Understanding The Factors of Business Environment

factors of business environment

For creating a successful business, it is essential to be acquainted with the factors that influence the business environment. Depending on the focused area of a business, the factors related to it can vary. But there are always some significant factors present in any business environment.

In simple words, the business environment is the features and factors all working together. To understand the influence of any factor on the business functionalities, the factors are classified into two sections. They are internal factors and external factors.  Internal factors are those that the organization can control. External factors, on the other hand, are the ones that are outside of the organization’s structure. External factors are further classified into two different criteria, the microenvironment factors and the macro-environment factors. Let’s try to know about them elaborately.

Internal factors

Internal factors refer to the factors inside of the organization. These factors include structural, strategic, financial, and resource-related issues. Some of the factors can be the organizational culture, the values, the hierarchy, human resources, financial and marketing resources, technological resources and infrastructure, etc.

Abstract factors like plans and policies, organizational culture, and values regulate the work of human resources. They play a vital role in the decision making process. Technological and structural factors determine the operative functionalities like the productivity related to manufacturing that sort of functions. Financial factors represent how strong the organization is financial. Financial resources are located in operational activities, cost of production, revenue, etc are impacted by such factors.

External factors

External factors comprise the factors that are beyond the control of any organization but are able to significantly affect the activities and overall situation of the organization. These factors demand regulations in decision making. They often make the business, especially the entirety of internal factors to adapt to optimum circumstances. The external factors include elements that are sectioned into micro and macro factors.

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Micro factors

Micro factors are more specific and that has the ability to affect the organization in a short span of time. The changes in these factors can be implemented rather abruptly. Examples of micro factors are,

  • Competitors
  • Suppliers
  • Customers
  • The public
  • Marketing and media
  • Intermediaries

The customers the main reason why a business exists in the first place. The customer demographics of a business differentiate the way of strategy implementation. Not only that, depending on what type of customer business has or what type of customer the business is targeting to achieve, but managerial decisions are also taken.

To keep the flow of production going, it is essential to have a good idea about suppliers. The supplies could mean financial assets, raw material, power among many others needed to run a business. A good relationship with the supplier makes sure that the business will have the necessary inputs to provide its finished product to its customers.

The intermediaries of a business, especially the ones that are product based rather than service-based, play a huge role in the gain of revenue. In most cases, retailers and wholesalers help an organization in building a certain reputation.

The spread of a business largely depends on the marketing strategist used by the organization. The media used in a particular environment can be a deciding factor of how the business is going to attract new customers and retain the old ones by promoting their products and services.

Competitors are a factor that can only affect the activities and in some cases, the existence of the organization in the market. The steps taken by the organization’s competitor sometimes change the course of actions of the organization itself.

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Lastly, it is the target of a business to be favored by the public. a business is to judge the impact they are having on the public and take positive measures necessary according to that.

Macro factors

These factors include elements that are able to affect the overall business environment in the long run. Generally, the organization has little to zero control over these factors. There are 6 specific external business environment factors. They are,

  • Political
  • Economic
  • Social-cultural
  • Technological
  • Legal
  • Environmental

Depending on where business functions, the political situation plays a crucial role in how the business is going to grow. For international business, it is a very sensitive area. The executive, legislative, and judicial environment regulate the policies of an organization. To a great length, the opportunities and challenges of business are highly influenced by this specific factor.

The economic factor actively affects the presence and functioning of the business. The consumer surplus and producer surplus determines how the business is going to impact them. This eventually leads to decisions related to the organization’s level of production and consumer choice. The global economy controls the national economy, and the impact on the national economy directly controls the operations of an organization.

Socio-cultural factors point out customer needs and demands. Local or regional businesses depend on this factor to find the requirements and then provide their services accordingly. Going against any specific social-cultural factor of a certain region can create adverse situations for the business. Taking social responsibility is considered as one of the moral duties of any organization.

In the world of the industrial revolution, technological factors work like magic. The more advanced the technology of an organization is, the more facilities the organization has in case of management, training, and manufacturing. Technological progress also gives businesses an advantage in having customer satisfaction. From efficient operation to precise communication, technological infrastructure’s innovation is a high priority aspect.

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In the definition of business, it is said that in order to consider any activity as a business it has to be legal. The definition of legal validity in an area directly impacts the policies of an organization. Any new law or rule can change the course of the business. An organization has to stay alert about abiding by all the legal requirements in their respected sector. The government can have promotional or restraining roles in such cases.

Last but not the least, the environmental factors are to be considered. Natural resources-based businesses are heavily dependent on the resources available. It is vital that they have a proper calculation of how they are impacting the nonrenewable resources. Also, the environment plays a huge role in consumer choice. Hence, the targeted customer of the business has to be aligned with environmental demands. Organizations how to make sure that they are functioning in the most eco-friendly way to preserve nature as well.

The internal factors decide how the business organization would be presented to the external environment. The external environment factors influence how the internal environment has to react and change. The interdependence between the factors projects that the organization has to consider all the possible scenarios keeping them in mind altogether. A balance among the factors can lead a business to the achievement of its goal.

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