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Each and every business irrespective of its size is surrounded by an environment. The business has the internal environment and the external environment. The internal environment is equally important like the external one. But the internal environment is very much controllable as it is in the hands of the business. The external environment is uncontrollable to a greater extent. There are several challenging business environmental factors. The external environment is divided into micro environment and the macro environment.
The micro environment is the study of a tree in the forest and the macro environment is the study of the forest. The micro environmental factors do not affect all the companies in similar way. They affect based on the strategic management of the company.The micro environment factors are the:
- Input suppliers
- Worker's and their unions
- Marketing intermediaries
- General public
The macro environment factors refers to all those economic and non economic factors which exercise their business activity in general and thus determine opportunities that are avoidable to company to promote its business. The macro environmental factors play a crucial part in the business activities. Whenever a business plans for new activities it should build its strategy by keeping in mind the macro environmental factors. If these activities are sidelined then the business will not be able to reap the benefits out of the activity. The macro environmental factors are abbreviated as PESTEL. The term 'P' stands for political, 'E' for economic, 'S' for social, 'T' for technological, 'E' for environmental and 'L' for legal factors. These factors are very challenging as they have an impact on the business activities. If the business does not consider these factors then they have to face the risk that arises out of this.
- POLITICAL FACTOR
- ECONOMIC FACTORS
- SOCIAL FACTORS
- TECHNOLOGICAL FACTORS
- ENVIRONMENTAL FACTORS
- LEGAL FACTORS
The political factors are those factors that arise out of the political environment. The business should first acquaint itself with the political policies that the ruling government imposes. If the business activities are against these political factors then they have to face the political risk. Thus, before entering the market the business should keep in mind the various political aspects.
The economical factors are also very important. As the business contribute towards the economy. It contribute to the various economic factors such as the national income, per capita income, gross domestic product, money supply, price level, employment generation, etc., the business has the responsibility to contribute towards these economic factors. If they do not contribute to these factors then there is no meaning in setting up of the business. They also contribute to the economy by participating in the financial markets, providing employment opportunities, improving the standard of living of the employees.
The business and the society go hand in hand. Both the society and the business are interdependent. The business should always produce such products which surpass the expectations of the society. The business should not only concentrate on profit maximization but also on the welfare of the society. They can undertake the societal development by contributing donations to charitable organizations, setting up of welfare centers, etc., the business should take utmost care and they should consider the social factors such as the culture, values, taste, preferences and so on. The business should take the responsibility to address these social factors as the business is for the people.
The technological accelerates the business activities. The business should acquaint itself with the technological changes. The technology helps the business to carry out the operations at a faster pace. The globalization concept has been successful to a greater extent by the internet technology. Each day brings a new technology. The older ones become obsolete. The wider use of the technology has made the government to formulate policies to protect the interests of the users.
The business premises is surrounded by the environment. It is the business's responsibility to safeguard the environment. It should take care that the wastage that is discharged by the business should not be hazardous and contaminate the environmental factors such as the air, water and land. The companies should follow the various environmental acts that have been prescribed by the government. The violation of such acts may lead to shutting down of the company.
The legal factors provide the safety and the security to the business. There are various rules and regulations that the business needs to follow. It could be foreign exchange management, essential commodities act, patents, copy rights, labor laws, corporate management, and consumer protection act and so on. The business should confirm the laws and should and must abide by the laws for smooth functioning.
The stakeholders are those people who have investments, shares or interest in something such as the business or the industry. The business is responsible as to how they are allocating the capital that has been formed with the help of the stakeholders. The stakeholders include the shareholders, the creditors and the customers. The stakeholders matter a lot to the business. Whatever activities that a company plans to take up they should also think that what impact does those activities have on the stakeholders. Moreover when the creditors advance credit to finance the activities the business should use the money for those activities only.
When a business plans for the expansion activities it should present the expansion activity to the stakeholders as they are the one who help to form the capital that is required for the expansion activities. The stakeholders and the shareholders always compete with each other to gain the business concentration. But it is the shareholders who share the profits as well as the lossess of the company but the stakeholders always have expectations and they withdraw their support when the business suppresses their expectations. But the business cannot sideline the shareholders and the stakeholders. The stakeholders are the cause of the business and if the business does not meet their expectations then it has to face many consequences. So it should concentrate both on the shareholders and the stakeholders by developing the strategies that challenge the business environmental factors.