A value is a strongly held and enduring belief. Today, people lead multiple lifestyles. Capitalism emphasises on private ownership of capital and production inputs utilised for profit- making with limited interference from governments or regulations (Laissez-faire economy) and freedom to produce any product /services that is saleable in the market. Corporate and personal taxation rates, x. The manufacturers tend to locate more of their plants abroad. Technology includes tools, machinery, equipment, work procedures, and employee knowledge and skills. The rules of competition, trademark rights, price controls, product quality laws, and a number of other legal issues in individual countries may be of special importance to global companies such as Coca-Cola, Unilever, IBM, and McDonald’s. People believe in joint family system (especially in North India), carry on prayers daily, believe in destiny, respect elders and senior citizens, perform rituals scrupulously, and are generally God-fearing. Let’s examine these factors in greater detail: Demographic characteristics such as population, age distribution, religious composition, literacy levels, inter-state migration, rural-urban mobility, income distribution, etc., influence a firm’s strategic plans significantly. As work-life gets longer and more stressful, people are spending their leisure time recuperating. Companies need to keep a track of relevant economic indicators and monitor them over time. India has laws that protect wildlife under Wildlife Protection Act, 1972, Biological Diversity Act, 2002, Air (Prevention and Control of Pollution) Act, 1981, etc. The environment’s labour supply represents those individuals that may be employed to work for the organisation. The task environment contains a number of government agencies that provide services and monitor compliance with laws and regulations at local, state or regional, and national levels. (vi) Centre-State relationship that defines the nature of relationship between Central government and State government in our current decentralised/federal system. In inflationary times, customers stock items to save themselves from further increase in prices and abandon their favorite brands to buy more economical brands. This article will further help you to learn about: Economic factors throw light on the nature and direction of the economy in which a firm operates. Gross domestic product refers to the value of a nation’s annual total production of goods and services. People will increasingly place more value on time than money. 4. Pace of technological change, that determines whether existing technology in industries have become obsolete (e.g. People in this age group spend less as they save resources to fund the higher education of their children. The prevailing economic system can completely affect the vision, mission and objectives of business in that particular country. The external environment. Technological transfer broadly aims at new product development, improvement in production or processes and customer satisfaction. He may buy fast food for lunch but may wear the most expensive suits. Corporate planners should also study the demographic environment and identify the broad characteristics of the population that effect the business organization. Micro Environment Factors. In difficult terrains like hilly areas, it is difficult and expensive to get products to the customers. The technological aspect of the environment is concerned with factors like information technology in the use of computers and computerization, with the effect on the cost base of increased IT and automation and with the likely changes that this may have on the types of materials and components that we use, and the general resource base available to the organization. At different times in history, technologies have created new businesses like automobile, railways, telephones, computers, etc. An industry and commerce becomes more international in nature so more and more organizations have to deal with an international environment audit. Suppliers: Suppliers can control the success of the business when they hold power. Price inflation can destabilize an economy leading to slower economic growth, higher interest rates and volatile currency movements. 2. It includes character of goods, civilization of buying, technology communications, financing with directive, customers, competitors, and many more which are considered for building an effective business. A weak dollar is prompting many nations to lower interest rates and loosen fiscal policyâand thereby stimulate economic expansion globally. This has resulted in higher demand for lifestyle and luxury products. Government’s attitude towards foreign business firms, ix. The societal environment comprises various external forces that significantly affect all products, services, markets, and organizations in the world. In India the pattern of consumption has shifted from food and other basic items to products and services with high marketing significance. The business environment accordingly consists of five dimensions or components namely, economic, social, technological, political and legal factors, discussed in the following sub-sections: Economic environment refers to factors related to economic policies, economic system, nature of the economy, economic cycles, distribution of income, economic resources, wealth, etc. Important elements in the task environment of an organisation typically include: Clients include the customers, owners and partners of an organisation. Income indicates a customer’s ability to spend on the products sold by the marketer. Beliefs are important (whether right or wrong) in that they affect how we behave and what we buy. In a political stable environment, there is certainty and confidence generated by governments that ensure with possible investment and expansion opportunities, consistent supply of financial, human and physical resources. From access to capital, to access to technology, to access to people, projects will succeed or fail based on the project leaders ability These regulatory bodies have the potential to control, legislate and influence an organisation’s policies and practices. Factors outside or organization are the elements of the external environment. The form of government in position is an important aspect of political environment and political stability is an essential factor influencing the growth of business. The automobile industry has been asked to redesign engines that conform to strict emission control norms. An organization must, therefore, appraise the technological environment while deciding about new investment, modification, removing bottlenecks, by-products and waste control. (ii) Political stability is associated with security and safety provided by governments. Fortunes of industry and business after all, depend on purchasing power of the people and the purchasing power is largely a product of the economic environment. 5 Important Tips, What is Coordination? Children become a major priority for people in this age group. For example, McDonald’s does not serve the beef burgers in India because Indians consider cows as sacred animals (Hindu tradition prohibits the consumption of beef in any form). Competition may be local, regional, national or international in scope, and this is constantly changing. Net enabled technologies are integrating with the business processes of the modern organizations. In this article we will discuss about the top eight external factors affecting business environment. The best course of action against the external factors affecting business environment would be to always be prepared to deal with any and every possible outcome. The world is a small networked village. Based on the extent of control, the environmental factors are divided into two groups or say types – Internal Environment and External Environment. European Economic Community, OPEC and organization of LDC are the major economic international forces that have influenced the way the business can be done. Political environment of a country has a bearing on the operation of a business organization right from incorporation to liquidation. They do not feel guilty of spending their parents’ money and put real pressure on their parents to shell out money for them. The gasoline industry has been compelled to formulate new low-lead or no-lead products. When the US economy slipped into a recession in 2001 interest rates were cut. Sales of replacement parts and other services may become an important source of income. They adjust internal environment with the external environment to take advantage of the environmental opportunities and strive against environmental threats. 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