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External Environment - Coggle Diagram
External Environment
Technological factor
Some of the biggest technological changes over the last few decades are related to the explosion of innovations in information technology.
Closely linked to the growth of information technology is the increasing availability of big data that can be exploited by companies to understand and meet the needs of their clients.
Other key technologies include nanotechnology, with applications in fields as varied as textiles and electronics, and genetic engineering, which is leading to advances in medical and agricultural science.
a more traditional factor to take into consideration is the availability of infrastructure, particularly in developing countries. Infrastructure includes things like ports and road and rail networks, drinking water and sanitation facilities, and communication networks and reliable electricity, all of which are necessary to doing business.
Ethical Factor
Companies are increasingly under fire for marketing products that may not be in consumers’ best interests. Many people would argue that it is unethical to market sugary cereals and fizzy drinks as well.
Even in the west, movements opposing unfair labour practices must be considered.
Companies’ pricing policies, such as discriminatory pricing and predatory pricing, may have ethical components.
Each year, Transparency International publishes its 'Corruption perceptions index', which indicates to what extent corruption is a problem in individual countries. Corruption includes anything from buying votes to paying direct bribes to public officials in exchange for preferential treatment.
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Sociocultural Factor
Relate to the way people live and what they believe and value. This factor therefore includes a wide variety of considerations.
Religion includes consideration of both the dominant and minority religions of the population, as well as the importance and influence of religion in daily life.
Cuisine is also included in sociocultural factors: what do people eat, at what time, and with whom?
Family life: Are families large or small? Is the nuclear family the essential family unit, or do extended families including several generations live together under one roof?
Demographics is included with sociocultural factors. What are the statistics in terms of fertility and life expectancy? What does the pyramid of age look like?
Health and types of diseases can also be included in this category. What diseases are most prevalent in the country and do all citizens have access to health care?
Education is another element included in sociocultural factors. How long is the formal education system in the country?
Economic Factor
As economies develop, consumers have more money to spend
Gross domestic product
Is calculated as the total monetary value of all final goods and services produced in an economy in a given period of time. Anual GDP is often used to estimate the overall size of an economy.
GDP per capita
Is calculated by dividing total GDP by the population of a country. Is used to measure the relative wealth or poverty of a nation
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Inflation
Refers to an increase in prices, usually calculated as an annual rate of increase.
Deflation
Refers to a decrease in prices. Is less common than inflation, although it does occur when economies slump
Interest rate
Is the cost of borrowing money. Vary over time, and also according to risk. When interest rates are low it its generally positive for businesses. Low interest rate can also encourage consumers to buy goods on credit, thereby increasing demand
Unemployment rate
Is calculated as the percentage of the labour force that is out of work but actively seeking employment at a given time
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Political Factor
Politics is ever-present in business decision-making. From a sole trader seeking permission from a local government to open a new outlet, to a multinational company seeking access to oil fields, all businesses have to take political factors into account.
Legal Factor
Business must at a minimum abide by all existing laws and regulations. Companies must obey the law not only in their home countries, but in all the countries where they operate.Some companies are not content to be observers, but even hire lobbyists that try to influence legislation that will have an impact on business.
The potential for litigation is an issue in many industries. Companies can be sued by governments for anti-trust behaviour, by other companies for anti-competitive practices, by employees for unfair practices, and by consumers for producing harmful or potentially harmful products.