Internal and External Factors Affecting Business Performance

FINANCIAL & ECONOMIC LITERACY
STUDENT ID:
[Pick the date]

Question 1
(a) For any given business, it is imperative to take into consideration the external and internal
environment. The internal factors refer to the underlying factors which are company related
and do not have an effect on the whole industry. Also, considering that these factors are firm
specific, hence these are within the firm’s control and management. In comparison, there are
external factors which the firm cannot control and do not impact only the firm but the whole
industry even though the extent of impact may be different for different firms (Mintzberg,
Ahlstrand and Lampel, 2014).
A suitable example can be taken in the form of a supermarket player. Key internal factoes for
this business could be related to the satisfaction & productivity of staff, supply chain related
processes, relationship with supplier, customer satisfaction along with the organisational
cultural. The firm through their actions can impact each of the above factors and hence they
are labelled as internal factors. In order to analyse the same, there do exist strategic
framework such as SWOT analysis which besides some external factors also considers
internal factors related to strength and weakness of the firm. In the context of supermarket,
the presence of a global supply chain would imply sourcing of various products at the lowest
cost and thereby having an advantage in terms of pricing over the peers. Besides, a company
having exclusive suppliers and integrated inventory management system would have an edge
on the other players. Also, employees with low morale or lack of training would be an
internal weakness for the firm with adverse performance implications. The above examples
highlight some aspects which would impact the firm performance but not of peers and
industry (Haberberg and Rieple, 2015).
Besides, external factors are also present which influence the firm performance. These can be
represented using the famous acronym PESTEL which essentially capture the different types
of factors that have impact on the business. In this regards, a relevant socio-cultural factor
could be the changing consumer preferences especially as the penetration of online shopping
and associated convenience enhances. Relevant economic factors such as economic growth
would also be relevant as the underlying consumer spending is dependent on the state of
economy since during recessionary conditions, the tendency to save tends to increase.
Besides, there are laws (labour, environment, consumer protection) which the company needs
to comply with and thereby any changes in the same would be relevant (Mintzberg, Ahlstrand
and Lampel, 2014).

Considering that in the US immigration workers from Mexico are easily available, hence any
stringent action on immigration could increase the labour cost and adversely impact the
business. Also, policy change with regards to foreign companies’ entry into a country could
also impact the business as it would reduce the competition. A key aspect noteworthy about
the changes being discussed is that the influence (positive or negative) of these would be
realised by not only a given firm but by the whole industry. Besides, the control of these
factors does not lie with the firm and the imperative aspect is to adapt in wake of changing
external environment so as to maximise shareholders returns (Haberberg and Rieple, 2015).
(b) An example of a global retail company is US based Walmart considering the fact that
company has global operations. There is a change in the retail landscape owing to the foray
of the online retailors as the underlying experience and convenience by these is becoming
superior. Considering the saturation in the US market, the growth for company like Walmart
is likely to come from international presence especially in the developing world where the
shift from unorganised or organised sector is taking place. The performance in the recent
quarter has been excellent for the company on account of the tax cut based fuel injected by
President Trump. This led to high consumer confidence leading to swelling of retail sales
(Domm, 2018).
Besides, the company in order to face the competition from online retailors has made
significant investments in the e-commerce drive which seems to have paid off in the recent
quarters as the online sales have shown a significant increase. This is apparent from the fact
that on a y-o-y basis, the sales increased by 33% in the current year as compared to the
previous year (Hirsch and Rogers, 2018). The sales performance of the company in the most
recent five years is summarised as follows.