SCRIPT

By the word "Environment" we understand the surrounding or conditions in which the particular activity is
carried on.

And we know that organization is a social entity where all necessary items are put together and they act
as one to reach the common objective.

But it is accurate to say that no organization is self-sufficient. As the human body must consume oxygen, food,
and water, an organization needs to take in resources such as labour, money, and raw materials from outside its
boundaries. An organization cannot survive without the support of its environment.

If there's certainty in the business today, it's the presence of uncertainty. So much of what happens in the
company today's organization is influenced by things outside of their control whether it could be the price hike in
commodities or even the natural disasters that damage power supply network. Organization and its activities are
always being affected by the environment. Every action that an organization takes, such as raising its prices or
launching an advertising campaign, creates some degree of changes in the world around it. Business must always
be ready to predict and adapt changes in their external environment.

 External Environment - All elements exist outside the control of the organization that have potential to
affect its performance. It can be broken into 2 types:

 General Environment (Macro)

 Specific Environment (Micro)

General Environment (Macro) - consist of

 Political Forces
 Economic Forces by looking at each of these trends we are
 Socio-Cultural Forces
able to identify opportunities and threats
 Technological Forces
that can influence the performance of
 Environmental Forces
 Legal Forces the business.

Political

Economic Forces- represents the general condition of the economy in which the company primarily operates.

Four important factors:

1. growth rate of the economy - leads to an expansion in customer expenditures, tends to produce a
general easing of competitive pressures within an industry.

This lets firms expand their operations and earn higher profits. Because economic decline (a recession)
leads to a reduction in customer expenditures, it increases competitive pressures. Economic decline
 frequently causes price wars in mature industries whose products are commodity like and where buyers
are powerful

2. interest rates - determine demand for a firm’s products

Interest rates are important whenever customers routinely borrow money to finance their purchase of
products. The most obvious example is the housing market, where mortgage rates directly affect
demand. Interest rates also affect the sale of autos, appliances, and capital equipment, to give just a few
examples. For firms in such industries, rising interest rates are a threat and falling rates an opportunity.

3. currency exchange rates- value of different national currencies against each other.

Movement in currency exchange rates has a direct impact on the demand for a firm’s products in the
global marketplace. Between 2002 and 2004 the dollar fell in value against the euro, the currency used by
many members of the European Union. The result was to make U.S. products cheaper in Europe.

In general, a low or declining dollar reduces the threat from foreign competitors while creating
opportunities for increased foreign sales. Conversely, a rising dollar can be a threat because it makes U.S.
products more expensive, which can hurt sales.

4. inflation (or deflation) rates- can destabilize the economy, producing slower economic growth, higher
interest rates, and volatile currency movements.

If inflation keeps increasing, investment planning becomes hazardous. The key characteristic of inflation
is that it makes the future less predictable. In an inflationary environment it may be impossible to predict
with any accuracy the real value of returns that can be earned from a project five years hence.

Such uncertainty makes firms less willing to invest. In turn, low investment depresses economic activity
and ultimately pushes the economy into a slump. Thus high inflation is a threat to organizations.

Socio-Cultural Forces - structure and dynamics of individuals and groups and their behaviours, believes, thought
patterns and lifestyles, friendship etc many of this trends goes a long way to affect your marketing operations.

Task Environment - includes sectors that conduct day-to-day transactions with the organization and directly
influence its basic operations and performance.

Overall, the environment has a far greater influence on most organizations than most organizations have on the
environment.

However, it should be noted that while an external environmental force affect one business, it may create an
opportunity to another business.