Important business environmental factors and their effects

What is the business environment like?

The totality of all external and internal influences on a business can be referred to as the business environment. It’s important to remember that a firm can be impacted by both internal and external influences acting in concert. An external component that affects the internal environment of corporate activities, for instance, is a health and safety legislation. Additionally, you have no influence over some outside variables. These elements are sometimes referred to as external factors. Let’s examine some important environmental factors.

business environment factors

What are external environment factors?

External environment factors are components that can have an impact on a company’s operations and are found outside of its internal environment. These external factors may benefit the company or pose difficulties for its existing operations. In order to identify, address, and make the necessary changes, managers frequently maintain track on external environment elements.

9 types of external environment factors

The following nine categories of external influences have an impact on businesses:

  • Technological factors
  • Economic factors
  • Political and legal factors
  • Demographic factors
  • Social factors
  • Competitive factors
  • Global factors
  • Ethical factors
  • Natural factors

Technological factors

As technology keeps getting better, companies can take advantage of these changes or find it hard to compete with them. For example, a company that makes GPS devices for personal cars might see a drop in sales because GPS is now built into mobile phones. However, this problem can be solved by making new products. Other businesses, like health care providers, can use modern methods to get information from their patients, keep records on their patients, and improve the way they care for their patients.

Economic factors

Every part of daily life is affected by the state of the economy, from the health of employees to the success of a business. When the economy is going down and unemployment is going up, businesses may have to work harder to keep their employees and change how they do things to keep making money. If the company makes products that are sold in stores, for example, they might think about lowering the price to boost sales and revenue.

Political and legal factors

As politicians leave their jobs and are replaced by new ones, the policies they put in place often affect businesses in their fields. Because politics is so unpredictable, businesses keep a close eye on legislative bills to get ready for possible changes. Some policies that can affect companies in the long run are:

  • Competition regulation
  • Import restrictions
  • Tariffs
  • Intellectual property law
  • Taxation
  • Employment law

Companies that are affected by political decisions have to change their processes to meet new laws and rules, but this can help them stay in business.

Demographic factors

Businesses with effective products and services look at the demographics of their target market to make sure they meet the needs of the people who will benefit from them. They also do tests to see how well they serve their customers. This helps them figure out if their target market has changed and how they can find better ways to serve their loyal customers and get new ones. Here are some examples of demographics that affect business decisions and processes:

  • Age
  • Gender
  • Race
  • Nationality
  • Belief system
  • Marital status
  • Occupation
  • Income
  • Level of education

When cell phone companies started up in the 1990s, for example, they marketed to young, successful professionals. Mobile phones are now used every day by people of all ages. In response to this change, telecommunications companies have changed the features of their products and changed the way they advertise.

Social factors

What, where, and why people buy things depends on where they live, what they value, and how well off they are. When making and marketing products, businesses take social factors into account. Many use current events, movements, and social issues to appeal to their customers. For example, a company that helps a group for women may gain the trust and loyalty of customers who see themselves as women. Catering to the needs and wants of underrepresented groups, which have more of an impact on the market than they did in the past, can also make customers happy and help a business grow.

Competitive factors

By keeping an eye on their competitors, businesses can get a bigger share of the market and keep their customers interested. They can find and evaluate successes and problems, which helps them figure out what to add to their own processes and how to avoid losing money. They can also use the information they gather to come up with ideas for making changes to products, relaunching products, and making new products.

Global factors

Executives should be aware of both domestic and international issues, especially if they do business around the world. Company leaders can give their teams the right training by learning about the social issues that affect people in other countries, as well as their cultural norms, consumer trends, and economic situation. This lets them make products or offer services that meet the needs of customers around the world by helping them solve problems they face as customers.

Ethical factors

Because everyone has a different idea of what is right and wrong, it can be hard for some companies to balance the personal lives of their employees with their expectations at work. The things that employees do in their free time, like posting on social media, can reflect on their employer. As people who work for the company, they have a duty to avoid doing things that could hurt the business. Managers can deal with problems like sharing confidential information or bothering a coworker outside of work by setting rules and taking action when necessary.

Natural aspects

As people learn more about the environment, they are becoming more aware of how businesses affect the planet. Some people have used their money to support businesses that do things that are good for the environment, like use compostable packaging and solar energy. Businesses can help protect the environment, keep customers, and make more money by paying attention to these outside issues and changing how they do business.