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Business Environments

Business Environments

Author: James Howard

This lesson gives an overview of the different external environments that impact business.

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Video Transcription

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Hello and welcome to this short tutorial on business environments. Now as always with these tutorials, please feel free to fast forward, pause, or rewind as many times as you need in order to get the most out of this tutorial. Now we as humans, we seek to understand the world around us. Why do you think we do that?

Well, one reason is for survival. The world is constantly changing. And as humans, we have to understand those changes and react to them in order for us to thrive and survive into the next generation.

During this lesson, we're going to be looking at external business environments and how they affect a business. We're also going to be looking at the major types of external business environments that are out there. The key terms for this lesson are external environments of business. So let's get at it.

External environments of business is simply defined as the conditions outside of a business that affect how it operates. Now the thing about these external environments is that the business has to consider these things in order to survive. They have very little control over these particular environments. Matter of fact, they have to react or predict-- sometimes wrongly-- how these environments are going to change.

Also, the environments don't stand alone. What happens in one environment can directly affect what happens in another environment. Also, large companies are going to react differently. They have lots of different divisions of labor that they can use to help predict and react to these external environments and how they're changing whereas small businesses it's a little tougher or a lot tougher because they don't have the same division of labor.

The major types of external environments we're going to look at there's five of these particular major types. And each one affects the business in vastly different ways. The first is the domestic business environment. Now this is businesses done within a company's own nation.

In here, the company has a distinct advantage working locally. Not only do they understand better the geography and the laws and the taxes, but also the currency and the culture of the people within that nation that they do business with all the time. So they have a distinct advantage over other companies coming in from different countries.

The Ford Motor Company, for instance, makes cars in the United States based on what it receives from the consumers as far as what they want in a car. If you go to Germany, Volkswagen or BMW, they make cars within that particular nation that best suit the populace that they serve locally.

Now the global business environment, these are business activities that occur worldwide. And the trends we're seeing here are emerging markets are getting huge. And this has allowed them to become much more powerful players on the world stage.

Another thing we're seeing is demographic shifts around the globe. As people become more mobile, less and less do they have to spend their entire lives in one country. It's simply as easy as getting on a plane, in some cases, and going somewhere else. And you also have a rising global middle class. More and more people have more and more wealth and disposable income that they can use to then purchase the products that are provided on a global scale.

Technological environment is an interesting thing. Outside factors in technology. These are things that affect the business in a technological environment that are fundamentally changing the way business operates around the world. What we're seeing is an increased use of mobile technology that's really driving change within this particular environment.

Places that not too long ago never saw a line attached to a phone suddenly have access to smartphones and cellphones and can now communicate and see the world around them. Social media, like Twitter and LinkedIn, is also driving a lot of business. Never before have we had access to so much information at literally the tips of our fingers.

The political-legal environment. Now this is governmental decisions that affect business operations. One of the trends we see here is more free trade between countries. Coming down are those old barriers and tariffs that dominated the political world before us. And as a result, businesses are better able to attract customers from different countries and better serve that growing global middle class that we talked about earlier.

Next up is the sociocultural environment. Now this can exist within one particular country or globally. But we're going to take a look at it as it exists within a particular country. Now this is the social and cultural practices and norms of a particular population.

In the US, one of the things we're seeing is worker mobility. Now worker mobility has pluses and minuses. For instance, some of the pluses is you have a more flexible workforce and it can be cheaper for companies, depending on how long they can keep them.

However, some of the negatives are it's less stable. The workers tend to go away. They also have less benefits for the workers in some occasions, depending on how much they move. And it requires ongoing training from the companies involved.

The last environment we're going to look at is the economic environment. Now the economic environment, these are economic factors that affect purchasing of goods and services. And these are things like employment levels within a nation or gross national product or wealth, inflation, and interest rates. The monetary policy of a nation.

Again, we're going to look at those emerging markets as a trend. Once again, emerging markets are becoming more powerful and having a greater say, not only in national wealth and inflation rates and exchange rates between nations, but also in how each nation interacts with each other on an economic scale. Nations who at one time had very little wealth are now enjoying vast opportunities for wealth and production.

Places like China and India. They have a vast workforce, cheap labor, and they're able to attract more business and production from other countries.

So let's recap. We looked at the external environments of business and how businesses need to react to these in order to survive and thrive. We also looked at the major types of external business environments, those five major types. We've come to understand that each one is not standalone independent from the other. They each affect how the others are going to evolve.

Well, I want to thank you for spending some time with me. I hope you enjoyed it. And I'll see you next time.

Terms to Know
External Environments of Business

The conditions outside of a business that affects how it operates.