External Environment and its Impact on the Food Retail Industry

Introduction to Management
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The essay will define external environment of the business and its effects on the industry. The
industry it will be looking at is the food retail industry. It will examine the efficiency of external
environment in the food retail industry and discuss how external environment can impact the
food retail industry. The aims of this essay is to define external environment in the organizational
context, and provide insight of the impact of external environment in the food retail industry.
An external environment consist of all the external factors which influences the operations of the
businesses. The business react or act to continue the flows of its operations. The external
environment is categorized in two groups; macro environment and micro environment
(Anisimova, 2016).
Micro Environment - It includes those factors which directly influence the operations of an
organization. Customers, suppliers, general public, competitors and distribution channels are five
factors which impacts the micro environment.
Macro Environment - It includes those factors which the company generally have no control.
The achievement of the organization depends on its capability to adjust. Political, economic,
social, technological, legal factors and environment are six factors which impacts the macro
environment.
The external environment is categorized into two groups; macro environment and micro
environment. The relevant theory for micro environment is Porter Five Forces and the relevant
theory for macro environment is Pestel analysis (Goodman and Remaud, 2015).
The Pestel analysis is a strategic tool which is utilized by the marketers of the firms to track their
external operating environmental factors which have an effect on the firms. The full form of
Pestel is Political, Economic, Social, Technological, Environmental and Legal.
Political Factors - It includes government laws such as tax plans, political stability, employment
laws, safety laws, and trade laws which impact the business markets and environment.
Economic Factors - It consist of economic development, inflation rates, exchange rates, interest
rates, unemployment rates and the disposable consumer income. They directly or indirectly
impact the organization as well as the buying power of the customers. It can bring changes in the
demand and supply within the economy

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Social Factors - It includes social elements such as customs, characteristics, values and norms,
of the society that impact the operations of the company.
Technological Factors - It consist of latest technological trends which impact the operation of
the industry and marker either in favor or not in favor.
Environmental Factors - It includes ecological aspects like weather, climate and environmental
changes which might impact the business.
Legal Factors - It consist of legal aspects such as labor laws, consumer protection laws,
discrimination laws, patent and copyright laws and safety laws which determines the legality
and illegality of the companies.
Porter’s Five Forces - The Porter’s Five Forces is an easy tool to understand the power of an
organization in a business settings. It also helps the organization to identify its strengths in the
present position of competitive market. The five forces are bargaining power of suppliers,
bargaining power of buyers, threats of new entrants, threats of substitutes and rivalry among the
competitors. These forces determines the structure of the industry and the competition level in
the industry. Strong competitive forces are the less profitable for the in the industry (King et al.,
2017). The industry with low buyers and suppliers and new entrant but high substitution and
competitors are extremely competitive and not attractive for its low productivity.
Bargaining Power of Suppliers - The suppliers might impact the productivity of an
organization by using pressure to reduce the quality or increase the prices.
Bargaining Power of Buyers - The buyers has the power to move from one supplier to other
supplier depending on the profit margin.
Threats of New Entrants - It is the treat where the current business can lose the market shares
due to entry of another business.
Threats of Substitutes - It is the treat of alternative products in every company. If one firm
provide the products in low cost in competition to rival firm, the profit margins will lead to zero
(Zulqarnain, Zafar and Shahzad, 2015).
Rivalry among the Competitors - The competition among the companies can impact the
productivity of the whole industry.