Analysis of External Factors Impacting the Business Environment

This report comprehensively examines the influence of various external factors on a business's operations and strategic decisions. It begins by defining the business environment, differentiating between micro and macro factors, and then delves into the specifics of how government regulations, economic policies, consumer behavior, competitor strategies, and public opinion impact businesses. The report provides detailed examples, such as the effects of Brexit on cross-border mergers and the impact of consumer awareness on product development. Furthermore, it suggests recommendations for businesses to mitigate the negative effects of these external forces, including assessing regulations, managing economic conditions, understanding consumer behavior, fostering innovation, and implementing corporate social responsibility principles. The conclusion emphasizes the significance of evaluating the external environment for sustainable growth, making it a crucial resource for students studying business development.

0Running head: BUSINESS ENVIRONMENT
Business Environment

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Table of Contents
Introduction................................................................................................................................2
Background................................................................................................................................3
Influence of External Factors on Business.................................................................................4
Government Regulations and Economic Policies..................................................................4
Consumer Behaviour..............................................................................................................4
Competitor Strategy...............................................................................................................5
Public Opinion.......................................................................................................................5
Recommendations......................................................................................................................6
Conclusion and Summary..........................................................................................................7
References..................................................................................................................................8

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Introduction
Organisational environment include both internal and external factors; it is necessary
that corporations scan such markets before formulating any development strategies. The
analysing of markets assists companies to identify possible risks or opportunities that they
have due to their weaknesses or strengths. Environmental scanning focus on evaluating,
monitoring and dissemination the information from both internal and external environment, it
is conducted by the top management of a firm. In order to develop and sustain future growth,
corporations are requiring analysing the external factors which influence their business. The
report will focus on evaluating the external factors which influence the business of a
corporation. Further, the report will provide suggestions to reduce the impact of external
factors and attain success in adverse market conditions.

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Background
According to Hamilton & Webster (2015), business environment includes various
types of internal and external factors that impact an organisational business; it is divided into
two parts, micro, and macro environments. The micro business environment defines the
internal factors which affect the productivity and performance of an organisation. The macro
environment factors are external forces which influence the operations of business along with
its internal environment (Wetherly & Otter, 2014). For example, health and safety regulations
created by government affect the internal operations of business. The external environment
includes various factors such as political, social, consumer behaviour and competitor strategy.

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Influence of External Factors on Business
Following are few external factors that affect a company’s business and operations.
Government Regulations and Economic Policies
As per Percival, Schroeder, Miller & Leape (2015), the political factors refer to the
political conditions and governmental activities which affect the operations of a business. The
political environment add various risks factors to a business which leads to major loss of
capital and investments, political factors have the power to change the result of business
transections completely. For example, increase and decrease in taxation is an element of
political factors.
The government might enhance the tax of few companies and reduce it for others;
these policies directly influence the financial position of a firm. Other significant political
decisions also influence organisations’ operations; a recent example is “Brexit”. The UK’s
government decided to terminate its membership from the European Union. This decision
influences the Cross-Border mergers conducted between British and European companies
since many mergers were revoked. The international corporate transactions also impacted
because of change in sterling exchange rates (Dhingra, Ottaviano, Sampson & Van Reenen,
2016).
The dynamic economic environment influences the operations of a business;
economic factors include demand and supply, inflation, interest rates, recession and many
others (Lim & Tsutsui, 2012). For example, change in interest rates of banks might influence
a corporation’s decision if they were relying on large loans. An economic recession changes
the purchasing behaviour of customers which might force companies to clear small volumes
or reduce their prices. In case of employees, jobs tend to be plentiful during economic boom,
and in the slow economy, many corporations adopt harsh options such as retrenchment or
layoffs to reduce their operations costs.
Consumer Behaviour
To successfully sell services or products, a corporation is requiring assessing its
customers’ attitude and their demands. The examinations provide necessary information to a
company such as what products are liked by consumers and what factors influence their
purchasing decisions (Solomon, 2014). Organisations analyse its customers’ attitude while

