1. Career development
    2. 9 External Environment Factors That Affect Business

    By Indeed Editorial Team

    Updated April 27, 2022 | Published July 13, 2021

    Updated April 27, 2022

    Published July 13, 2021

    Business environments change frequently and require consideration when planning and conducting operations. Business managers and executives have a responsibility to examine internal concerns for how they may influence company decisions. It's also important to monitor any external environmental factors that can affect how the business functions as well as develop methods for overcoming these challenges. In this article, we discuss what external environment factors are, their importance and nine of these factors that affect businesses.

    Related: General Environment: Six Factors That Influence Business

    What are external environment factors?

    External environment factors are elements that exist outside of a company's internal environment that can affect a company's operations. These outside forces can help the business or present challenges to its current processes. Managers often keep track of external environment factors so they can recognize and resolve the issues the factors cause and make appropriate changes.

    Why are external environment factors important?

    External environment factors are important because they can cause direct and indirect effects on business operations, personnel and revenue. The external environment of a company changes constantly in ways beyond the company's control, but executives and managers can track these changes and minimize their consequences. Choosing to monitor the dynamic nature of external environment factors allows businesses to protect themselves against predictable events and mitigate the effects of unexpected changes.

    Related: What Is External Analysis? Definition and Examples

    9 types of external environment factors

    Here are the nine types of external environment factors that affect businesses:

    1. Technological factors

    As technology continues to advance, companies can benefit from these breakthroughs or face challenges in competing with them. For example, a company that manufactures GPS devices for personal cars may experience a decline in business because of the integration of GPS on mobile devices, but they can confront these challenges by developing new products. Other companies, such as health care providers, can use modernized methods to collect information from their patients, keep patient records and streamline patient care.

    2. Economic factors

    The state of the economy plays an important role in every aspect of daily life from the well-being of personnel to the ability of a company to thrive. When the economy trends downward and unemployment rises, businesses may have to work harder to keep their staff and change their processes to continue earning revenue. If the company produces products for retail sale, for instance, they may consider lowering the price to increase sales and positively affect their revenue.

    3. Political and legal factors

    As political officials leave office and new ones replace them, the policies they implement often affect businesses in relevant industries. Because of the inconsistent nature of politics, businesses monitor legislative bills closely to prepare for potential changes. Policies that can have long-term effects on companies include:

    • Taxation

    • Tariffs

    • Employment law

    • Competition regulation

    • Import restrictions

    • Intellectual property law

    Companies affected by political decisions must modify their processes to comply with new legislation and regulations but doing so can keep them in business.

    Related: How To Navigate Workplace Politics

    4. Demographic factors

    Companies with successful products and services evaluate the demographics of their target market to ensure they meet the needs of those who benefit from their offerings. They also perform tests to measure how well they serve their customers. This helps them understand if their target market has changed and how they can develop better ways to serve their loyal customers and earn new ones. Demographics that affect business decisions and processes include:

    • Age

    • Gender

    • Race

    • Nationality

    • Belief system

    • Marital status

    • Occupation

    • Income

    • Level of education

    For example, when mobile phone companies emerged in the 1990s, their marketing efforts focused on young, successful professionals. Now, people of all ages use mobile devices daily. Telecommunications companies have adapted to this change by modifying the features of their products and taking different approaches to advertising methods.

    Related: What Are Demographics? (Definition, Examples and Uses)

    5. Social factors

    Where people live, their personal values and their socioeconomic status affect what, where and why people make purchases. Businesses take social factors into consideration when developing and marketing products, and many use current events, movements and social issues to appeal to their customers. For example, a company that supports a women's organization may earn the trust and loyalty of customers who identify as female. Catering to the specific preferences and expectations of underrepresented groups, who have more influence on the market today than in past years, can also contribute to customer satisfaction and business growth.

    6. Competitive factors

    Businesses can increase their market share and stay relevant to their customers by keeping track of their competitors. They can identify and evaluate successes and challenges, thus learning what to incorporate into their own processes and how to prevent revenue loss. They can also use the information they gather to develop ideas for product changes, product relaunches and new product development.

