Management Essentials CA-1

“Effects of External Environment on Business and

Management”
- Riya Banthia -21060322124

"From time to time, organizational environments undergo catastrophic upheavals which lead to
changes that are so sudden and extensive that they alter the trajectories of entire industries,
overwhelm the adaptive capacities of resilient organizations, and surpass the comprehension of
seasoned managers."
-(Meyer et al., 1990)

The elements outside of a company's authority that have a consequence on procedures and
triumph are known as external effects. Factors related to the external environment are crucial
because they can directly or indirectly influence a corporation's revenue, employees, and
operations. A company's superficial climate is continually changing in ways beyond its control.
These Factors involve the Economic Environment, Demographic Content, Technological
impacts, Socio-cultural impacts, Political or Legal changes and Competitors in the industry.
Organizational theorists stress that organizations must adapt to their environment to remain
viable, even though it may be impossible to demonstrate a direct correlation between the external
environment and organizational success.

The strategic success formula proposed by Ansoff and McDonnell and Ansoff & Sullivan (1993)
emphasizes this, arguing that excellent firm performance is ensured when an organization's
strategy is responsive to the environment's turbulence, and the organization's capabilities should
match the strategy's aggressiveness. The organization must consider external environmental
opportunities and dangers, existing and future potential, internal potential, the forces and
weaknesses of the organization, and competitive advantage over competitors when forming
policy options.
Economic Environmental factor-

Financial crises are caused by shortcomings and failures in the financial markets, and economic
problems result from sudden and unpredictable situations in the overall economy. Interest rates,
inflation, currency rates, fiscal policies, pricing variations, etc., directly impact business
organizations.
For instance, when we talk about the Asian crisis of 1997 or the death throes of Asian state
capitalism caused by the burst of the hot money bubble and currency exchange rate. In July
1997, it began in Thailand and quickly spread throughout East and Southeast Asia. Significant
macroeconomic repercussions of the crisis included dramatic drops in the values of several Asian
countries' currencies, stock markets, and other asset prices. In 1997 and 1998, the nominal GDP
of ASEAN in US dollars decreased by $9.2 billion and $218.2 billion (31.7%). This led to a
massive strike in business throughout the world.

The Demographic Component-

Age, gender, education, income, and experience are just a few examples of demographic
variables that significantly impact how well a business performs. Businesses use demographic
information to understand better the traits of the customers who consume their goods and
services. By selecting essential characteristics, preferences, and requirements, they assist in
identifying the various audience members. This enables businesses to focus their efforts on
certain client base groups.

Regarding location, Dubai's proximity to oil resources provides it with an abundance of wealth,
enabling Dubai's businesses to thrive. The headquarters of several of the top 500 global
companies are in Dubai. A zero-tax regime, safe and sound government, a world-class financial
hub, an educated supply of human capital with a variety of professional backgrounds coming
from all over the world, and no restrictions on capital repatriation are all examples of how it has
developed. Thus, the demographic location characteristic is appropriately used.
Technological Factor-

"Globally, the business environment has become highly dynamic, unpredictable, and
competitive" (Kuratko, Ireland, & Hornsby, 2004).

For firms, technological transformation can present benefits and possibilities. Undoubtedly, new
technology can develop novel goods and services, opening up entirely new markets for a
company. Additionally, technological advancements and procedures can boost production and
cut expenses. It might be argued that no market exists that necessitates the application of
pressure brought on by technological advancement, hence creating a market.

But there can also be various problems when the supply doesn't meet the demand due to other
factors. Like when we talk about the global chip scarcity, the coronavirus epidemic brought the
shortfall that forced chip plants worldwide to shut down, and the situation was made worse by
the surge in demand for gadgets. Vehicle manufacturers such as Ford Motor, General Motors,
Toyota, Nissan, Subaru, and Stellantis were forced to cease manufacturing due to scarcity
(formerly Fiat Chrysler).

Socio cultural Factor-

People's emotions, values, beliefs, behaviors, attitudes, and interactions are influenced by
socio-cultural variables. The lifestyles, purchasing patterns, demographics, social classes, sexual
orientation, and consumers' views are among them. These elements determine whether an
organization's goods and services are appropriate for the demands of its clients. Social
determinants include age distribution, wealth and income disparities, population size and pace of
increase, and population density; social mobility, job market mobility, work attitude, health, and
educational levels are all factors.
Websites offering services or Web content are increasingly adopting a subscription-based
revenue model. After becoming so used to getting things for free, will customers be prepared to
pay for online services or content? The popularity of various series available on Netflix, Amazon
Prime, or Hotstar is rising. Since billions of people have subscribed to them to connect them to
socio-cultural factors, businesses are quickly capitalizing on this by mentioning numerous
programmes, data plans, and student discounts.

Political/ Legal Factor-

Political, governmental, and policy framework elements make up the organization. The relational
system established between political authority and business is referred to as the policy
framework. When the government of India announced its new Industrial strategy in 1991, it
significantly changed the Indian economy and aided businesses in achieving advanced growth.

The policy's three pillars were liberalization, privatization, and globalization. There was
increased competition from Indian firms; there was new customer demand. This policy allowed
Indian businesses to enter the foreign market; there was a technological advancement and a
change in the marketing concept. This law impacted the entire business industry of India.

Competitors-
In business, competition reduces a company's market share and the pool of potential customers,
exceptionally if demand is constrained. Reduced profit margins for each sale or service might
result from a competitive market's need to cut prices to remain competitive. A flooded market is
an extreme case.

For businesses, competitors can be difficult. For instance, some rivalry might be territorial
(inside the same city or area), where one company seeks to drive out another by lowering prices
or making deals that rival companies can't match. For instance, if two driving instructors provide
instruction in the exact location and one charges £100 per lesson. In contrast, the other charges
£280 per class. It is unlikely that the more costly instructor will be able to compete with the less
expensive instructor.

These are the major External environmental factors that affect or impact the business and
management throughout. I would like to end the following essay by quoting Frederick Soddy-

"There is something sublime about its aloofness from and its indifference to its external
environment."
- Frederick Soddy

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