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Business environment consists of two, internal and external, out of which I believe external environment, is the most important type of environment for an organization. This is because external environment consists of non controllable factors which are beyond the control of an organization, thus these factors needs to be given lot of importance in order for the smooth running of the organization.
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There are seven elements that make-up the external environment. These elements include Market environment, Social environment, Competitors, Intermediaries, Physical environment, Legal & political state and Technological environment. Each of these elements adds its own contribution to the overall decision undertaken by an organization. This setting provides multiple contexts that influence how the organization operates and how and what it produces.
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Looking at the elements, each element again has its own certain factors which have to be considered. First let us look at the market environment. Market environment consists of factors such as social and cultural factors which includes population, pressure groups, reference groups, lifestyle, social classes, religion, language etc. These factors directly affect organizations, so decisions should be taken only after a deep study and analysis has been conducted. This element focuses on the statistical study of a society, its standard belief patterns and way of living.
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Then comes the Legal and political statue. It contains the things that organizations can do and what they cannot do and these are stated in the legal system. The course of public policy is crucial. It determines the labor laws, trade union regulations, etc. This helps to know the rights of each party involved in the business transactions. The first is the law which belongs to individual nations or international, and only exists to the degree to which individual nations are willing to relinquish their rights. The second thing is lack of adequate international judicial and administrative framework or body of law which would form the basis of truly comprehensive international legal system.
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The next major force of the external environment is the technological environment. The current state of knowledge regarding the production of products and services. In order to remain competitive, organizations must stay abreast of current technological developments. Most of the production chains are done using high technology. This reduces the cost as well as the wastage of raw materials. On top of that, the usage of high technology improves the services of every firm. Computer literacy helps to cultivate economies in the business world and modernize the world.
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Then there is the factor relating to Competitors and intermediaries. This consists of the ways through which an organization can achieve access in the production and development of their goods and services with regards to the international market. This includes gaining a good relation among different countries. Moreover Globalization of industries and Wars also have an effect in the international element. To be specific international quarrels affect organizations. This is an important element, since with the help of this element multinational organizations can obtain new economies of scale in manufacturing high quality products, and also lead to a faster advancement along the experience curve. Thus, it would help the organization to take effective decisions among them and hence will lead to smooth running of the organization.
