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Assessing the External Environment

15 January, 2016 - 09:17

Analyzing the external environment involves tracking conditions in the marketplace that, although largely uncontrollable, affect the way an organization does business. As we have mentioned, these factors include competition and the economy. Other external factors include cultural and social trends, political and legal regulations, technological changes, and the price and availability of natural resources. Each of these factors is discussed separately in the next section. When firms globalize, analyzing the environment becomes more complex because they must examine the external environment in each country in which they do business. Regulations, competitors, technological development, and the economy may be different in each country and will affect how firms do business. To see how factors in the external environment such as technology may change education and lives of people around the world, watch the videos “Did You Know 2.0?” and “Did You Know 3.0?” which provide information on things such as the number of people on MySpace compared to populations in the world. Originally created in 2006, the video has been updated and translated into other languages. The latest edition of “Did You Know?” was created in Rome in 2008 and shows how information may change the world.

Although the external environment affects all organizations, companies must focus on factors that are relevant for their operations. For example, government regulations on food packaging will affect PepsiCo but not Goodyear. Similarly, students getting a business degree don’t need to focus on job opportunities for registered nurses.