Business Environments

Video Transcription

Hi, I'm Jeff. And in this lesson, we'll discuss the different external environments that impact business and within each of these environments the trends that can change the environment. So let's get started.

An external environment of business are the conditions outside of business that affects how it operates. Often these external environments are outside of business's control, but they still must be considered when determining any business plans or strategies. We'll discuss a number of environments in this lesson. But you should remember that these environments co-exist. And one environment can easily impact another as well as business.

In a larger business, individual divisions in addition to the business as a whole need to consider these environments. And small businesses must always be aware of an environment's existing state and how it might change. The domestic business environment is the first environment we'll discuss. And this encompasses business done within the nation where the business resides.

There are advantages held by local businesses. They are often familiar with the behaviors of the local consumer. Local laws and taxes are easier to negotiate. There is rarely need for currency exchange between the sale of the end product and the accounting by the business. And they understand the geography and the division of culture within the domestic marketplace.

One example of a business concerned with the domestic environment would be H&R Block, an accounting firm that specializes in tax returns. Each H&R Block must track any changes in the United States's tax law as well as adhering to any federal or state accounting regulations. Meanwhile, a company such as reliance industries, which is the largest private company in India must ensure that each of its various divisions understand India's national environment and its impact on business.

Next, the global business environment, this environment includes any worldwide business activities, including operations in multiple nations. In this environment a business must incorporate knowledge of multiple cultures, a variety of laws and taxes, and capably manage the exchange of currencies from different governments and organizations. Trends that drive change in a global business environment might be the growth of emerging markets.

For example, smaller nations might become influential in manufacturing because their labor rates are so competitive. Demographic shifts within the global workforce can have similar impacts. In addition, technology is lowering the barrier for global business operations. Even small businesses can now expand their market to include international sales. And as the middle class expands across the world, they can drive consumer interest in both new and existing products.

The technological environment is the outside factors driven by technology that impact business. Changes in technology are constant. And in the modern age, they often change how companies operate. Some of the trends in technology are the various means by which information is delivered or gathered by a consumer.

Social media and the increase in mobile usage means that companies must navigate multiple technological platforms in order to succeed. There is the political, legal environment, and this encompasses local, state or regional, federal and international government decisions which affects business. The challenge facing companies who operate across multiple environments can be the conflicting demands placed upon them by various governments and their laws.

While consumer demand is more universal, laws and politics can be driven more by cultural or historical differences. One trend that may alleviate this issue is the increase in free trade between countries. As the demand for products and services are shared among different people, the more the political legal environment might also become similar.

This brings us to the sociocultural environment, which are the social and cultural practices and norms within a group. This environment can be the most difficult to interpret, especially for a business first entering a new territory. One of the trends seen in this environment is an increase in worker mobility.

This can result in a workforce with greater flexibility and broader experience, which can benefit a company, but it can also result in less stability for workers in the form of benefits and more expense for a company in the form of training and other hiring costs. Finally, there is the economic environment. These are the economic factors that affect the purchase of goods and services. In other words, the forces that drive supply and demand.

These can be based on any number of factors, including employment levels, inflation and interest rates, and fiscal and monetary policy. All of these factors serve to increase or decrease the amount of available wealth that can be used to drive demand. And economic factors can impact trends outside the specific nation also. For example, as emerging markets become more powerful economically, they can shift the trends within this environment.

Well, done. In this lesson, we learned about the different external environments that impact business, including the domestic business environment, the global business environment, the technological environment, the political legal environment, the sociocultural environment, and the economic environment. Thanks for your time, and have a great day.