms in the same industry or type of business that provide goods & services to the same set of customers. In today’s environment most competitors are cooperating to achieve common goals.
The people & organizations who provide the raw material the business uses to produce its output. The relationship among them must of cooperative in nature in order to save money, maintaining quality, and speeding products to market.
The people available for hire by the business. Every business needs a supply of trained, qualified, and dedicated personnel.
It includes the elements within the businesss boundaries. It composed of current employees, management, and corporate culture.
Sometimes referred as “internal customers” of the business. Employees create a great difference. Customer services, cost minimization (economies of scale) Skill full employees vs. un-skill full.
The process of coordinating and integrating work activities so that they are completed efficiently and effectively with and through other people.
Why management is important?? Every product we use, every service we receive, and every action we take is provided or affected by organizations. These organizations require managers.
Just as individuals have a personality, so, too, do a business. We refer to a business’ personality as its culture.