External Environment Appraisal

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External environment appraisal

• Introduction and characteristics

• Environmental sectors

o Market

o Technological

o Supplier

o Economic

o Regulatory

o Political

o Socio cultural

• Environmental scanning

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What is environment?

← It is the surroundings, external objects, influences or circumstances under which someone or something exists

← It is the aggregate of all conditions, events and influences that surround and affect it

Characteristics

← Complex

← Dynamic

← Multi-faceted

← Has far reaching effect

External environment sectors…

← 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 etc

← 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 builder

← Technological – how the rapid pace of change in production processes and product innovation affect a business

Market environment

1. Customer/client factors

2. Product factors

3. Marketing intermediary factors

4. Competition related factors

Technological environment

1. Technological development, Automation introduced

2. Impact of technology

3. R&D activity

4. Rate of technological change

Supplier environment

1. Cost, availability of raw materials, finance, human resource

2. Supply of plant and machinery, spare parts and after sales service

3. Bargaining power of suppliers

Economic environment

1. Current economic stage of the country

2. Type of economic structure adopted – capitalistic, socialistic, mixed

3. Economic policies – industrial, monetary, fiscal

4. Economic indices - National income, distribution of income, growth rate per capita income, disposable income, rate of savings and investments, value of exports and imports

5. Infrastructure factors – financial institutions, banks, modes of transport & communication

Regulatory environment

1. Constitutional framework, division of legislative powers between central and state govt.

2. Policies related to licensing, monopolies, foreign investment, financing of industries

3. Export import policies

4. Other policies related to public sector, SSIs, sick units, development of backward areas, environmental pollution, consumer protection

Political environment

1. Nature of political system, ideological factors of ruling political party

2. Political structure – goals and stability

3. Political processes – operation of the party, elections, funding of elections

4. Political philosophy, government’s role in business, its policies and interventions in economic and business development

Socio – cultural environment

← Demographics – population, density and distribution, age compositions, inter state migration, rural urban mobility and income distribution

← Concerns like consumerism, corruption, use of mass media, role of business in society

← Attitudes and values, expectation of society from business, social customs, beliefs, rituals and practices, changing lifestyle patterns

← Role and position of men, women, children, aged etc

← Literacy, awareness of rights, attitude towards minority and disadvantaged groups

Environmental scanning

← Meaning: The gathering of large amount of information to measure and study the changes in the environment is called...
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