Elements of the General External Environment

The general environment includes the; distant factors in-the external environment that is general or
common in nature. Its impact on the operations of the firm, its competitors and customers make its
analysis imperative.

We can use the PESTLE model for the identification and analysis of the factors in the general
environment. PESTLE Model covers political, economic, sociocultural, technological, legal, and
environmental (natural).

Political factors.

Economic factors.

Sociocultural factors.

Economical factors.

Legal factors.

(Natural) Environmental factors.

Along with these, we can add additional factors that suit the current modern business atmosphere.

Demographic factors.

International factors.

Let’s see the elements or factors of the general environment.

Political Legal Factors

The political factors of the general environment refer to the business-government relationship and the
overall political situation of a country.

A good business-government relationship is essential to the economy and most importantly for the
business.
The government of a country intervenes in the national economy through setting policies/rules for
business In our country, we see many such policies – import policy, export policy, taxation policy,
investment policy, drug policy, competition policy, consumer protection policy, etc.

Sometimes, the government pursues a nationalization policy for state ownership of a business.

Some countries, such as India, pursue state-driven mercantilism to reduce imports and increase exports.
Some countries; have liberalized their economy and shifted from centrally managed economy to a
capitalist economy or welfare economy.

In many 3rd world countries, the successive governments are emphasizing more on privatization rather
than on state ownership. As global competition has increased, the government has also liberalized its
trade policies to be in line with the WTO agreements.

Another important issue is political stability that affects the operations of business firms substantially.
Evert decision about investment is highly affected by political stability.

We have seen in several countries in Asia, Africa, Latin America, how political instability has in the past
affected investment and trading in the country.

In many 3rd world countries also, political instability or political/ disturbances substantially affected
businesses.

Besides, government agencies and pressure groups (special interest groups) are also exercising
influences on business operations of firms that have a political character.

Managers must be able to understand the implications of the activities of these agencies and groups.
Government agencies include different ministries, the office of the Controller of Imports and Exports,
Board of Investment, National Board of Revenue, etc.
Pressure groups include Consumers Association of Bangladesh, various Chambers of Commerce and
Industry, Employers’ Associations, Environmental Protection Movement and the like.

Since the pressure groups put restraints on the business managers, managers should have clear ideas
about the actions of these groups.

Economic Factors

The economic factor of an organization is the overall status if the economic system in which the
organization operates. The important economic factors for business are inflation, interest rates, and
unemployment.

These factors of the economy always affect the demand for products. During inflation, the company
pays more for its resources and to cover the higher costs for it, they raise commodity prices.

When interest rates are high, customers are less willing to borrow money and the company itself must
pay more when it borrows. When unemployment is high, the company can be very selective about who
it hires, but customers’ buying power is low as fewer people are working.

A country’s economic conditions affect market attractiveness. The performance of business

Several economic variables are relevant in determining business opportunities.

Examples of economic factors include the trend in economic growth, income levels of population,
inflation rate, tax rates for individuals and business organizations, etc.

There is thus a need to analyze the economic environment prudently by the business firms.
The economic environment comprises a distinct variable with which management must be concerned.
The economy of a country can be in a situation of boom or recession or depression or recovery or it may
be in a state of fluctuation.

Managers/strategy-makers must have the ability to predict the state of the economy. the»s warrants
the necessity of studying the economic environment to identify changes, trends and their strategic
implications.

Business organizations operate their businesses in markets consisting of people.

These people are likely to become customers when they have purchasing power. And purchasing power
depends on income, prices, savings, debt and availability of credit.

Therefore, business organizations must pay attention to the income and consumption patterns of the
customers.

However, all the economic variables in the economy must be treated holistically for the clear envisioning
of the entire economy and the market

Socio-Cultural Factors

Customs, mores, values and demographic characteristics of the society in which the organization
operates are what made up the socio-cultural factors of the general environment.

The socio-cultural dimension must be well studied by a manager. It indicates the product, services, and
standards of conduct that society is likely to value and appreciate. The standard of business conduct
varies from culture to culture and so does the taste and necessity of products and services.

