A business constantly faces challenges and threats from the external environment. There are certain factors that influence the operations and functions of an enterprise. Business environment refers to the sum total of all the elements that has a direct or indirect impact on a firm. Certain factors, comprising the internal environment, can be controlled and managed by the business. However, the external environment is dynamic and beyond the control of business management. Firm should be aware and careful about such factors. Start-Up Location: 4 Factors You Should Consider While Selecting a Location to Start the Business.
A business should be always on toes while dealing with the external environment. It requires continuous evaluation of the markets and comprehensive planning. Here are such external environment factors a firm should know about -
Political environment comprises various rules, regulation, taxation regime and other policy changes introduced by the government. A firm should be careful about any change in the government policies which impacts the business- directly or indirectly. Businesses are also advised to comply and adhere to all the requirements introduced in such policy reforms. Govt. of India Free Online Learning Program for Start-Ups.
Economic environment comprises various parameters that measure the financial and economic situation prevalent in the market. It includes inflation, recession, employment rates, deflation, GDP among others. An increasing GDP helps in growth of the business as well. Deflation and recession lead to stagnation or decline in business operations.
Another important aspect of the external business element is the social environment. It includes the belief and norms of the society. A business will only be successful if it able to understand and comply with the beliefs of the society. It also includes the liking and preferences of its citizens, which ultimately form firm's consumer group.
A change in the level of technological advancements in the society also impacts the operations of the business. As consumer becomes more and more technologically equipped, a sales of various goods dependent on obsolete technology plunges. If the businesses are not able to keep up the advancement in tech know-how they are bound to suffer huge looses and eventual winding up of the business.
Businesses should be careful about the various changes in the external environment and be flexible enough to incorporate them. Continuous evaluation of external environment is crucial to keep the business safe from threats and en-cash the opportunities.