Business Environment: Internal & External Factors

• The business environment is where factors affecting businesses are activated.
• Businesses must adapt continuously to the dynamic environmental forces.
• To be successful, businesses need to constantly monitor their environment to spot new opportunities arising from environmental changes and trends.

Classification of Business Environment

• The business environment is classified into internal and external environments.
• The chapter discusses parties and forces in both environments.
• The internal environment includes owners, managers, and employees.
• The external environment includes customers, suppliers, competitors, the political environment, the legal environment, the technological environment, the economic environment, and the global environment.
• The internal environment includes parties and forces within a business
• Owners supply the required capital and their financial strength, business knowledge and experience lead to the success of a business.
• Managers take decisions to direct resources to achieve the owners' objectives and are responsible for building relationships between customers and employees.
• Employees perform assigned tasks using their skills and dedication.
• The external environment includes parties and forces acting outside the business.
• Customers buy goods and services, the survival of a business depends on its customers; businesses must identify and satisfy customer needs and buying patterns.
• Competitors are businesses producing similar goods or services; their activities, price, quality and marketing closely influence a business.
• Suppliers provide raw materials and services, it is vital that the supply is on time with quality materials.
• The political environment includes government policies that affect business and example policies are: infrastructure development and fiscal policy.
• The legal environment consists of laws and regulations protecting consumers, domestic manufacturers, business communities and the environment.
• The government appoints institutions, boards, and authorities to enact these laws.
• Examples from the legal environment include: Companies Act No. 07 of 2007, Consumer Affairs Authority Act No. 09 of 2003, Shop and Office Employees Act No. 14 of 1954
• Institutions that enforce these laws are: Registrar of Companies, Consumer Affairs Authority, Public Health Inspector, and Central Environmental Authority.
• Legal regulations and institutions limit the ability of businessmen to conduct business as they wish. Government.
• Every businessman has an obligation to complies with applicable laws and regulations like those imposed by the government.

Technological and Economic Environment

• The technological environment grows rapidly due to new innovations, changing business activities and lifestyles.
• Advancements in computer, communication, production, nanotechnology, digital, and transportation technologies have significantly changed the business environment.
• Examples of technology's impact include:
  • Fabric manufacturers now use modern machines and computer technology.
  • Businesses use telephones and e-mails instead of snail mail.
  • Businesses provide telephone numbers, e-mail addresses and invite customers to visit we sites.
  • Computers and systems are used to record accounting information.
  • Production processes are automated by using computerized machines.
• Some goods and services become outdated quickly due to rapid changes.
• The economic environment consists of economic factors affecting businesses and the government is responsible for this.
• Interest rates affect bank deposits and loans.
• Inflation is where a continuous increase occurs in the general price of goods and services.
• Income distribution affects how the national income is distributed among the people.
• If everyone can find suitable employment a country will achieve full employment.
• International relations are relationships between countries.
• Foreign exchange is the rate at which one currency can be exchanged with other.
• Savings is the proportion of income individuals keep without spending on consumption and high savings result in investment funds.

Global Environment and Business

• Globalization is the mutual relationship among countries.
• Globalization allows business activities free from border restrictions due to information and communication technology advancements.
• The world is now a single global village and goods, services, labor and capital are easily transported.
• The global environment has both positive and negative impacts on domestic businesses.
• Positive impacts include:
  • Access to the latest tech and foreign capital.
  • Ability to obtain quality raw materials from abroad.
  • Ability to obtain efficient machines.
  • Possibility of finding foreign markets for domestic goods and services
• Negative impacts include:
  • Highly competitve environment.
  • Domestic skilled workers migrating to foreign countries.
  • Instability of domestic businesses.
  • Risk of negative changes to the local culture.

Importance of Studying the Business Environment

• Internal and external environments positively and negatively impact businesses.
• Businessmen study the business environment to identify conditions.
• Strengths and weaknesses are identified by studying the internal, where the strengths can be used, and weaknesses improved.
• Examples of strengths:
  • Availability of adequate capital.
  • Experienced managers.
  • Specialized knowledge and dedication by employees.
  • Specialized production methods.
  • Recognized brand name.
• Examples of weaknesses:
  • Insufficient business knowledge of owners.
  • Limited financial capability of owners.
  • Scarcity of trained workers.
  • Knowledge about new technologies not being updated.
  • Negative attitude of workers.
  • Unfavorable geographical location
• Opportunities and threats are identified by analyzing the external environment.
• Examples of opportunities:
  • Changes in the life style of consumers.
  • Introducing low interest government loans.
  • Providing tax incentives for businesses.
  • Designing new cities.
  • Constructing highways.
• Examples of threats:
  • New competitors entering the industry.
  • Natural disasters.
  • Imposition of international trade embargo.
  • Difficulties adapting to new technological methods.
• Strong businessmen continuously monitor the internal and external business environment.
• Businesses can utilize strengths/opportunities and minimize/avoid weaknesses/threats.