TOTAL ENVIRONMENT OF A FIRM

The environment which the firm operates consists of

a rich kaleidoscope of cultural, political and
economic factors.
For purpose of establishing the companys policies and goals,
therefore, top management must fully understand and take
into account all these external and internal environmental
considerations, lest the goals may turn out to be far from
being realistic. Once top management has set the companys
goals, it must establish its strategic plan toward achieving
these goals. Again, it is essential that, during the planning
process, top management should be fully cognizant of the
firms capabilities as well as the weaknesses and to
understand where the firm stand at all times in relation to its
environment.
Factors affecting the Environment of the Firm
Educational factors

Socio-cultural factors

Economic factors

Administrative and political factors

International factors

EDUCATIONAL FACTORS

an integral part of the environment

The literacy level and the percentages of the

population that belong to the different educational
strata for one, bear upon the marketing approach for
the products which the firm is to produce.
The types-even qualities of goods will be in demand
vary according to individual tastes, which in turn are
shaped by the educational backgrounds of the
prospective consumers.
Percentages of literacy and educational levels
also affect the type of workers and managers the
firm will be able to hire in the course of working
towards its goals. (Internal)
there is little the individual firm can do to affect the
external educational environment but there is much the
firm can do about the educational levels of its workers
and managers. (e.g., literacy and technical training).
Personnel development must thus be an important part of
any long range plan if the firm wishes to strengthen its
ability to achieve its set goals.

SOCIO-CULTURAL FACTORS

socio-cultural factors that are present in the

country should be given critical consideration
by top management because these influence
both the firms external environment as well as
its internal system.

Four socio-cultural factors:

1. The legacy of the frontier: a spirit that has fostered a
sense of opportunity pervading American industrial
and community life;
2. Faith in business and in the individual: a faith
reflected in the high esteem the American national
community gives the businessman;
3. Belief in change: a belief whereby a successful
experiment is not allowed to crystallize into mere
custom and that an unsuccessful experiment is
accepted as an occupational risk, valued for the
experience that was gained in the process; and
4. The idea of competition: an ideal that leads even
those companies which are not operating in a highly
competitive market to run their enterprises as
though they were (American managers) know that
their firms must maintain their competitive positions
if they are to provide their people with a continuing
career.
Although, socio-cultural factors that work within the firm
greatly affect management style, practices and the contents
of the operating policies, this should not preclude top
management from drawing up company policies and
objectives, designing strategic plans, organizing, formulating
operating policies, controlling operations, etc.

View Toward Change. As a country develops, its culture

changes accordingly. Development, by definition, means
change, and the most important aspect of change is neither
economic nor technological but the change in people. And,
change in people ultimately means change in culture, in the
attitudes, in the value system.
ECONOMIC FACTORS
The size of the market is inevitably a critical factor.
This relates to present products, as well as to other products
and/or services into which the firm might diversify. Hence,
corporate goal-setting and the strategic planning effort must
depend closely on prospects for future growth in GNP, in per
capita income, and on income distribution. Every effort must
be made to look as far into the future as possible to anticipate
this. A governments five-year plan, for instance, can be of
great assistance.
Educational Factors

Specialized vocational and technical training and general

secondary education

Higher education

Literacy level

Education match with requirements

Attitude toward education

Special management program

Socio-Cultural Factors

Inter-organizational cooperation
View toward achievement and work
Industrial managers and management
Class structure and individual mobility
View toward wealth and material gain
View toward specific method
View toward risk-taking
View of authority and subordinates
View toward change

Economic Factors

Market size
Fiscal policy
Economic stability
Factor endowment
Organization of capital markets
Competition
Central banking system and monetary policy

Government attitudes toward private enterprise

Administration and Political Factors

Relevant legal rules of the game

Political organization
Foreign policy
Defense policy
Political stability

International Factors

Nature and extent of nationalism

Import-export restrictions

General balance of payments position

International trade patterns
View toward foreigners
Memberships and obligations in international financial
organizations

Relevant legal rules for foreign business

International organization and treaty obligations
International investments restrictions

ADMINISTRATIVE AND POLITICAL FACTORS

Operational aspects of a business firm that need a permit
from the government:
1. Start a company
2. Buy land for factories
3. Utilize foreign exchange import equipment or raw
materials
4. Export goods and services
5. Enter into an agreement with a foreign firm
6. Increase prices
The government gets involved in labor negotiations. The
government has a monopoly on the importation of many
critical items, etc. Government laws, policies, and the ways in
which these are administered in effect become crucial to the
firms operations. On top of these, since permits and other
pertinent actions cannot usually be obtained by writing a
letter, the chief executive officer (or his assistant) must
normally attend to these in person, instead of using his time

as an effective internal manager. This is, hence, a major cause

of inefficiency in management.
It is important for the manager to remember that the
political climate is only a part of the total environment acting
upon his firm. It should not prevent the utilization of scientific
management. It merely means that the goals and strategy of
the firm must take this aspect of the environment into proper
perspectives in order or be realistic and as effective as
possible.
INTL ENVIRONMENTAL FACTORS
International environmental factors are those which
affect a firms ability to most efficiently import equipment and
goods, to export part or all of its production, and to enter into
agreements with the foreign companies so as to gain access
to technology, patent rights, management know-how,
financing and markets.
ENVIRONMENTAL CONSTRAIN