External Environment – Type of Business Environment

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External EnvironmentExternal Environment
Introduction to Management (ITM)
Third Semester | Second year
BSc.CSIT | Tribhuvan University (TU)

External Environment
The external environment is everything outside an organization that might affect it. The factors and forces outside the organization that affect the organization’s performance is external environment. The external environment is composed of two layers and they are;

  • General Environment and
  • Task Environment

General Environment
General environment refers to broad external conditions that may affect business activities of an organization.  It is also known as macro environment or remote environment. It is beyond the control of the business/organization and requires proper monitoring of the components to adopt on the basis of emerging changes. It creates threats and opportunities to the business organization.  It consist several components as follows;

  • Economic Environment
  • Socio-cultural Environment
  • Political Environment
  • Technological Environment
  1. Economic environment: Economic factors which affect the working of the business are known as economic environment. It is largely determined by the economic system of the country.  Poor economic conditions make environment more complex and manager’s job more difficult and demanding.
  2. Socio-cultural environment: Social cultural environment includes values, norms, beliefs, lifestyles, accepted behavior patterns of people, family systems and customs of people in a given society.  These elements of society directly influence business organizations.  Managers must be responsive to changes in the social structures and national cultures of the country in which they operate.
  3. Political environment:The political environment mainly refers to the political structure, composition of bureaucracy, philosophy of the ruling government, the political stability, public opinion, and government – business relations.  The degree of political risk existing in a country determines the investment climate in that country.
  4. Technological environment:Technical environment refers to all the technological surroundings that influence organization. Technology consists of skills, methods, systems and equipment. It is a means to transfer input into outputs. Technology influences organizations by bringing about changes in jobs, skills, life styles, production methods and processes.  Radical developments have occurred over the past several years in communication, information, and automation including robotics. These developments not only present huge opportunities for business organizations in terms of enhanced effectiveness, but also place heavy demands on them in the ever increasing competitive markets.

Task Environment
Task Environment involves factors in the immediate competitive situation of a particular organization. It is also called the competitive or operating environment. Forces in the task environment result from the actions of suppliers, distributors, customers, and competitors.  These groups affect a manager’s ability to obtain resources and order of outputs. The task environment can be influenced or controlled, to some extent, by an organization.

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