External Environmental Factors of an Organization - Case Study Example

External Environmental Factors of an Organization: External Environmental Factors of an Organization Introduction Just like human beings, a business organization does not exist in a vacuum. Every organization operates in an environment, within which it is affected by various factors (Oluwayemi & Segun, 2013, p. 1). These factors are commonly categorized into internal environment factors and external environment factors. The internal environment factors are those upon which a business organization has control over. These include, among others, employees, training and health. External environmental factors refer to those upon which an organization has limited or no control over (Zang & Si, 2008, pp. 689-700). These factors are further divided into general environment, which comprises of those factors which indirectly affects an organization’s functioning and operation. These include political, ecological, socio-cultural, technological, economical and legal factors. On this category, a business organization usually has no control over. On the other hand there is the task environment, including factors upon which the organization has limited control or at times, no control. This group is comprised of customers, competitors, regulators, suppliers, etc. Xyz is a small-scale retail business company, located at Oceanside, one of the finest beach resorts in California. The company operates a store that deals in selling beach items such as swimming costumes and sun glasses. Over the past few years, the company has enjoyed relatively good success, despite operating in a very competitive industry. This paper uses xyz as a case study, in trying to illustrate the role played by the external environment in business organizations’ functioning, continuity and success. This small company has a large customer base, as it sells its products to beach tourists not only those from California, but also to those from other states within the United States, and abroad. General External Environment Xyz Company is not an exception. It exists in an environment which comprises of so many factors that affects its operation, functioning and success in one way or the other. Therefore, every decision undertaken by the management of xyz is influenced in one way or the other by its external business environment. This particular report is an analysis of how this external environment affects Xyz Company. To begin with, it is wise to describe the relationship and co-existence of xyz and its general external environment. Starting with the economic environment, it is prudent to appreciate the fact that the economic general economic status of the United States and the whole world at large, will determine the success of the beach store. For instance, the prevailing stage of the economic cycle significantly affects the revenues earned. When there is an economic recession, the general demand for products will decrease, and the opposite will be witnessed during the boom period. This therefore means that this beach store will have less market for its products due to a decreased demand, and more market when the demand is high. Inflation, as part of the economy highly impacts the performance of xyz. A high rate of inflation reduces consumers’ purchasing power (Shan Tsai & Cheng Chang, 2013, pp. 2-37). This therefore means that the amount of resources available to purchase the products is scarce. This beach store expects customers at the beach to purchase its swimming costumes, sun glasses, etc. But the sales volume will be negatively affected by increased inflation. On the other hand, when the inflation falls, the customers’ purchasing power is regained, and they can be able to purchase more. Finally on the economic aspect, economic tariffs are the other big factor. These refer to the taxes and other financial mechanisms that seek to reduce or limit the level of goods imported into the United States. Bearing in mind that xyz is an importer and not a producer of its goods, there is no way it can escape the effects of economic tariffs. When the tariffs are too strict, the level of importation within the country reduces or is limited. This therefore means that the quantity or value of beach items that xyz can import at any given time, is highly dependent on tariffs. The socio-cultural environment is another factor that highly affects business organizations. It refers to the social systems in relation to the marketing strategies and sales of a business organization (Banhan, 2010, pp. 1-20). The line of products in which xyz deals is very much dependent on the socio-cultural factors. The language aspect is an important one. Xyz deals in selling swimming costumes and sun glasses to beach tourist, and this means that its marketers have to communicate with these tourists. This is what happens in every business, in that at some point, the marketers will have to directly communicate with potential customers or consumers. In a social setting comprising of people speaking different languages, language barrier is a common occurrence. This therefore means that the sales volume can highly be affected by how many the marketers and potential customers are able to communicate. Xyz is therefore not an exception. The kinds of people who visit the California beach are from different origins, and therefore speak different languages. It is fair to presume that majority of xyz employees speak English, and if it does not have Spanish or French speakers, then a problem can exist during marketing. Business organizations which do not find lasting solutions to language barrier are likely to experience a decrease in sales. The other socio-cultural aspect is the age factor. Various demographic factors also influence business organizations. The age of a customer, for instance, plays a part in determining the kind or type of product that she buys. For example, you cannot expect a 70-year old lady to purchase a hipster. The social structure therefore affects the marketability of a product. Xyz deals in the sale of swimming costumes. It is worth noting that among the people that visit the California beach, not all of them prefer the same type or design of swimming costumes. In most cases, it is the young people that go for the tight and short swimming costumes. The older people on the other hand prefer less tight and long swimming costumes. The sales volume of xyz company products is therefore determined by the available types and designs of swimming costumes. The same applies to sun glasses and other beach items. The other general external environment factor that affects business organizations is the political environment. The prevailing political nature will have an impact on the level of success of any given business organization. Just to begin with, the stability of government is very crucial to the success of every business organization. Political stability is to the effect that there is peace, order and stability in any given state at any given time. This ensures that business organizations carry out their operations without unnecessary interruptions and stoppages. Xyz operates its business in the United States, a country that has experienced long periods of political stability. The same can be also said for the state of California, a factor that has enabled xyz to carry out its business without interruptions. Xyz’s