Analysis of the External Environment of Business 1

Analysis of the External Environment of Business

In today's highly competitive market, businesses must be aware of the environment in which they operate and the external factors that influence them. These factors can affect the main internal factors of the business and its objectives or marketing strategies. The external environment is rarely stable and many of the external forces can change quickly and dramatically and are usually beyond a firm's control. Although some external factors can pose a threat to a business, they can also create new opportunities. In order to assess their environment, a business may use a PEST analysis structure to evaluate the external influences or macroenvironmental factors that could affect the strategic development of the business under four areas; political factors often look at areas such as tax policy, employment laws, environmental regulations, trade restrictions and tariffs and political stability. The economic factors include economic growth, interest rates, exchange rates and inflation rate. Social factors are concerned with the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. The technological factors involve ecological and environmental aspects and can determine the barriers to entry, minimum efficient production level and influence outsourcing decisions. It looks at elements such as research and development activity, automation, technology incentives and the rate of technological change.

I am going to concentrate on the social dimension as the focus of this essay. Consumer markets of the social environment can be roughly segmented into several areas; demographic factors such as age, gender, religion, ethnic group, family size and family life cycle stage, can influence businesses involved in children's products or retirement homes, for example. Socio-economic factors such as social class, income or occupation, can...
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