SME Business Environment: Analyzing Internal, External Factors

This essay provides a comprehensive analysis of the business environment, focusing on the internal and external factors that impact Small and Medium-sized Enterprises (SMEs). It delves into the definition of the business environment as the sum of internal and external factors, such as employees, customer needs, supply and demand, suppliers, government activities, social and market trends. The essay explores the role of SMEs in the UK economy, highlighting their prevalence across various sectors. It applies SWOT analysis to assess internal factors like strengths (low startup costs, customer relations, innovation) and weaknesses (customer reach, production costs, finance). External factors are examined through PESTLE analysis, covering political, economic, social, technological, legal, and environmental influences. The essay also emphasizes the UK government's supportive role during the COVID-19 pandemic, including financial schemes and policy adjustments to aid SME survival and economic recovery. The conclusion reinforces the importance of understanding these internal and external factors for SME success and resilience.

Business Environment

Business environment is defined as, it is the sum of collection of internal and external
factors of the environment. The internal and external environment such as employees, customer
needs, supply and demand, suppliers, owners, government activities, social and market trends.
These factors affect the functions of the organizations and analyse the factors influenced in
organization environment (Demirguc-Kunt, Love and Maksimovic, 2006). The organizational
behaviour of small medium size enterprise by comparing its trends, the important motive for
starting business was money. Thus, the essay will analyse the business environment internal and
the external factors. Further, will discuss the supporting role of UK government in supporting
SME's during pandemic.
About SME’s
Small medium size enterprises are the businesses which maintains revenues, asserts and
provides a number of employments. Small medium size enterprise plays an important role in the
economy. Support of government's to SME by offering favourable tax, easy loan accessible,
which help business to keep. In UK there was about 6.5 million SME's in 2021 which is about 99
percent of over all businesses. SME's are popular in many sectors in UK. SME's are widespread
in Transport, Social and personal activities, manufacturing business, Hotels and restaurants,
agriculture, fishing sectors (Van de Vrande and et.al., 2009). There are multiple finance and
business sectors which are in the list of best SME's in a certain region. Example, such as in the
group list of London Stock Exchange the Britain was inspired by 1000 companies. For 2018
SME 10 UK most promising list was published by Forbes.
Impact of Internal Factors on SME's Organization
The internal factors which affects the small medium size enterprise such as in corporate
culture, finance, staffing. Thus, to identify the impact of internal factors on SME's will apply
SWOT Analysis.
Strengths- The point of strengths to growth in medium size enterprises were:
 Small medium size enterprises can start at very low cost. There is a major strength in
SME's is independence to work in own firm.
 Managing good relation with customers results in greater accountability and maturity.
Treating customers as family have greater chances to see that customers in the future.

 New products and services were created through the innovative ability and adapting more
rapidly and creatively compare to large company's. A small enterprise has more ability to
adapt change in their products and services as per customer needs and create new
products as per customer demands (Kalpande, Gupta and Dandekar, 2011). Even
adapting the change in the business hours as per the suitability of customers can grow the
business, and the SME's can easily adapt. The members involved in SME's were the entrepreneur, advisers, family members,
partners, and they were passionate in the work and were desired to succeed, they were
very hard working and compulsive.
Weaknesses- Weaknesses is the factor which place the firm at disadvantage compare to others,
weaknesses points which affects were:
 The main factors is the difficulty to reach the enough potential customers to establish a
relation with customers (Al‐Mubaraki and Busler, 2010). Potential customers were not
easily agreed to accept small businesses, as because the small business does not offer
well known brand of products and services.
 Small business has to pay higher cost for production of goods. Most of the small business
does not have personnel skills which cause lack in identification of industrial projects for
development. The major weakness for the small business company is the arrangements of finance.
Many small business organization are unable to raise funds from institutions or banks due
to higher charges and costs. Thus, it impacts the owners to invest his savings in business.
Opportunities- Opportunities which means getting external cDemirguc-Kunt, A., Love, I. and
Maksimovic, V., 2006hances to make greater sales and profits in business. The points of
opportunities factors were:
 Minimal Brexit impacts on major SME's, in small and medium-sized organizations,
Brexit will not impact directly to the businesses in the short time.
 Major SME's were impacted at time of pandemic and turns into survival mode. The
majority of the business has to shift to the online selling of goods and services and the
shift is more acute in the retail and e-commerce space (Al‐Mubaraki and Busler, 2010). In UK, e-commerce peaked at almost 35 percent of total retail sales in Q2 2020 at time of
pandemic. The acceptance of digital services by small company's impact in increase in