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formulating product development, marketing, and customer service strategies. The attitude of
consumers towards a product defines their goodwill and reputation in the market, therefore,
companies use effective advertisement strategies to make their brand a household name.
For example, Nike started their marketing campaign called “Just do it” which makes
them an international brand because customers reacted positively to the slogan of such
campaign. There are several factors which negatively affect customers’ attitude towards a
brand such as hidden prices, use of environment polluting material and false advertising. The
corporations’ are requiring to continuously monitoring customer behaviour because it
changes rapidly, for example, awareness regarding organic and environment-friendly
products are quickly increasing because people are getting health conscious (Paul & Rana,
2012).
Competitor Strategy
The strategies adopted by competitor significantly affect business decisions as well,
an enterprise formulate its organisational policies after assessing competitors policies. One of
the primary objectives of organisations is to gain a competitive advantage over other
companies which allow them to capture the market and increase their sales (Grant, 2016).
Usually, the customers compare price and quality of a new product with already existing
products to decide whether purchasing such product is a good deal or not.
Therefore, corporations must analyse prices and features of its competitors’ products
before setting standards for their own production process. To gain competitive advantage, a
company is requiring using innovative approach in existing market. For example, Uber
changed taxi industry by providing online services which allow them competitive advantage.
To gain competative advantage over Uber, competitors either provides less expensive prices
or high-quality services to their customers (The Economist, 2014).
Public Opinion
The public opinions have a significant impact on a business growth, and to sustain its
development, a corporation cannot ignore public opinions regarding its products, services or
reputation. Due to globalisation and popularity of social media sites, opinion of the public can
be detrimental or beneficial for corporations (McCombs, 2014). Negative press or media
scandal can reduce the corporation’s reputation which decreases its products sales. Modern
customers are considerably vocal regarding their opinion and thoughts on different products

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and services, therefore, corporations have to ensure that they fulfill their target audience
requirements. The popularity of Corporate Social Responsibility principles is one of the
examples of public opinion.
Modern corporations cannot just focus on maximising shareholders’ value; they have
to ensure that they are fulfilling their social responsibilities as well, such as use of recyclable
products, appropriate measures for pollution control, fulfilling stakeholders’ interest and
others (Leiserowitz, Maibach, Roser-Renouf, Smith & Dawson, 2013). For example, world’s
most prominent corporations are also world’s profitable companies, such as Apple, Google,
Starbucks, Microsoft, and others. All of these corporations implement CSR principles and
fulfill their stakeholders’ interest to sustain their growth.
Recommendations
Following are some suggestions that can be implemented by modern corporations to
address external challenges and reduce their impact on business operations.
 Assessment of various external factors which can influence the business and
its operations and developing solid strategies to address them.
 The corporations can carefully assess the existing and future regulations
implemented by national and international government and formulate policies
according to them. The company can also establish a legal committee which
recommends directors regarding laws which apply to firm’s operations.
 To protect themselves from dynamic economic conditions, organisations can
make necessary reserves. For example, banking corporations can maintain a
certain savings ratio to protect their assets from recession. Corporations can
also use specific or general reserve in adverse economic conditions.
 Proper study of customers’ behaviour will provide necessary information to
firms which they can utilise while manufacturing new products.
 Establishing a creative thinking environment and promoting innovative ideas
will assist corporations’ in gaining competitive advantage.
 Proper implementation of CSR principles and involvement in charitable
causes will positively influence a corporation’s public image.

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Conclusion and Summary
To conclude, the external environment includes various factors which positively or
negatively influence a company’s operations and proper evaluation of external environment
is required while formulating organisational policies. A company is requiring analysing
national and international government regulations and economic trend before taking any
significant business decision. The consumer behaviour and opinions increases or decreases
the sales of an enterprise in the market, therefore, it is necessary that firms maintain a positive
brand image in the market. Promoting innovative thinking and original ideas can assist
corporations in gaining competitive advantage and sustaining their growth. To summarise,
assessment and evaluation of external factors is significantly important for modern
corporations without which corporations cannot sustain their growth.

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References
Dhingra, S., Ottaviano, G., Sampson, T., & Van Reenen, J. (2016). The impact of Brexit on
foreign investment in the UK. BREXIT 2016, 24.
Grant, R. M. (2016). Contemporary Strategy Analysis Text Only. John Wiley & Sons.
Hamilton, L., & Webster, P. (2015). The international business environment. Oxford
University Press, USA.
Leiserowitz, A. A., Maibach, E. W., Roser-Renouf, C., Smith, N., & Dawson, E. (2013).
Climategate, public opinion, and the loss of trust. American behavioral
scientist, 57(6), 818-837.
Lim, A., & Tsutsui, K. (2012). Globalization and commitment in corporate social
responsibility: Cross-national analyses of institutional and political-economy
effects. American Sociological Review, 77(1), 69-98.
McCombs, M. (2014). Setting the agenda: Mass media and public opinion. John Wiley &
Sons.
Paul, J., & Rana, J. (2012). Consumer behavior and purchase intention for organic
food. Journal of consumer Marketing, 29(6), 412-422.
Percival, R. V., Schroeder, C. H., Miller, A. S., & Leape, J. P. (2015). Environmental
regulation: Law, science, and policy. Wolters Kluwer Law & Business.
Solomon, M. R. (2014). Consumer behavior: Buying, having, and being (Vol. 10). Upper
Saddle River, NJ: Prentice Hall.
The Economist. (2014). Uber-competitive. [Online] The Economist. Available at:
https://www.economist.com/news/business/21633833-uber-risks-consumer-backlash-
over-its-tough-tactics-uber-competitive [Accessed on 14/11/2017]
Wetherly, P., & Otter, D. (Eds.). (2014). The business environment: themes and issues in a
globalizing world. Oxford University Press.