TOTAL ENVIRONMENT OF

THE FIRM
The environment in which a firm operates
consists of a rich kaleidoscope of
CULTURAL ,
POLITICAL , and
ECONOMIC factors.
- a combination of Constraints and
Opportunities within which the internal
make up of the firm impinges on it
Remember!

Every businesses’ strategy is for

“GETTING FROM WHERE WE ARE

NOW TO WHERE WE WANT TO BE.”

How to achieve this?

Top Management should…
1. Be cognizant of the firm’s capabilities as
well as weaknesses
2. Understand where the firm stands at all
times in relation to its environment
knowing that all are subject for changes

Old Saying says: “ The only things that we

are certain of are DEATH and TAXES.”
CHANGES
usually lie outside the firm’s sphere of
influence

now the most effective and best laid

plan is that which

ANTICIPATES and WORKS

TOWARD such CHANGE
CHANGES
also takes place within the firm itself
but only on those areas where
top management has control over:

Financial Structure , physical plant/factory,

and capabilities of its management and its
workers
Factors that could affect the
management of a firm
1. EDUCATIONAL
-integral part of the environment
-concerns on the percentage of literacy
and educational levels that may affect:
a. Marketing approach of the product which
the firm is to produce
-media and techniques
-tastes and preferences
Factors that could affect the
management of a firm:
b. The type of workers and managers the
firm will be able to hire
-language/communication problems
-more supervising to do
-convey instructions orally
Characteristics of being illiterate
 tend to be sick more often
 (society) less capable of supporting a stable
government
Contributes more to the incline of business
operations toward
INEFFICIENCY

-source: Comparative Management and Economic Progress by Farmer and Richman

How to answer this issue?
There is little the individual firm can do to
affect the external educational
environment namely:
 Provide literacy and technical training/s
 Supervisory training (one-on-one)
 Management development courses
Therefore

the key to strengthen a firm’s ability to

achieve its goals is

PERSONNEL
DEVELOPMENT
Factors that could affect the
management of a firm:
2. SOCIO-CULTURAL
-influence both the firm’s external environment
as well as its internal system
DIMENSIONS OF CULTURE:
-credits to Geert Hofstede
1.Individualism
– extent that people in a culture define
themselves primarily as individuals rather than
as part of one or more groups
 DIMENSIONS OF CULTURE
2. Collectivism – characterized by tight social
framework in which people tend to base their
identities on the group where they belong
3. Power Distance/ Orientation to Authority
-extent to which people accept as normal an
unequal distribution of power
4. Uncertainty Avoidance/Preference for Stability
-extent to which people feel threatened by
unknown situations and prefer to be in clear and
ambiguous situation
 DIMENSIONS OF CULTURE
5. Masculinity/ Assertiveness/ Materialism
-extent to which the dominant values in a society
emphasize aggressiveness and the acquisition of
money and other possession
6. Long-term Orientation – includes forecasting on
the future, working on projects that have distant
payoff
7. Short-term orientation – more oriented toward the
past and the present and includes respect for
traditions and social obligations
4 SOCIO-CULTURAL
FACTORS
1. The legacy of the frontier –a spirit that has
fostered a sense of opportunity
2. Faith in business and in individual
3. Belief in Change
4. Idea of competition
Remember:
Many management principles, techniques and
practices which are effective in one culture cannot
easily be transplanted into another culture.
 Factors that could affect the
management of a firm:
3. ECONOMIC
a. Market Size - is the total number of likely buyers of product or service within a
given market.
b. Central Banking system and monetary policy
c. Fiscal Policy - is concern with the level of government spending as well as the taxing
system.

d. Economic Stability
e. Organization of Capital Markets
f. Factor Endowment - is commonly understood to be the amount of land, labor,
capital, and entrepreneurship that a country possesses and can exploit for manufacturing.

g. Social Ahead Capital

-availability and quality of power supplies, water, communication systems,
transportation, warehousing etc.
h. Competition
Factors that could affect the
management of a firm:
4. ADMINISTRATIVE and POLITICAL
a. Relevant legal rules of the game
-general business law
-labor law
-tax law
b. Defense Policy – in terms of trading and purchasing policies
c. Foreign Policy – in terms of quotas, foreign exchange and
tariffs
d. Political Stability – changes in leadership
e. Political Organization – type of organization, degree of
centralization or decentralization
Factors that could affect the
management of a firm:
5. International Factors
a.View toward foreigners – the general
attitude toward non-nationals
b. Import-export restrictions
c.Relevant legal rules for foreign business
d.Power of economic bloc grouping