When we refer to the external environment of a business, we are talking about everything that happens outside the firm that affects the firm's operations and prospects.
Typically, it is said that the external environment consists of a number of aspects. These include:
- Competition. The amount and intensity of competition that the firm faces.
- Ethics. The ethical standards of the country or countries in which the firm operates.
- Social attitudes. The kinds of values and beliefs that exist in a country and can affect the way the firm's practices and products are perceived.
- Legal. The laws that affect what the business can do. This can also include the amount of predictability and stability there is in the relevant laws.
- Economic. The general strength or weakness of the economy of which the firm is a part.
All of these are factors that exist outside the firm but which affect the firm's operations to varying degrees.
External Environment surrounds the business operations and the internal environment of business as well. Importantly, the external enviornment highly influences the organization's performance. Therefore, the managers are keen to learn the chages occurred in the external environment. There are several factors in external environment such as; political- legal forces, economic forces, socio- cultural forces and technological forces. usually, managers learn the inputs for organization from the external environment and conduct a periodic review and analysis of the external environment. Such process of coducting review and analysis of the external forces is named environmental scanning.