Chapter 8

External
environmental
analysis
The political
and legal
environment
Social factors
Environmental
influences
Technological
factors
The economic
environment
Your objectives
In this chapter you will learn about the following.
(a) The factors that make up the external environment
(b) Aspects of the political and legal influences
(c) The importance of economic factors
(d) The importance and diversity of social aspects
(e) The impact technology has on business enterprise
1. ENVIRONMENTAL INFLUENCES
Two kinds of environmental influences:
(a) Controllable
(b) Not controllable
Organisations have a variety of relationships with the
environment.
1. ENVIRONMENTAL INFLUENCES
1.1. Classifying the environment
(a) Micro environment
(b) Macro environment (PEST or PESTEL or STEEPLE)
1.2. Environmental uncertainty
Uncertainty relates to the complexity and dynamism of the
environment
(a) Complexity arises from
(i) Variety of influences
(ii) The amount of knowledge
(iii) The interconnections of the environmental influences.
(b) Dynamism Dynamic environments are in a state of
change.

2. POLITICAL AND LEGAL
ENVIRONMENT
2.1. Legal factors affecting all companies
General legal framework: contract, tort, agency
Criminal law
Company law
Employment law
Health and safety
Data protection
Marketing and sales
Environment
Tax law
2. POLITICAL AND LEGAL
ENVIRONMENT
2.1. Anticipating changes in the law
To be able to anticipate changes in the law, you need to
observe and keep watch on:
governing partys election manifesto
governments plans (green paper or white paper)
regional market programme ( ASEAN economic
integration)
3. THE ECONOMIC ENVIRONMENT
3.1. Influence of the economic environment
Overall growth or fall in GDP
Local economic trends
National economic trends:
Inflation
Interest rates
Tax levels
Government spending
The business cycle
3. THE ECONOMIC ENVIRONMENT
3.2. Impact of international factors
Exchange rates
Characteristics of overseas markets. Different rates of
economic growth and prosperity, tax, etc.
Capital, flows and trade
4. SOCIAL FACTORS
4.1. Different social factors
(Population) Growth
Age
Geography
Ethnicity
Household and family structure
Social structure
Employment
Wealth
4. SOCIAL FACTORS
4.2. Business ethics
Types of ethical problems
(a) Production practices
(b) Gifts
(c) Social responsibilities
(d) Competitive behaviour
5. TECHNOLOGICAL FACTORS
Technology refers to:
(a) Apparatus or equipment
(b) Technique
(c) Organisation
Technology contributes to overall economic growth.
5. TECHNOLOGICAL FACTORS
5.1. Effects of technological change on organisations
(a) The type of products or services that are made and
sold.
(b) The way in which products are made.
(c) The way in which services are provided.
The impact of recent technological change also has
potentially important social consequences, which in
turn have an impact on business.
(a) Homeworking
(b) Intellective skills
(c) Services