External Environment

Introduction

Business environment is an element that will affect all the activities of an organization. Besides, it will bring firms both opportunities and threats because of its uncertainties. Business environment is uncertain, complex & dynamics; organization should apply more flexibility & discontinuity ways to manage them. A firm cannot control the environment because it is unpredictable in its direction and speed of change, such as interest rates, rate of inflation and exchange rate.

Business environment can classifies in two categories that are internal environment and external environment. Internal factors close to the company that have a direct impact on the organizations strategy, these factors include employee, customer, suppliers, shareholder, banker etc. External environment comprises those factors and trends outside the organization that might have an influence upon an organization and its future. Many external factors can have an effect upon an organization - from changes in government legislation to the entry of new competition into a market.

All businesses and organizations operate in a changing world and are subject to forces that are more powerful than they are, and which are beyond their control. Any business strategy needs to take account of all these forces so that opportunities and threats can be identified and the organization can navigate its way to success by matching its internal strengths to external opportunities.

There are many ways and techniques that a firm can adopt to assess the external environmental forces. The most common and popular techniques are the PEST analysis and Industry Analysis

Pest Analysis

It is useful to consider as a starting point, what environmental influences have been particularly important in the past, and the extent to which there are changes occurring, which may make any of these more or less significant in the future, for the organization and its competitors.

PEST analysis (a mnemonic for Political, Economic, Social and Technological factors) is the most frequently used tool to consider the impact of the general environment. It provides a broad framework for considering a wide range of potential factors in order to summarise the most important influences of the general environment. Beside, it can evaluate the potential impact of these influences, while the opportunities and threats to be faced. Is positive or negative.

Each of the four headings can be broken down further to suggest more detailed consideration of particular factors and changes that might influence the organization both currently and in the future. Whilst varying dependent upon the particular context, the list of factors and changes may include:

1.) Political Legal Environment:

Political environment include factors that affect the confidence and sentiment of foreign investment and trade relation. Political and legal developments can expand a company’s freedom of action; it will make the environment to be more supportive of its activities. Political factors can have a direct impact on the way business operates. Decisions made by government affect our every day lives and can come in the form of policy or legislation such as competition policy, trading standards, financial regulation, planning policies. The governments Organization today among will more consider to this factors such as greater deregulation, more lenient interpretation of antitrust laws, greater environmental protection legislation, growing power etc.

An example: Nike’s international operations are subject to the usual risks of doing business abroad, such as possible revaluation of currencies, export duties, quotas, restrictions on the transfer of funds and, in certain parts of the world, political instability. Nike’s products manufactured overseas and imported into the United States and other countries are subject to customs duties collected by customs authorities. Customs information submitted by Nike is routinely subject to review by customs authorities. Nike is unable to predict whether additional customs duties, quotas or other restrictions may be imposed on the importation of our products in the future. The enactment of any such duties, quotas or restrictions could result in increases in the cost of our products generally and might adversely affect the sales or profitability of NIKE and the imported footwear and apparel industry as a whole.

2.) Economic Environment :

Economic environment has its patterns and trends in overall economic activity and world trade; movements in exchange rates, interest rates and taxation both within particular countries and internationally; fluctuations in capital markets; broad changes in market demand; industrial trends like increasing industry concentration and increased mergers and acquisitions activity. All businesses are affected by economical factors nationally and globally. Whether an economy is in a boom, recession or recovery will also affect consumer confidence and behavior. A truly global player has to be aware of economic conditions across all borders and ensure they employ strategies and tactics that their protects their business

An example: In the early 1990’s when the UK economy was in a slump, and businesses were folding repeatedly, a security company called �Dreadlocks security?to combat falling sales embarked on strategy of cutting back on labour costs, and doubling advertising expenditure. The companies?theory was that not their entire target segment was affected by the recession and he had to fight for the customers that still had the income to spend on security products.

3. Social Environment :

Social environment will include changes in demographic patterns like the increasing age profile of populations in developed countries; changing social attitudes and tastes such as the way in which people spend their leisure time; patterns of spending on education and health; public concern on issues like the environment, smoking and food safety. As society changes, as behaviors change organizations must be able to offer products and services that aim to complement and benefit peoples lifestyle and behavior because these factors will affect customer needs and the size of potential markets.

An example: UK peoples attitudes are changing towards their diet and health. As a result the UK is seeing an increase in the number of people joining fitness clubs and a massive growth for the demand of organic food. On the other end of the spectrum the UK is worried about the lack of exercise its youngster are obtaining. These �fast