External Environment Factors Can Influence The Decisions Business Essay


Business organization is an organization created for business ventures which refers to how a business is structured and how it functions. It is one or more businesses from a person or a group of people that working together with a common objective. It is usually determined and created based on the specific laws and purpose of the business.

A business organization is an individual or group of people that collaborate to achieve certain commercial goals. Some business organizations are formed to earn income for owners. Other business organizations, called nonprofits, are formed for public purposes. These businesses often raise money and utilize other resources to provide or support public programs. (Neil Kokemuller)

Business organization, an entity formed for the purpose of carrying on commercial enterprise. Such an organization is predicated on systems of law governing contract and exchange, property rights, and incorporation. (Hamilton, Alexander)

2.0 Content

One of the biggest mistakes managers make today is failing to adapt to the changing world. No successful organization, or its managers, can operate without understanding and dealing with the dynamic environment-external and internal-that surrounds it.

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The term "external environment" refers to factors, forces, situations, and events outside the organization that affect its performance.

2.1 Factors of External Environment

2.1.1 Economic Environment

Economic factor may influence the overall consumption and investment in a business. Economic conditions of a country whether good or bad may affect the decisions made by an organization. When the interest rates are high, and it is expensive to borrow capital, businesses may stop expanding. However, cheap money may feed the business to grow. When there is lack of capital, the economy will pull back, as businesses store cash reserves for economic recessions. Favorable taxation rates may lead to economic expansion and encourage the rates of employment. Exchange rates also play an influential role in business decisions making. As the global market expanding annually, it may whether encourage or discourage the business growth through the increase or decrease of the exchange rates. A stable economy may attract more organizations to start or invest a business. However, an unstable economy may increase the risks of a business or investment. The economic component encompasses factors such as interest rates, inflation, changes in disposable income, stock market fluctuations, and business cycle stages.

Malaysia is focusing on becoming a regional center for telecommunications, energy, financial, hotel & tourism, and health services in the Third Industrial Master Plan 2006-2020. Our local economy is at the positive side as compared with most of the Asia Pacific countries. With the upturn and growth of economic in Malaysia, will increase the job opportunities and thus decreases the rates of unemployment. This can lead Malaysian to have a better lifestyle with the stable work and salary every month. Furthermore, a stable economy may attract more local and global organizations to invest in our country. This can increase the rates of currency and exchange rates in our country due to the growth of economy.

2.1.2 Global environment

Global environment refers to the environment of the natural resources and the surroundings that affect every area of businesses directly and indirectly. It may affect the decisions made by an organization. This is because some of the organizations may depend on foreign countries to seek for the suppliers or sell their products and services in various countries. The organizations must also be aware to face the foreign competitors even they plan to sell their products locally but not in the foreign countries. The difficulties and risks of a business must be encountered before a business decision is made to avoid suffer from the global problems as well as the losses. The global component encompasses issues associated with globalization and a world economy.

Malaysia is well endowed and rich with the natural resources we have. The minerals, tin, oil and natural gas are the major source of income currently in our country. These natural resources are exports to other countries. It was a major source of revenue and income earner for our country. Organizations must always maintain and increase their performances on the products and services in order to compete with other countries, gain trusts, and thus make profits on the businesses they run.

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2.1.3 Political / legal environment

It refers to the government actions that may affect the operations and decisions of a business. The government can have a strong influence on businesses. Governments could change their rules and regulations, whether federal, state, local or even international policies or regulations to protect the natural environment, consumer safety and prices of products or services on the business environment. The government will change the rules and regulations from time to time. The frequent changes in these regulations and policies would affect the business organizations to change their policies and decisions of the way they are operating. Business owners and managers must develop some business strategies that implement with the rules and regulations which have been set by the government. This may influence the decisions made by an organization whether can do or cannot do due to the regulations of the government. For example, a small business owner runs a restaurant find the government requires several professional licenses be acquired before a business is allowed to start and operate. This means that the decision made by an organization must always rely on the rules and regulations of the country which might be change from day to day. The organizations must always be ready to be prepared to deal with the negative consequences of government politics which may cause them to suffer a loss.

Malaysia has a stable political environment as compared to other countries. The government has announced some liberalization measures to create an attractive environment of Malaysian market for the local and foreign investors. All the manufacturers, importers and wholesalers required a license as an entry barrier which helps to lower the intensity of competitions among the competitors. Although the political factors might have some effects on certain businesses, but it is still a good way to drive and promote the business opportunities.