    Related: What Is Competition Mapping? (With Examples)

    7. Global factors

    Executives have a duty to keep track of both domestic and global issues, especially if they conduct business internationally. By learning about social issues that affect those in other countries and their cultural norms, consumer trends and economic status, company leaders can provide their teams with relevant training. This enables them to develop products or offer services that meet the needs of international customers by providing solutions to challenges they face as consumers.

    8. Ethical factors

    Because each individual has a distinct concept of ethics and morality, some companies may find it challenging to balance the personal lives of staff members with their expectations in the workplace. Employees' leisure activities, such as social media accounts, can reflect on their employer. As representatives of the company, they have a responsibility to avoid behavior that could negatively affect the business. Managers can address issues such as sharing classified information or the harassment of a colleague outside of work by establishing guidelines and taking disciplinary action when necessary.

    Related: 15 Ethical Principles in Business

    9. Natural factors

    As environmental awareness continues to grow, more consumers have realized the effects of business processes on the planet. Some consumers have used their purchases to support companies that develop ecologically friendly practices, such as using compostable packaging and solar energy. By paying attention to these external concerns and changing their operations, businesses can make changes that help them protect the environment, retain customers and increase revenue.

    What are the 5 external Environmental Factors that affect marketing?
    To get a better idea of how they affect a firm's marketing activities, let's look at each of the five areas of the external environment.
    • The Political and Regulatory Environment.
    • The Economic Environment.
    • The Competitive Environment.
    • The Technological Environment.
    • The Social and Cultural Environment.
    • Consumer Behavior.
    more
    Will inflation affect housing market?
    SIMON: And inflation affects home prices, too, doesn't it? ARNOLD: Absolutely. And as the Fed is raising rates, that's pushing mortgage rates higher on top of already high home prices. And especially during the pandemic, people wanted more space, and interest rates were super low. more
    Does war affect housing market?
    Will mortgage rates decline? If anything, the war might keep mortgage rates lower for just a bit longer. Conflicts and market volatility tend to push investors towards safer asset classes like treasury bonds and mortgage-backed securities. more
    What factors affect market value?
    Factors that can affect stock prices
    • news releases on earnings and profits, and future estimated earnings.
    • announcement of dividends.
    • introduction of a new product or a product recall.
    • securing a new large contract.
    • employee layoffs.
    • anticipated takeover or merger.
    • a change of management.
    • accounting errors or scandals.
    more
    Which factor below is a density independent factor that might affect population growth?
    There are many common density independent factors, such as temperature, natural disasters, and the level of oxygen in the atmosphere. These factors apply to all individuals in a population, regardless of the density. more
    Which theme of geography considers how people affect their environment and how their environment affect them?
    Human-Environment Interaction considers how people affect their environment and how their environment affects them. more
    What factors affect natural environment?
    Environmental factors include temperature, food, pollutants, population density, sound, light, and parasites. The diversity of environmental stresses that have been shown to cause an increase in asymmetry is probably not exclusive; many other kinds of stress might provide similar effects. more
    Does Christmas affect crypto market?
    A study from a cryptocurrency insight and analytic firm, SFOX, shows an interesting relation between holidays and coin value. The firm's team of researchers spotted the pretty convincing correlation between holidays like Independence Day, Thanksgiving, and Christmas, with the first-ever cryptocurrency, Bitcoin. more
    How does natural environment affect the social environment?
    The environment can facilitate or discourage interactions among people (and the subsequent benefits of social support). For example, an inviting space with comfortable chairs and privacy can encourage a family to stay and visit with a patient. The environment can influence peoples' behavior and motivation to act. more
    How will stock market crash affect housing market?
    When the stock market is imploding, real estate becomes an attractive asset class up to a certain point. That point is up to around a 35% decline in the S&P 500. After a 35% decline in the S&P 500, expect real estate prices of all types to start declining as potential buyers fear an upcoming recession. more
    Will the stock market affect the housing market?
    When the stock market retreats and the value of portfolios declines, investors are impacted psychologically.” If buyers start holding on to their money, then sellers will either have to pull their homes from the market or start settling for less. more

    Source: www.indeed.com

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