Socio-cultural forces include culture, lifestyle changes, social mobility, attitudes towards technology, and
people’s values, opinion, beliefs, etc.
A society’s values and altitudes form the cornerstone of society. They often drive other conditions and
changes. The hand for many products changes with the changes in social attitudes.

Socio-cultural factors differ across countries.

In many countries, worker diversity is now a common phenomenon.

We find in first world countries the increasing life span of population, trend towards fewer children,
movement of population from rural areas to urban areas, increasing rate of female education, entry of
more and more women into the mainstream workforce, etc.

All these have a primary effect on a country’s social character and health.

Therefore, managers of business organizations need to study and predict the impact of social and
cultural changes on the future of business operations in terms of meeting consumer needs and

interests.

Business firms must offer products in the society that correspond to their values and attitudes.

Technological Factors

It denotes to the methods available for converting resources into products or services. Managers must
be careful about the technological factor. Investment decisions must be accurate in new technologies
and they must be adaptable to them.

Technological factors include information technology, the Internet, biotechnology, global transfer of
technology and so forth. None can deny the fact that the pace of change in these technological
dimensions is extremely fast.
Technological changes substantially affect a firm’s operations in many ways. The advancement of
industrialization in any Country depends mostly on the technological environment. Technology has
major impacts on product development, manufacturing efficiencies, and potential competition.

The business organizations facing problems with changing technology are always in more difficulties
than those organizations that have stable technologies.

The effects of technological changes occur primarily through new products, processes, and materials. An
entire industry may be transformed or revitalized due to the use of new technology.

Strategy formulation is linked to technological changes. An intelligent response to the ever-increasing

Strategic managers need to monitor developments in technology for their particular industry when
formulating a strategy. A quick and thorough study of technological changes; helps managers achieve a
higher market share because of the early adoption of new technology.

A firm must be aware of technological changes to avoid obsolescence arid promote innovation. It means
that strategy managers of an organization must be adept in – technological forecasting. Technological
forecasting can

Legal Factors

The legal environment consists of laws and regulatory frameworks in a country. Many laws regulate the
business operations of enterprises such as the Factories Act, Industrial Relations Ordinance, the Contract
Act, and the Company law, just to name a few.

Business laws primarily protect companies from unfair competition and also protect consumers from
unfair business practices.
Business laws also protect society at large. The laws regarding a merger, acquisitions, industry
regulation, employment conditions, unionization, workmen’s compensation and the like affect a firm’s
strategy. Even globalization has caused significant repercussions in the legal environment.

Thus, the business managers must have thorough knowledge about the major laws that protect business
enterprises, consumers and society.

And the overall situation of law implementation and justices in a country indicates that there is a
favorable situation in business in a country.

Environmental / Natural Factors

Strategy-makers need to analyze the trends in the natural environment of the country where it is
operating its business.

The most pertinent issues in the natural environment that strategy-makers should consider include the
availability of raw materials and other inputs, changes in the cost of energy, levels of environmental
pollution, and the changing role of government ‘in environmental protection.

Changes in physical/natural environment, such as global warming, will heavily affect our daily lives and
the functioning of our organizations with a variety of consequences.

Demographic Factors

The demographic environment is concerned with a country’s population.

Specifically, it is related to the population’s size, age structure, geographic distribution, ethnic mix, and
income distribution.

With over 7 billion population the demographic changes are evident all over the world. In some
countries there is negative population growth and’in some countries, couples are averaging fewer than
two children. In general, the average age is increasing.
In many countries, rural-urban migration is rampant. These trends suggest numerous opportunities for
firms to develop products and services to meet the needs of diversified groups of people in society.

Strategy-makers must make an analysis of the demographic issues, especially, size and growth rate of
population, age distribution, ethnic mix, educational level, household patterns, and inter-regional
movements.

International Factors

Virtually every organization is affected by international factors. It refers to the degree to which an
organization is involved in or affected by businesses in other countries.

Global society concept has brought all the nation together and modern network of communication and
transportation technology, almost every part of the world is connected.

General external environmental factors are interrelated with organizational success.

Therefore, strategy-makers need to analyze all of them in an interrelated fashion to understand and
visualize the ‘whole of the environment.