business depends on the availability of tourists at the beach. These tourists are not just from within California, but they also arrive from other states within the United States and abroad. The political stability or instability of the state of California therefore determines the level of tourist’s inflow, which in turn boosts or negatively impacts the business of xyz. Consumer-protection legislation, is another external environment political factor that affects businesses. These are government laws and policies that operate to protect consumers from purchasing counterfeit or harmful products. Those business organizations whose products do not meet the minimum standards would therefore not be allowed to advertize, market or sell the same to consumers. In Xyz’s case for instance, the consumer protection laws work to ensure that the swimming costumes and sun glasses sold to customers at the beach are not counterfeit or do not bring them harm in form of skin diseases, rashes, etc. These government-formulated and implemented laws and policies are to the effect that goods will not be allowed to supply in the market unless and until they are approved. Task External Environment On the other hand, there are those task external environment factors, which directly affect a business organization, and upon which it can exercise limited control. On top of these factors is the Consumer environment, which is concerned with the end-users of a product or a service. Consumer behavior is something that greatly impacts an organization, since it is the behavior that determines the level of demand for a product or service. One way in which consumer behavior affects an organization is through consumer tastes and preferences (Pennel & Mollinaro, 1992, pp. 100-300). If the regular consumers of a product change preferences, it means that the product would appear irrelevant or non-useful to them. This therefore means that businesses have to keep track of changing consumer preferences, so as to avoid their products becoming non-useful. In the case of xyz, the kind of swimming costumes and sun glasses marketed at any given time highly depends on the consumer preferences and taste. The business therefore has to always be on toes to know that the customers prefer at any given time, in terms of design and color. The other way in which the consumers influence business is when it comes to the gender constitution (Hearrison, 2013, pp. 6-11). The major reason for this is that, in some instances, the kind of products suitable for ladies are not suitable for the men. An organization will therefore seek to monitor the trends in the sex structure of its customer base, so as to serve better. In xyz’s situation, the company monitors the changing trends in the population size of men and women. This is greatly important, as it helps in determining the quantity needed at any given time for each gender. For instance, most of the people who visit the beach are ladies, and therefore the store usually has more feminine sun glasses than masculine ones. The same applies to swimming costumes. It is common knowledge that a business organization cannot exist alone in any given industry, unless it is a monopoly. This means that in any given product or service industry, there are a number of different organizations who work in the same line of service or product. What the other organizations do in their internal environment has an external impact on all the organizations in the same industry. This is a competitive environment created by the competition resulting from various competitors. XYZ is not the only company that sells beach items in California. There are whole lots of other businesses that deal in the same line of products. This therefore means that whatever the other businesses do has a direct effect on the sales of Xyz Company. One way in which competitors affect a business organization is through their pricing. Price is one of the major attracters or distracters of customers. In the United States, and internationally, customers usually compare the price of similar products by different marketers, before deciding from where to buy. If its competitors significantly lower their prices, then they are likely to attract more customers, something that will hurt it in terms of sales volume (Jain & Trehan, Nd, pp. 16-19). This therefore is to the effect that every business organization usually keeps a watchful eye on the pricing of its competitors, if at all it is to make an impact and survive in the concerned industry. Xyz Company usually works to ensure that the pricing of its products is fair enough, so as not to drive away customers and send them to its competitors. This is done by considering the state of the economy, which in most cases reflects the consumers’ purchasing power. Finally, suppliers play an important role in the functioning, continuity and success of any given business organization. They are the ones who determine the availability of the products to be sold by a business organization. Therefore, the relationship between a business management and its suppliers is essential and very crucial (Brinkman & Harpe, 2014, pp. 9-10). In order for a business to thrive, products are to be available anytime there is demand for the same in the market. XYZ acknowledges the importance of supplies in its business’ life. The xyz management deals with products that are imported, and therefore it’s importing agents in California acts as the suppliers. A good relationship that exists between these two parties has been the backbone of xyz’s success. This is because the swimming costumes and sun glasses are always available whenever there demand is there. Conclusion From the above information and discussion, it is fair to acknowledge the role played by the external environment in an organization’s functioning, continuity and success. Just as it was stated earlier, no business organization exists in a vacuum, and therefore the external environmental factors are never to be overlooked. The continuity and success of Xyz Company is highly attributed to the attention paid and importance given to the external factors. This goes to prove the fact that there are many other factors upon which the survival and growth of a business organization depend, apart from just the internal environment factors. References Banhan, H. (2010). External Environmental Analysis for Small and Medium Enterprises. Journal of Business and Economic Research , 1-20. Brinkman, J., & Harpe, D. (2014). Unlocking The Business Environment. London: Routledge. Hearrison, A. (2013). Business Environment in a Global Context. Oxford: Oxford University Press. Jain, T., & Trehan, R. (Nd). Business Environment. New Delhi: FK Publications. Oluwayemi, B., & Segun, A. (2013). Business Environment al Fcators: Implications on the Survival and Growth of Business Organizations in the Manufacturing Sector of Lagos Metropolis. Business and Management Research , 1. Pennel, A., & Mollinaro, L. (1992). Business and the Environment. Washington D.C: Island Press. Shan Tsai, M., & Cheng Chang, C. (2013). The Direct and Indirect Factors on Affecting Organizational Sustainability. Journal of Management and Sustainability , 2-37. Zang, Y., & Si, C. (2008). The Impacts of External Factors on the Growth of Chinese Enterpreneurial Enterprises. Journal of Small Business and Enterprise Development , 689-703. Read More