UTTARANCHAL UNIVERSITY

(Established vide Uttaranchal University Act, 2012, Uttarakhand Act No. 11 of 2013)

Premnagar-248007, Dehradun, Uttarakhand, INDIA

ASSIGNMENT COVER PAGE

Name of Student: RAHUL MISHRA

Batch: JAN-2024

Program: MBA(OL)

Subject & Code: BUSINESS ENVIRONMENT OMBA-114

Semester: 1st SEM

Learner ID: 2325010323

NECESSARY INSTRUCTIONS

1. Cover Page must be filled in Capital Letters. All Fields of the Form are
compulsory to be filled.
2. The assignment should be written / computer typed on A4 size paper and
it should be neat and clearly readable.
3. The cover page should be stapled at the front of each and every
assignment.
4. Incomplete Assignments will not be accepted.
 External environment
Introduction
All businesses are impacted by their external environment. Sometimes a business has
to act upon and react to what happens outside of the scope of its operations. These
external influences are known as external factors. Multiple different factors can
influence a business's external environment. These factors are often unpredictable
and can change suddenly.

The external environment plays a huge role in the types of strategies and actions a
business decides to implement. The external environment can affect competitiveness,
budgeting, decision-making, and the marketing mix.

The main external factor that influences business most is competition.

Competition is the degree to which businesses compete with one another in

the market.

Most businesses, especially when operating in a popular industry, will have to face
intense competition. The amount and type of competition mostly depend on the
industry a business operates. Although competition is one of the most significant
factors, several other external aspects affect the strategies and actions taken by a
business.

External environmental factors

Four main components make up the external environment of businesses. These are
the main external factors you have to consider when operating a business.

Economic factors
Several economic factors can influence the business environment. One of them
is market conditions. Size and growth rates are good indicators of market
conditions. Market conditions are made up of many different economic elements that
affect the attractiveness of a market. For instance, good market conditions can be
described by economic growth and increasing market demand. Economic growth
measures the value of output in a country's economy. One way you can measure
economic growth is through Gross Domestic Product (GDP). This is the total value of
all finished goods and services produced in a country's economy during a given
period. Another factor is market demand, which measures how much of a good or
service consumers are willing and able to pay for.
Demographic factors
Demographic factors are related to the population. For instance, an increase in the size
of a population will most likely lead to an increase in demand for goods and services,
as there are more potential consumers. Changes in the age of a population will also
have significant influences on businesses.

An ageing population (more old people) will have different demands than a younger
population. Older consumers tend to want and need different goods and services than
young people.

Environmental and social factors

Society increasingly expects higher standards of environmental and sustainability-
related awareness from businesses. Unfortunately, a lot of businesses contribute
significantly to the creation of environmental damage.

Some governments have stepped up in this regard, passing certain legislation in

order to protect the environment. Many governments impose quotas on the amount of
harmful substances firms can emit within a timeframe, and fine businesses that over-
pollute or ignore the legislation. These legislations are there to force firms to take into
account the social costs (the cost to society and the environment) of production.

External environment analysis

A useful tool for analyzing the external environment of an organization is 'PESTLE'.
PESTLE analysis takes a look at six different external factors that could have an
impact on your business and rates the intensity and importance of each. PESTLE
stands for political, economic, social, technological, legal, and environmental/ethical
factors.

External environment analysis Full form

P
Political
E
Economic
S
Social
T
Technological
L
Legal
E
Environmental/ethical
Political
The 'P' in PESTLE. Political factors play a huge role for businesses operating in certain
industries. Political factors include:

 Political stability

 Government stability

 Industry regulations

 Competition policy

 Trade union power

Economic
The first 'E' in PESTLE. As outlined earlier, economic and market factors can
significantly impact business functions. Some economic factors to consider include:

 Interest rates

 Inflation rates

 Unemployment

 GDP and GNP trends

 Investment levels

 Exchange rates

 Consumer spending and income

Social
The 'S' in PESTLE. These socio-cultural factors include:
  Demographics

 Lifestyles and lifestyle changes

 Education levels

 Attitudes

 Level of consumerism (how important consumption of goods and services is to

people of a certain demographic)

Technological
The 'T' in PESTLE. Technology, especially in today's society, plays a huge role
in business development and decisions. With technology developing rapidly, here
are a few factors to keep in mind when considering the external environment of the
business:

 Levels of government and industrial R&D investment

 Disruptive technologies

 New production processes

 Big data & AI

 Speed of technology transfer

 Product life cycles

Legal
The 'L' in PESTLE stands for legal considerations regarding the external environment
of a business. These include:

 Trade policies
  Legislative structures

 Employment legislation

 Foreign trade regulations

 Health and safety law

Environmental/ethical
Finally, the second 'E' stands for environmental and ethical factors. These include:

 Sustainability laws

 Tax practices

 Ethical sourcing

 Energy supply

 Green issues

 Carbon emissions and pollution

External Environment - Key takeaways

 All businesses are impacted by their external environment. Sometimes a
business has to act upon and react to what happens outside of the scope of
its operations.

 The external environment, also known as the macro environment, is out of

the control of an individual business.

 Factors like competition, market, economic, demographic, and

environmental factors all play a role in the external environment of an
organization.

 Market factors are measured based on market conditions and demand, or

the size and growth of the market.
  Economic factors include interest rates and income levels of the population.

 Demographic factors are related to the size and age of the population.

 Environmental factors are related to levels of emissions and the social

responsibility of firms.

 An effective tool for analyzing the external environment is a PESTLE

analysis.

 PESTLE evaluates political, economic, social, technological, legal,

environmental, and ethical factors.

Conclusion

Organizations often use tools like PESTLE analysis (Political, Economic,

Sociocultural, Technological, Legal, and Environmental analysis) to systematically
evaluate and monitor these external factors. By doing so, they can better anticipate
changes, adapt to external pressures, and leverage opportunities for growth and
success.