Posted by Managementguru in Business Management, Principles of Management
on Feb 26th, 2014 | 0 comments
Factors of External Environment of Business What do you mean by Business Environment: The sum total of all things external to firms and industries that affect the functioning of the organization is called Business Environment. Elements of Business Environment 1. ECONOMIC 2. SOCIAL 3. CULTURAL 4. POLITICAL 5. LEGAL 6. TECHNOLOGICAL 7. DEMOGRAPHIC 8. GEOGRAPHICAL 9. ECOLOGICAL 1. Economic Environment This refers to all economic factors that influence and affects the very survival of an organization. Can be classified into · Economic factors affecting demand · Competitive forces Economic factors affecting demand The existence of an organization depends on the demand for its products or services. The customers’ ability to buy and willingness to pay determine the demand factor. The buying power is determined again by · Employment · Income taxes · Saving and · Prices The money acquired by an individual through employment is utilized for paying taxes which is the first priority and then comes saving or spending. In developing countries like India, much importance is attached to the habit of saving in the form of insurance policies or mutual fund deposits or investment on immovable assets. This makes the economy strong and stable even during times of recession, whereas we witness the economy of some developed countries entirely shaken when there is an economic depression. Sub Prime Lending Sub prime lending may prove to be disastrous for a growing or grown nation when the money is lent by the banks to third parties without proper securities or collaterals. While the initiative is intended to increase the growth rate or GDP, the end result may not live up to the expectations when the money is parted to individuals or firms with poor financial credentials. Disposable Income Disposable income also decreases when the tax rate increases and his/her ability to buy is reduced. Equally important is the willingness to by because the fact that an individual has the ability does not mean that he or she will buy. Willingness is affected by the preferences for products and the expectation about future factors like the price fluctuation, increase in one’s own income, general economic trend and so on. Competitive forces Firms have to first survive in order to succeed in the market. To accomplish this they exert competitive force on each other through one or the other following methods. · Price cutting · Promotion-advertising, personal selling · Design, feature and packing · Number and type of customer services offered give a cutting edge to firms competing in the race. 2. Social and Cultural Environment The social environment depends upon the · The class structure · Mobility · Nature of the social organization and · Development of social institutions People always have the unending desire to move from one occupational category to another and this is the main reason for high job turn over in IT industries for various reasons like pay, promotions, job satisfaction etc., This is the same reason which can be attributed to the failure of many good projects that go underway due to lack of continuation of the same initiative with which it was started. The above said process is more prevalent in urban societies than rural where scope of mobility is much the less among farmers, artisans and those engaged in traditional crafts and cottage industries. 3. Political Environment A smart manager has to be on tenter hooks to gauge the trends in political scenario that directly or indirectly affect the functioning of the firm. The political weather is highly unpredictable and may be classified into · Long-term changes · Quick changes · Cyclical changes · Regional changes Now-a-days we see that the economic depression in...
