Defining the External Environment

• External Environment
 Those factors and forces outside the organization that
affect the organization’s performance.
• Components of the External Environment
 Specific environment: external forces that have a
direct and immediate impact on the organization.
 General environment: broad economic, socio-
cultural, political/legal, demographic, technological,
and global conditions that may affect the organization.
Exhibit 3–9 The External Environment
For Example
For Example
Social factors

• Demand of product or services

• Difference in cultural values

• Aging population in many nations

Legal factors

• Laws

• Taxes

• Trade Unions

• Employment

• Corruption
Economic / Financial Factors

• Type & Size of the economic system & its stability

• Banking system

• Interest rates

• Level of Investment

• Inflation

• Income growth

• Expanding middle class

Political Factors

• Government role in economy (regulatory!)

• Attitude towards sovereignty

• Taxes

• Political risk

• Ideologies

• Infrastructure of the economy

• Education to the workforce

Technological Factors

• Information technology and communication systems

• Adoption rate of new technology

• Availability of technology

• Research and Development in Technological field

Analyzing the External Environment