2.1.4 Demographic environment

Demography refers to the size, behavior, and characteristics of human populations in a country. It includes the age, gender, family income, occupation, geographic region, and education level. A huge size of population of a country would provide a wide range of business or marketing opportunities for all types of business organizations. However, a small size of population would force the business organizations to look for the external market for their products and services. The decisions made of a business will always depend on the characteristics of human populations before a product is made. For example, it must depend on the demand and supply whether high or low in order to satisfy and meet the needs of the market. Hence, the size and quality of population appear as a key factor that influencing the business decisions making. The demographic component includes trends in population characteristics such as age, race, gender, education level, geographic location, income, and family composition.

Demographics of Malaysia are represented by the multiracial of society in our country. Malaysia's population comprises many ethnic groups which is Malays, Chinese, Indians, and Bumiputera. The growth of population and income indicates the increase of the demand of products and services. The increase in growth rates result an enormous increase in labor supply and thus increase the wage rates and decrease the rates of unemployment. There are always some different on the demand of different ethnics groups since everyone has different wants and needs. So, the local business in Malaysia must always rely on the multi ethnics groups which have different wants and needs.

2.1.5 Sociocultural environment

Sociocultural is concerned with societal and cultural factors such as values, attitudes, trends, traditions, lifestyles, beliefs, tastes, patterns of behavior and ways of thinking of people in the society. It is to determine how individuals and organizations should be interrelated. These are helpful for promotion on certain products, services or ideas for the success of changing or improving social attitudes and values. The changes in sociocultural may affect the decisions made by an organization through creating opportunities for and threats to an organization's growth.

The Sociocultural environment is more and more influential especially in multi-cultural urban areas such as Malaysia. Malaysia is a multiracial country which is rich with diversity of races ranging from Malays, Chinese, Indians, and Bumiputera. However, all races are practiced and separated by different culture and beliefs among themselves. Although all races come from different background, religions, traditions, cultures, have different mode and date of celebration, but the spirits of all races always remain the same as one Malaysia. Although Malaysia is a multiracial society which having many different languages among each other, but we are still able to communicate well among each other with our national language of Bahasa Malaysia. Understanding, respects are the key factors for all of us to maintain our relationships and stay harmony until today.

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2.1.6 Technological environment

Technology component focuses on scientific and industrial innovations. It changes our life to become more easier and convenient. It is an important external factor that used to determine the destiny of business organizations. Technology makes the decisions making process to be more faster and easier. For example, organizations can use the communication technology to keep the employees up to date on business decisions and make sure the right people comply with those decisions. It helps to improve the quality and the speed of decisions making. Technology brings both tangible and intangible benefits for all businesses and organizations. It helps the businesses and organizations to meet their growing demands and needs. Advanced of technologies help to improve the old products and develop new products. It also improve the efficiency of the business operations, reduces the time and costs of operations, encourage business innovations to become more effectively, and improve the culture and relationships among the employees, managers, suppliers, and customers. Hence, the decisions making process of a business will always rely on which of the best technological tools to use in order to make the process of production more effectively and efficiency and thus increases the sales of the production.

Malaysia is also considered as a country that is filled with higher technologies as compared to those poor countries. Our government always gives full support with the financing schemes for the research and development sector for the technology development. This also help to create many new local business opportunities in our country with the advanced of technologies we have. As the business opportunities increases, our country's income may also increases as more new products and services are being created and developed.

2.1.7 Geographical environment

Geographical environment is also one of the factors that must be considered before a decision is made by a business. It refers to the climatic conditions and natural resources such as the location, climate change, weather change, mountains, and landscapes. For example, a business that relies on vegetables and fruit crops must consider the location, seasonal change, temperatures change, rainfall and other conditions in order to make sure the plant grows well and able to produce on time. The geographical environment is the main factor to consider before a business is start. The decisions made by a business must be based on the suitable location, climates and natural resources, so that the business can avoid any losses or damages that suffered by the business.

Malaysia is a strategic location which located in the South East Asia. Malaysia is a country which is rich and endowed with the natural resources such as minerals, petroleum, oil and natural gas.  Malaysia is also a country that free of natural disaster like earthquake and tsunami. Malaysia's climate is considered as equatorial, being hot and humid throughout the year. The average rainfall is 250 centimeters a year and the average temperature is 27 °C which is not too hot or too cold. This climate is suitable for planting and farming throughout the year. This is why Malaysia is known as the agricultural country. This is the key factor for most of the investors prefer to invest in our country and thus enhanced the businesses in our country.

3.0 Conclusion

There are many external environment factors that will influence the decisions in the business organizations in many different ways. Business organizations must always sensitive to the external environment and the changes it undergoes. These business environments scanning help to improve the operations, planned procedures, and policies of an organization. This study contributes to the renovation of an organization which seeks for new practices. It also clearly shows that how it influences Malaysian local business by identifying the strengths of the organization and determining the weaknesses of its competitors and then develops new strategies to the external environment which will lead to the effectively and efficiency of decisions making process.