THE FIRM AND ITS

ENVIRONMENT
Business Environment
May be defined as the total
surroundings, which have a direct or
indirect bearing on the functioning of
business. It may also be defined as the
set of external factors, such as
economic factors, social factors,
political and legal factors, demographic
factors, technical factors, etc. which are
uncontrollable in nature and affects the
business decisions of firm.
The Environmental Forces

Competitive

Economic
Political
Environmental
Forces

Legal and
Regulatory Technological

Sociocutural Factors affecting business

environment
The following are the uncontrollable forces in
the external environment:
Sociocultural Environment – refers to the structure
and dynamics of individuals and groups and their
behaviors, beliefs, thought patterns and lifestyles,
interpersonal relationship, poverty, life expectancy
rate, literacy, etc.
Political Environment – this includes the political
form, the government policies, and attitude towards
The business community. All these aspects have a
substantial alignment with the strategies adopted
by business firms.
Technological Environment – technology includes the
methods, techniques, and approaches adopted for
product goods and services and its distribution.
Legal Environment – this refers to the set of laws,
regulations, and legalities that affect the business
operations. Every business organization has To Follow
and obey within the framework and requirements of
The law.
Competition – “know thy competitors” is the rule of the
thumb in the industry would give the firm a good
vantage point.
Economic Environment – this refers to economic
growth, interest rate, foreign exchange rates, inflation
rates, unemployment rates, globalization of the
economy, etc.
PEST and SWOT Analyzes Framework
As business management practitioner, analysis and
evaluation are necessary for learning the internal and
external factors that can affect the business operation to
be able to come up with excellent strategies to survive the
competition in the industry. SWOT and PEST analysis are
the two most common analyses framework being used.
SWOT Analysis simply means Strengths, Weakness,
Opportunities and Threats was first tested by Albert
Humprey (1926-2005), American business management
consultant while doing a research project at the Stanford
Research Institute (SRI) in the 1960s and 1970s.
SWOT examines four elements:
1. Strengths – The advantages or the internal attributes that
support a positive result, or the edge that you have over the
competitors.
2. Weakness – The disadvantages or internal
characteristics that work against a successful
outcome compared to the competitors.

3. Opportunities – Current external factors or

trends that can be used to be taken advantage.

4. Threats – Current external factors which

may cause a problem to cause a negative
impact and can jeopardize the business.
FRAMEWORK OF SWOT
Favourable Unfavourable

I Strengths Weaknesses
N  What are your weaknesses?
T  What are your strengths?  What do your competitors do
E  What do you do better than others better than you?
R  What unique capabilities and  What can you improve given the
N resources do you possess? current situation?
a  What do others perceive as your  What do others perceive as your
l strengths? weakness?

e Opportunities Threats
X  What trends or conditions may
T  What trends or conditions any negatively impact you?
E positively impact you?  What are your competitors doing
R  What opportunities are available that may impact you?
N to you?  Do you have solid financial
a support?
L  What impact do you weaknesses
have on the threats to you?
 PEST analysis refers to Political, Economics, Social and
Technological that describes A framework of macro-
environment or The uncontrollable external factors used
in doing an environment scanning for market research as
part of strategic management.
PEST analysis framework has four factors:
Political – it is how the government intervenes in the
economy. The laws, global issues, legislation, regulations,
which may have a direct effect on the business.
Economic- Taxes, interest rates, inflation, the stock markets
and consumer confidence have to be taken into account.
Social – Changes in lifestyle and buying trends, media,
major events, ethics, advertising and publicity factors.
Technological – Innovations, access to technology, licensing,
manufacturing, research, funding, global communications.
PEST analysis framework
Political Factors Economic Factors
 Government type and
stability  Stage of business
 Changes in the political cycle
environment  Impact of globalization
 Regulation and de-
 Labor cost
regulation trends

 Likely changes in the
Levels of competition
economic environment

Social Factors
Technological Factors
 Population growth rate
 Research and
 Population health,
education and Social
development activity
mobility  Impact of emerging
 Lifestyle choices and technologies
attitudes towards socio  Impact of technology
cultural changes. transfer
Forms of Business Organizations
The different types of business organizations such as sole
proprietorship, partnership, and corporation.
 Sole Proprietorship – is a business with only one owner who
operate the entire business all by himself or employ
employees.
 The Partnership – is a business being managed and owned
by two of more individuals.

There are three classifications of partnership:

General Partnership (GP) – partners share personal
liability for business debts and can make a decision that
affects the whole business. Profit and loss are divided
according to an agreement.
 Limited Partnership (LP) – one partner is
responsible for decision-making and can be held
personally liable for the business debts and To The
extent of each partner’s investment.
Limited Liability Partnership (LLP) – all partners
have limited liability for the business debts has no
considered general partners. LLP’s are most
common to professionals such as doctors and
lawyers.

 Corporation – is ownedby multiple shareholders

and is overseen by a board of directors who were
elected by The shareholder.