External business environment has been define as those factors that are not within the control of a business. Business environment analysis and forecasting is necessary for a successful business. There are two types of external business environment. Task/Direct Action environment and General/indirect action environment.
The task environments are those factors, persons or forces that are outside the business and simultaneously affect the day-to-day running of the business. Business owners must study their task environment for trends. This enable managers to know when opportunities arise in the business. Task environment is made up of customers, suppliers, competitors, public relations and labour union.
Customers are those who buy the company’s product on a daily bases. They patronised the business and are not willing to switch brand. Business should watch out for trends as to when customers demand more of their products and when they don’t. This will enable management to know if to increase supplies or promotional activities to encourage sales.
Suppliers are those that supplied either the raw material or the goods the company sales. The business must ensure that they buy their product from a reputable suppliers. Also, the business on a regular interval pay any amount owed to their supplier to encourage the suppliers to continue providing the product on time.
Competitors are those businesses that carry on the same business as yours. Business owners and managers need to understand the business of their competitors so that they can know their weakness and capitalised on it. By improving in the areas they know their competitors are weak. Management should understand their competitors to know which market has not been reached by their competitors.
Business owners need protect the goodwill of their business. A good public relations protect the public image of the business and when their is a threat to the reputation of a business, a good public relation can counter such effects immediately.
Labour union is also an important aspect of a business task environment. Labour union can influence the way employees conduct themselves for the business. Labour union can stimulates employees to go on strike or take other action that can disrupt business activities. So, employers should always consider labour union when analysing their business environment.
These are factors and forces that are outside the business and whose activities affect not only a business but the industry to which a business is related. For example, a general business environment may affect all business in the manufacturing industry. It is also possible for a force in the general environment to affect the economy as a whole. General business environment include: Economic environment, Socio-cultural environment, Political environment, Technological environment, and Legal environment.
The economic environment include such forces as Gross domestic product, Government fiscal policies, Central bank monetary policies, Unemployment rate, Exchange rate, Inflation rate and Capacity Utilisation. Business owners and managers need to scan this forces to know their trends and to make effective planning and decisions.
This forces include income groups, religion, ethnic, age group, lifestyle, education, norms, customs, belief and morals. Management need to understand this forces to enable them set out marketing strategies that streamline with the social and cultural aspect of the environment they do business in.
New invention affect the way business operate. It also affect customers brand loyalty. Business owners must understand this and adjust as quickly as possible when there is a change in technology.
Political environment include the state government, federal government, local government and the legislature. Change in the political environment can has positive or negative consequences. Also, security of life and property, provision of social infrastructure, policies of the government can have great impact on a business. Management should on a daily basis through the pages of the newspaper analyse the political environment.
These forces are the laws, regulations and procedures of a country that must be complied with in a business for effective operations. Some of these laws in Nigeria include the companies and allied matters act, personal and company income acts, and other industrial acts that affect the way certain industry do businesses. Businesses must comply with this laws if they do not want to face the Law of the country and pay huge fines that may make their business to fail.