Analysis of External Business Environment

Running Head: EXTERNAL BUSINESS ENVIRONMENT 1
Analysis of External Business Environment
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ANALYSIS OF EXTERNAL BUSINESS ENVIRONMENT 2
External Business Environment
Introduction
The external business environment is the exogenous factors to the business organization
that directly or indirectly impact its performance. All business organizations are open to the
external environment, and some are beyond the organizations’ control. The environment
provides some constraints, threats, and opportunities to the organization influencing on how
decisions are made and transaction carried (Worthington & Brtton, 2006). The external
environment of an organization influences its decisions thereby seeking market competitiveness,
regardless of the industry that organization is operating.
The Influence of the External Environment on the Organization
External environmental factors affect the business organization differently. The study of
the influence of external environmental aspects of the organization relates to the political, legal,
economic, social and technological factors (Wheelen & Hunger, 2010).
Political Environment
The extent to which political environment impinge on firm’s activities ranges from the
nature of political structures and its institutions and processes to how the government is involved
in the economy and market.
Economic Environment
These are government roles in both national and local levels that affect demand and
supply sides of the market. The economic environment includes fiscal and monetary measures.
Social, Culture and Demographic Environment
These factors affluence decisions made on demand and supply. For instance, culture,
affect the product being produced or supplied, the market, and the prices to charge for the
products. Demographic factor includes variables like age, income, educations levels gender,
occupation, etc.
Technological Environment
Technology is found in all areas of business value-chain. Investment in advanced
technologies has become a key to modern organizations. Firms become more competitive by
integrating these new technologies in their production process.
Legal Environment

ANALYSIS OF EXTERNAL BUSINESS ENVIRONMENT 3
Organizations operate within the guidelines of the law. The law has a direct or indirect
impact on their activities. It provides guidelines on how the business will relate to customers,
organization status, and methods of carrying business. Changes to laws have a direct impact on
firm’s operations because they are required to adjust accordingly.
Problems and Challenges Faced by Organizations
Evaluate the Macro and Micro Environmental Influences on an Organization
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Political and legal challenges
1. New legislations
2. Government
interference
3. Political violence
4. Unstable political
environment
5. Change in labor
Social problems
1. Demographic
changes
2. Changes in
lifestyles
3. Pressure on
population
Frameworks and tools to the problems and challenges faced by organizations
Technology issues
1. Better
technology
use by
competitors
2. Adaptability
and
Economic challenges
1. Inflation
2. Taxation changes
3. Cost of production
4. Government
interventions
Organization objectives
Competitiveness
Quality product/service
Market leader
Economies of scale
Best technology