Analysis of External Environmental Factors

It is universally true that environment plays a major role in determining the continuity and effectiveness of any activity either social, political or organizational. The contemporary business organizations cannot neglect the environmental factors in which they live in. Regarding environment Zinovieva et al., (2016) suggests that  it is divided into two parts, internal and external. The internal environment is the internal organizational factors that contribute to the direction of operations and success of the organization. On the other hand, the outside factors come under the external environment of the organization. Since the current report will deal with the external factors that influence a business organization, a detailed discussion on relevant external environmental factors will be provided.

 The external environment is divided into two parts: these are the direct interactives and the indirect interactives. The extensive variety of external environment includes competitors, business climate change, customer behaviors, stakeholders, political and social factors government regulatory policies which collaboratively determine the performance of an organization. The current report will analyze the challenges these factors create for a business organization and recommend suitable measurements to deal with the risk factors and conclude by giving an overview of the entire report.

According to Sir Philip Kotler, there are various restrictions posed on an organization by the environment. Therefore, it is necessary that the organizations construct their marketing strategies or conduct their business operations keeping in terms of the environment they are associated with. There are mainly four types of environmental factors that form the base of external environmental impacts on a business organization. The PEST analysis examines the political, environmental, social and technological impacts on the organizational operations. It accounts the macro environment or the big picture which a business operates in. These factors are beyond the control of organizations but these should be considered by the firms as the product development, policies and strategies are greatly influenced by these factors. There are other two factors such as economic and legal factors which complete the entire tool of environmental analysis that is the PESTEL analysis. However, there are six factors as a whole but the first four are of greater importance.

The business of an organization is extremely influenced by the political environment of the host country. The political ideology, philosophy, extent of bureaucracy of particular country influences the political environment. There are other influencing political factors such as military policy, foreign and defense policies, the political stability and strength of a that country. The local and global political image of that country influences the income of the business organization. For instance, if a country ‘s policy prohibits the development of multinational activities, the business operations of the company automatically get limited. On the other hand, the government liberal licensing for exportation and importation of products, the flow of foreign capitals influences the business operations to a greater extent. Globalization is also a form of government policy designed to globalize the firms worldwide.

PEST Analysis

 The economic system of a particular country influences the business operations. The economic structure, policies, organization of the capital market, production and consumption rates of products, socio-economic infrastructure collectively contribute to determine the macro environment of the business organization. The economic conditions and constraints of the country must be scrutinized while pricing the products and maximizing the profit levels. For example, if a country has a poor economic system and the rates of poverty are high in that country with minimum number of groups who can actually afford expensive products and services. Although organizations will choose these people as their target customers, it should be kept in view that the majority of population in the organization consists of common middle class people and they should design their products according to their affordability too.  The economic condition of a particular country influences the interest rates and market liquidity that affects the business and poses difficulties while withdrawing loans from the banks to expand the business operations. Hence, it can be seen that the economic trends of a country highly influence the general economic performance of an organization.

The functioning of the business is affected by the country’s social environment. The business operations of an organization construct the value systems of the society and thus the two variables are deeply interconnected. The work culture inside the workplace, the sociological constraints that restrict one to connect with other people, customs, cultures, heritage and conventions are all components of the social environment. As per the view of Epstein, (2018) a company’s seniority respect, labor mobility, CSR are solely connected with the social environment. For example, the social distinction also generates different tastes and preferences among the customers.  Their individual attitudes, fashion sense, customs and festivities differentiate the product and service selection. Thus, the socio-economic environment is proved to be another determinant of business.

The concerns related to the technological investment, application and effect of that technology on the market are the components of technological factors that affect business operations. Although it is innovative to apply any advanced technology to push the progress of a country, the business of that country gets influenced by such advancement. According to Palacios-Marqués, Soto-Acosta & Merigó, (2015) the technical quality and capacity if that equipment determines the quality of goods the company sells. Therefore, it should be kept in view that, even if the company is using any technology, it is up to the mark and adds value to the quality of goods.

Political Factors

 The constraints are another important factors affecting the managers of the company a lot. The legal environment consists of the legal rules, flexible law that govern the business. The business organizations sometimes also face supreme court trials, rulings, and court decisions. Therefore, it must be observed before designing the product, fixing the target market, implementing policies and strategies, the organizations must be well read and well aware of the environmental factors, opine Wheelen et al.,  (2017). The external environmental analysis is important as it reveals the future opportunities and threats of the organization. Having examined the environment properly an organization can easily and strategically deal with the business policies.