customers as accessing content through internet is more comfortable. Through online
services businesses have good opportunities by focusing on targeted audience and
increase in the focus on workplace.
Threats- The points which gave troubles to businesses were:
 Compare with the cybercrime there is no bigger SME threat in the success of long term.
Criminals target the small businesses because they don't have strong security in place. In
UK, small businesses were hit around 10,000 cybercrimes per day, on average $65000
cybercrime cost was paid by the SME.
 In a small business enterprise, it was heavily depended on the employees. If the
employees get injured or absent it affects in the operations of small businesses
(Bernroider, 2002). This threat is unexpected, if an organization has not pre planned for
the problem, then it may have to close the business for the particular point.
 In UK's small businesses almost 46 percent of businesses were affected by disruption in
last five years. Major small businesses have to shut down due to lightning, flood, strike or
fire. An enterprise should have backup plan like insurance plan so if the stocks gets
damaged, so that company should not have to start everything again.
Impact of External Factors on SME's Organization
The study on small and medium business states that all organization grows through
different stages which is differently called as life cycles. Many factors which help the enterprise
to grow and some factors impacts in the growth of an enterprise. This will do PESTLE Analysis
which impact on External Factors on SME's.
Political Factors- Political factors which impacts on small and medium organizations were:
 The macro environment within political factors deals with current directions of political
parties and the government take part in something to prevent an event in the economy.
 Political issues which can affect the organizations are the tax policy, regulations and de
regulations (Alvarez, 2014).
 Examples are controlling of price, tariffs of international trading, requirement of visa,
restrictions are some possible factors.

 The UK is the stable country which provides many opportunities for those operating
within the country. The UK is fair country with public which influence on the inner
workings.
Economic Factors- The factors which impact on the Economic Factors of the small and medium
sized organization were:
 The factors related to the performance of the economy and greatly affects on small
business operate and make decisions.
 Issue consists of economic growth, unemployment trends, inflation rates, consumer
confidence. Impact on business such as profitability and the price can be affected in UK
through the oversea of economic strength (Constantinescu, 2011). The persistent deficit of current account were faced in UK since 1990. Towards the GDP
of 2013 there are 3.33 percent current account deficit.
Social Factors- Social factors which affects the small and medium sized organizations were:
 Budget deficit is a point of concerns for the level of expenditure maintaining, authorities
were challenged to the projects of social welfare in organization. Factors include such as the cultural, ethical, demographic aspects which affect demand of
the small and medium sized organizations product and services and its operations
(Stankovska, Josimovski and Edwards, 2016).
Technological Factors- Technological factors which affects the small and medium sized
businesses are:
 Small medium-sized organization have to adapt itself with the change in the technology. Technological aspects such as research and development, technology lifestyle,
automation and the role of internet need to consider.
Legal Factors- Legal factors which impact on SME's were:
 Factor involves such as retirement laws, consumer protection law, health and safety law,
employment law and anti-trust law (Brown, Liñares-Zegarra and Wilson, 2019). Business profitability and the operations can be affected negatively and positively
through all the laws and regulation.
Environmental Factor- Environmental factors affecting SME's are:
 Factor involves such as geographical change, weather, climate, pollution, waste
management and ecological product and renewable energy.

