Does external environment factors that are uncontrollable by organization influence the business policies?

Answer 1

A business does not function in a vacuum. It has to act and react to what happens outside the factory and office walls. These factors that happen outside the business are known as external factors or influences. These will affect the main internal functions of the business and possibly the objectives of the business and its strategies. Main Factors The main factor that affects most business is the degree of competition - how fiercely other businesses compete with the products that another business makes. The other factors that can affect the business are: * Social - how consumers, households and communities behave and their beliefs. For instance, changes in attitude towards health, or a greater number of pensioners in a population. * Legal - the way in which legislation in society affects the business. E.g. changes in employment laws on working hours. * Economic - how the economy affects a business in terms of taxation, government spending, general demand, interest rates, exchange rates and European and global economic factors. * Political - how changes in government policy might affect the business e.g. a decision to subsidise building new houses in an area could be good for a local brick works. * Technological - how the rapid pace of change in production processes and product innovation affect a business. * Ethical - what is regarded as morally right or wrong for a business to do. For instance should it trade with countries which have a poor record on human rights. Changing External Environment Markets are changing all the time. It does depend on the type of product the business produces, however a business needs to react or lose customers. Some of the main reasons why markets change rapidly: * Customers develop new needs and wants. * New competitors enter a market. * New technologies mean that new products can be made. * A world or countrywide event happens e.g. Gulf War or foot and mouth disease. * Government introduces new legislation e.g. increases minimum wage. Business and Competition Though a business does not want competition from other businesses, inevitably most will face a degree of competition. The amount and type of competition depends on the market the business operates in: * Many small rival businesses - e.g. a shopping mall or city centre arcade - close rivalry. * A few large rival firms - e.g. washing powder or Coke and Pepsi. * A rapidly changing market - e.g. where the technology is being developed very quickly - the mobile phone market. A business could react to an increase in competition (e.g. a launch of rival product) in the following ways: * Cut prices (but can reduce profits) * Improve quality (but increases costs) * Spend more on promotion (e.g. do more advertising, increase brand loyalty; but costs money) * Cut costs, e.g. use cheaper materials, make some workers redundant