Customers factors are the most serious factor which come under the micro-environment having greater impact on the business operation of an organization. In 21^st century they have increased in importance. In this regard the more an organization knows its customers, the more they earn in revenues. A company can conduct business promotional campaigns to attract public attention and in the meantime, know the customers properly. Customer orientation helps a firm to serve their customers in a customized manner.  Customer feedbacks on the other hand influence the image a company has built through the past years. A single feedback can either break the reputation or make the reputation.  Therefore, it is the reason behind why maximum firms are focusing on customer engagement.

One of the major micro –environmental factors is employee behavior in an organization. The business operations of an organization are primarily driven by the employee performances.  The HR department also plays a key role in recruiting deserving people, training the employees to enhance their skills and retaining the best talents in the organization. The employee structure and their management determine how successful the business is going to be.

The internal supply chain management and logistics management determine how systematic and cost –efficient the business proceedings of the organization will be. Those companies which have efficient supply chain management are able to pass the savings to the customers in the form of cost –friendly goods and services. Apart from this, the right choice of suppliers and distributors improves on the profits of the organizations.

 This is the greatest driving force regarding the growth and development of an organization. The business profits are highly influenced by the market competition and struggle to be on the top. The nature of the competitors plays a major role in this regard. Their effectiveness determines how much an organization would put efforts to overpower the rival company. Moreover, the competition in the market forces an organization to adopt changes and incorporate innovative ideas to sustain its attractiveness and business approach as supported by Sarooghi, Libaers & Burkemper, (2015). It becomes difficult for the business organizations to stand out and regularly update their strategies in a highly competitive market.

Economic Factors

A huge amount of pressure is created in the organization by the shareholder and investors. The people who have supported the organization to grow and expand are one of the most important people who must be addressed by the organizations. Therefore, the organization must keep good terms with the investors and work responsibly on behalf of them.

Brand image in the industry play a major role in determining how much the organization is preferred by the customers and how much they would prosper in future.  A good social mage when conveyed to the public and shareholders by the media coverage, it will definitely drive them towards the company persistently. Those companies are supported by public which have a responsible and promising brand image. Therefore, business organizations must invest in constructing a good social and market image.

It is true that there is no universal solution to stop the political factors influence the business operations but they can be managed up to greater extents. Risk management might seem a general concept but it requires an exceptional approach in each case. However, there are certain rules that help to reduce the effectiveness of the problem a lot. First of all, the business organizations must have the political risk insurances which safeguard the financial condition and investments when political unrest, violence, capital repatriation, expropriation tend to waver the business operations. Those business which operate in growing economies are helped by the political risk insurances the most because they are susceptible to political turbulences Papagiannakis, Voudouris & Lioukas, (2014).  The economic challenges faced by the business organizations in their operations can be cut down by the application of certain tools. There are certain tools which constantly monitor suppliers from all around the globe and also the third party business organizations.  Such tools help to manage risks of global supply chains. Such tools proactively reduce economic risks. In order to deal with the social problems business organizations must develop cultural diversity management strategies within the workforce is that the employees can neglect the social and cultural barriers and work collaboratively.

 As suggested by Papagiannakis, Voudouris & Lioukas, (2014) the CSR practices incorporated within the business operations of the company can elevate the social image and subsequently increase the success level of the organization. The employee safety measures adopted by a company can also mitigate the social issues up to greater extent. The technological impact can be reduced by keeping the equipment under regular examination and at the same time there must be manual back up options for emergency. Head & Alford, (2015) say that the business organizations must do their business by keeping in terms of the governmental policies and regulations to avail smoothness in their business operations. The customers, investors and competitors must be taken care of with distinctive business strategies. According to the opinion of Hörisch, Freeman & Schaltegger, (2014) customer orientation, customer satisfaction, care for the shareholders and investors, and observation of the market competition and competitors to find the gap and achieve competitive edge can facilitate the operations of a particular company.

Conclusion

Therefore, from the above discussion it can be concluded that the business world is full of perils and factors that have impacts on the business operations of a particular organization. The organizations are bound to address all the factors before constructing their policies, practices, strategies and product designs. The most important factors are the external factor that covers the topic of the current report. The report has analyzed each of the micro and macro environmental constraints and provided possible ways by which business organizations can reduce the seriousness of the issues.  It has been recommended that the business organizations must address all the factors to experience an unhindered and smooth business environment.

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