TOPIC 2
CHALLENGES IN THE EXTERNAL ENVIRONMENT
In a bad economy, even the most
successful businesses may not survive.
The external environment refers to the
factors that affect a company's
operations. The external business
environment constitutes business
environmental factors such as political,
economic, social, and global factors.
These factors are the main influences that
affect the stockholder's and business
owners' business decisions. For example,
a case where the government changes the
laws concerning the numbers and types of
imported goods can increase the
importation tax, making a massive difference in the viability of many businesses. The business
environment consists of various characteristics such as:
• Dynamic: Similar to the natural environment, the external business environment changes
regularly due to the vast influence of factors. The factors constantly change the character and
shape of the environment. For instance, there was a period when the filming industry made a
fortune by selling music CDs. Currently, the filming business makes more money from streaming
songs on music platforms such as Spotify and YouTube.
• Complex: The business environment includes various conditions, factors, influences, and events
from multiple sources. It is hence, difficult to grasp all the factors that affect a specific
environment at a particular time. For example, book publishers could not envision that print
books could face a decline in demand after the mobile phone release.
• Multi-faceted: The business environment's dynamism and complexity continuously change its
character and shape. Many observers may view the changes very differently. Therefore, a
different observer may perceive a particular environmental change as a chance or opportunity to
diversify, while someone else may view the change as a threat. For instance, LCDs and Plasma TVs
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, paved the way for LEDs. Some producers saw this as an opportunity to start making LEDs instead
of Plasmas and LCDs. Currently, LEDs are paving the way for 3D TVs. This means that, depending
on the manufacturer's view or perception, the producer may use the opportunity to either view
it as a threat or produce new products.
• Far-reaching Impact: The environment has a far-reaching effect on a company. Those who know
that the environment impacts profitability and growth ensure constant adaption to sync with it.
ENVIRONMENTAL SCANNING
It is the study and interpretation of
the forces existing in the external
and internal environments. The
external environment includes
social, economic, political,
technological, and environmental
forces that may influence an
organization, an industry, or an any
entity. The competitive
environment covers competitors,
suppliers, customers, stakeholders, culture, and the government. Environmental scanning is
carefully monitoring the surroundings with the end goal of ascertaining early indications of
prospects and challenges that may influence the organization’s present and future plans.
BUSINESS ENVIRONMENT TYPES (External Micro and External Macro)
Type 1: External Micro Environment:
Micro external forces have an important effect on business operations of a firm. Components of
micro environment are: Suppliers, Customers, Marketing Intermediaries, and Competitors.
However, all micro forces may not have the same effect on all firms in the industry.
• Suppliers: An important factor in the external environment of a firm is the suppliers of its
inputs such as raw materials and components. A smooth and efficient working of a
business firm requires that it should have ensured supply of inputs such as raw materials.
If supply of raw materials is uncertain, then a firm will have to keep a large stock of raw
Page 2 of 8
CHALLENGES IN THE EXTERNAL ENVIRONMENT
In a bad economy, even the most
successful businesses may not survive.
The external environment refers to the
factors that affect a company's
operations. The external business
environment constitutes business
environmental factors such as political,
economic, social, and global factors.
These factors are the main influences that
affect the stockholder's and business
owners' business decisions. For example,
a case where the government changes the
laws concerning the numbers and types of
imported goods can increase the
importation tax, making a massive difference in the viability of many businesses. The business
environment consists of various characteristics such as:
• Dynamic: Similar to the natural environment, the external business environment changes
regularly due to the vast influence of factors. The factors constantly change the character and
shape of the environment. For instance, there was a period when the filming industry made a
fortune by selling music CDs. Currently, the filming business makes more money from streaming
songs on music platforms such as Spotify and YouTube.
• Complex: The business environment includes various conditions, factors, influences, and events
from multiple sources. It is hence, difficult to grasp all the factors that affect a specific
environment at a particular time. For example, book publishers could not envision that print
books could face a decline in demand after the mobile phone release.
• Multi-faceted: The business environment's dynamism and complexity continuously change its
character and shape. Many observers may view the changes very differently. Therefore, a
different observer may perceive a particular environmental change as a chance or opportunity to
diversify, while someone else may view the change as a threat. For instance, LCDs and Plasma TVs
Page 1 of 8
, paved the way for LEDs. Some producers saw this as an opportunity to start making LEDs instead
of Plasmas and LCDs. Currently, LEDs are paving the way for 3D TVs. This means that, depending
on the manufacturer's view or perception, the producer may use the opportunity to either view
it as a threat or produce new products.
• Far-reaching Impact: The environment has a far-reaching effect on a company. Those who know
that the environment impacts profitability and growth ensure constant adaption to sync with it.
ENVIRONMENTAL SCANNING
It is the study and interpretation of
the forces existing in the external
and internal environments. The
external environment includes
social, economic, political,
technological, and environmental
forces that may influence an
organization, an industry, or an any
entity. The competitive
environment covers competitors,
suppliers, customers, stakeholders, culture, and the government. Environmental scanning is
carefully monitoring the surroundings with the end goal of ascertaining early indications of
prospects and challenges that may influence the organization’s present and future plans.
BUSINESS ENVIRONMENT TYPES (External Micro and External Macro)
Type 1: External Micro Environment:
Micro external forces have an important effect on business operations of a firm. Components of
micro environment are: Suppliers, Customers, Marketing Intermediaries, and Competitors.
However, all micro forces may not have the same effect on all firms in the industry.
• Suppliers: An important factor in the external environment of a firm is the suppliers of its
inputs such as raw materials and components. A smooth and efficient working of a
business firm requires that it should have ensured supply of inputs such as raw materials.
If supply of raw materials is uncertain, then a firm will have to keep a large stock of raw
Page 2 of 8
