The external environment includes all the factors outside the organisation which provide opportunities or pose threats

to the organisation

Opportunity is a favourable condition in the organisations environment which enables it to consolidate and strengthen its position. Eg: economic boom, favourable demographic shifts, arrival of new technologies, loosening of regulations, favourable global influences and unfulfilled customer needs.

Threat is an unfavourable condition in the organisation in the organisations environment which creates a risk for, or causes damage to, the organisation. Eg: economic downturn, demographic shifts, new competitors, unexpected shifts in consumer tastes, unfavourable political or legislation , new technology and loss of key staff etc.

It consists of factors related to the management of public affairs and their impact on the business of an organisation. It has close relationship with economic system and economic policy. Some of the important factors and influences in the political environment are: The political system and its features like nature of political system, ideological forces, political parties and centres of power.

The political structure, its goals and stability. Political processes like operation of the party system, elections, funding of elections and legislation with respect to economic and industrial promotion and regulation. Political philosophy, governments role in business, its policies and interventions in economic and business development.

The economic environment consists of macro-level factors related to the means of production and distribution of wealth that have an impact on the business of an organisation. Some of the important factors influences operating in the economic environment are:

The economic stage in which the country exists at a given point of time. The economic structure adopted. Economic policies such as industrial and monetary policies. Economic planning such as annual budgets. Economic indices like national income, distribution of income, value of exports and imports etc.

Strategic decisions can be taken effectively by keeping the external factors in mind. There are rapid changes in political and economical external factors which highly affects the strategic plans of any business body. Strategic plans can be generated by auditing the political and economical environment.

The analysis process of political factors includes identifying how and to what degree a government intervenes in the economy. Specifically, political factors such as tax policy, labour laws, trade restrictions etc. The analysis process of economic factors include economic growth, interest rates, exchange rates and inflation rates.

These factors have major impacts on how business operate and make strategic decisions.

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