A business entity depends both on internal and external factors to function smoothly. While an organization may try its best to continuously improve its internal factors, it cannot possibly alter the course of events occurring outside its horizon. These factors are referred to as external factors and have a major bearing on the fortunes of an organization.
Have you ever noted how the shares of companies soar sky-high or come crashing down after the government announces a new policy or a law. There are times when a company suffers immense losses because of a sudden change in the attitude of consumers.
There are myriad factors that affect the prospects of a business and it is essential for a business to have some sort of back-up to sustain the hard times. Corporations try their level best to counter the challenges posed by environmental factors.
To get a better understanding of the environmental factors affecting business policy, let us take a look at each factor in detail.
Consumers are the crux whenever a business venture is created. Organizations produce to sell, but if the spending power of the consumers decreases or they become averse to any particular type of product or service, the organization will be affected immensely.
Social customs too, play an important role in shaping the prospects of a business. This factor has come to foray with the emergence of multinational organizations and their entry in conservative markets.
For example, McDonald's, whose beef burgers have become its signature symbol, consciously abstained from launching any beef based product in India, where cow is considered sacred. However, during the infamous French Fries lawsuit, it had to face resistance from various quarters of Indian society.
Most of the organizations today fiercely contest with each other to woo consumers. Although, the consumer is in a win-win situation and gets many options to choose from, organizations for their part have to be on their toes with all preparedness to counter any marketing or publicity campaigns by the rivals to score over the consumers.
If a rival is able to come up with an innovative product or service, other organizations then need to play the catch-up game, and this factor affects businesses immensely.
Last but not the least, geographical conditions and access to technology are immensely important factors which can affect the growth of a business.
A business which finds it difficult to have access to people, capital, suppliers, and technology may struggle to keep up with its competitors. Similarly, inaccessibility to avant-garde technology will hamper productivity and the quality of the products and services.
Management thinkers over the years have brainstormed to get some answers on how to anticipate changes and prepare an organization to survive a sudden change in milieu. This has helped to an extent, but still organizations around the world should avoid complacency and retrospect to find chinks in their armor, which if ignored can prove fatal.