 Impact on business such as pollution implication of transport, green practices, etc.
The role of UK government in supporting the SME's during the Covid 19
In the UK 50 percent of companies are the small and medium-sized enterprise which
generate higher revenue. Total of 44 percent of labour force of the country were involved in
these enterprises meaning that a majority of population is directly dependent financially on these
enterprises. According to a recent online survey of the UK SME's, the country's economic
performance saw a rapid fall during the covid 19 phase that completely weakened the economy
of UK (Calabrese, Cowling and Liu, 2022). This made the SME's and employees the worse
suffered section in UK. The organizations saw an immense downfall due to the loss of revenues
and a situation of zero business, especially the local food enterprises, construction, logistics and
transpoBernroider, E., 2002rt.
Due to this severe impact on the revenues of the SME's UK, the support if the
government in recovering these losses and getting back on track has become the key for these
businesses. The government has shown a positive support towards the concerning situation and
various policies are being made and offered to these business owners to help them rebuild the
system. The government clearly knows the need of uplifting these enterprises to save the
country's economy and hence schemes and strategies are continuously updated in order to
recover as quick as possible (Pu and et.al., 2021).
Under the corona virus job retention scheme, the HMRC will pay 80 percent of absent
worker's wages approx of 3-4 months. For the period of 3-4 months 80 percent of the individual
employed were paid in the scheme of self employment income. The HMRC will provide an
extension of time to pay taxes the government will extend the tax return dates to give the
organization enough time to recalculate the finances. A new coronavirus business interpretation
loan scheme will be introduced for the large cap SME'S that will allow them to acquire loans up
to 5 million pounds to support them. For the first six months, the government will see the
interests on the loan and then the organizations will have to the rest of the loan with a minimized
interest rate. Business credits base rates were reduced in the Bank of England as low as 0.1
percent and also the dividends not increased were advised to bank and announced in response to
the bonuses on another actions. Into the pandemic phase there are several weeks, corporate were
changed by the government for the financial condition, the industries were helped to administrate

the concentrate on restarting and to the survival (Pu and et.al., 2021). The return to the second
wave of the virus and serious restriction forced the government to update the policies and then
started specific planning sessions and welfare campaigns that provide and support local
authorities in England by funding the SME's.
The role of government thus, became very crucial in the survival of various small
business and saving the country from the serious threat of unemployment and financial crisis.
There was not a lot of support in terms of import and export practices as the entire world was
facing restriction but the government and its concern towards these businesses became the
helping hand for these business to survive after the tough covid times.
Thus, it has been concluded form the above essay that, the internal and external factors
which occurs in the organization is known as Business Environment. The internal factors which
affected the small and medium sized businesses such as they have major strengths as they
required less capital to start-up. There are weakness such as not able to reach prime customers,
they were easily trapped in cybercrime. SME's have opportunity of digital marketings. Further,
discussed the external factors such as the government policies, technological changes, laws
environmental and economic changes impact the structures of organizations.

REFERENCES
Books and Journals
Al‐Mubaraki, H.M. and Busler, M., 2010. Business incubators models of the USA and UK: A
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Alvarez, S., 2014. A conceptual marketing strategic framework: a UK case study
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software enterprises:: an austrian study. European management journal. 20(5). pp.562-
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Brown, R., Liñares-Zegarra, J. and Wilson, J.O., 2019. The (potential) impact of Brexit on UK
SMEs: regional evidence and public policy implications. Regional Studies. 53(5).
pp.761-770.
Calabrese, R., Cowling, M. and Liu, W., 2022. Understanding the dynamics of UK Covid‐19
SME financing. British Journal of Management, 33(2). pp.657-677.
Constantinescu, M.L., 2011. A PEST ANALYSE OF THE MARKETING ENVIRONMENT OF
THE ROMANIAN SME SECTOR DURING THE LAST FINANCIAL CRISIS
YEARS. Annales Universitatis Apulensis-Series Oeconomica. 13(2).
Demirguc-Kunt, A., Love, I. and Maksimovic, V., 2006. Business environment and the
incorporation decision. Journal of Banking & Finance. 30(11). pp.2967-2993.
Kalpande, S.D., Gupta, R.C. and Dandekar, M.D., 2011. STUDY OF SMES FOR TQM
IMPLEMENTATION-SWOT ANALYSIS. International Journal of Engineering &
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Pu, G. and et.al., 2021. Innovative finance, technological adaptation and SMEs sustainability: the
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Stankovska, I., Josimovski, S. and Edwards, C., 2016. Digital channels diminish SME barriers:
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Van de Vrande, V., and et.al., 2009. Open innovation in SMEs: Trends, motives and management
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Online
Support for SMEs during the covid-19 pandemic. 2022. [Online]. Available
Through:<https://commonslibrary.parliament.uk/research-briefings/cdp-2020-0130/
#:~:text=A%20new%20Coronavirus%20Business%20Interruption,larger%20businesses
%20from%2020%20April.>

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