The external environment of a business can be simply defined as the conditions, entities, events, and factors surrounding an organization. These parameters influence the activities and choices of the organization and basically determine its opportunities and risks. It is otherwise referred to as the operating environment. It generally surrounds both the internal operations and the business operations of the business. It generally and specifically influences the organization's performance. The external environment is the main focus of the managers where they target the changes occurring. The external environment has diverse factors. These include the following: political- legal forces, economic forces, socio- cultural forces and technological forces. Managers always gain knowledge from the inputs of the organization from the external environment and conduct analysis and review of the same in a periodic manner. This process that constitutes the conduction of review and analysis of the external forces is generally termed as the environmental scanning or otherwise the external environment analysis (Bishop 2002).
There are two parts in the external environment: The first part is the direct interactive which has an immediate and firsthand impact upon the organization. An example is a new competitor entering the market. Others are the owners, customers, suppliers, competitors, employees, and employee unions. Management is held responsible to each of the groups. The owners specifically believe that managers should properly watch over their interests and in turn provide massive returns on investments. The customers are known to be demanding continuously the satisfaction of the services and products they finally make a choice to use in their daily lives. Suppliers will need continuous communication with the company, prompt payments and a very strong relationship in the work place to provide the necessary resources. Competitors are known to be the major threat to the development of the company due to their nature of eying the same customers needed by the company. The employees and the employee unions provide both the human resource to do the work and the voice to air their grievances to the management or even the owners, (Bishop 2002).
The other is the indirectly interactive part which is secondary and has a greater and much more distant effect upon the organization. The legislations made onto the constitution may have a great impact. An example is Americans with Disabilities Act which needs the employers to update their facilities to accommodate the less privileged that is the people with disabilities. The forces here include socio-cultural, political- legal, technological, economic, and global influences. For instance, a company that relies heavily on the computer soft ware may suffer a serious slump when the computers market faces a similar situation than that company that relies on a single computer. Indirect forces remain significant in the interactive nature of any organization though they are not very common nowadays.
The socio-cultural aspect determines the goods, services, and standards that society values. The socio-cultural forces include the values and demographics of a particular customer base. The demographics encompass the parameters of the diverse qualities of persons and social groups within a particular business environment or set up. The demographic characteristics commonly used here include the age, gender, and income. Values ascribe to the beliefs that individuals have formed as part of their behavior on the products. A society’s value of an item or a behavior can greatly affect a business if some changes occur unexpectedly.
The political and legal parts include control measures within which an organization must operate. Most political parties create, enact or influence laws. Business owners must abide by these laws are just a few Examples of political and legal issues that may affect the way an organization operates include but not limited to the following: Tax policies, trade regulations, and minimum wage legislation. The technological aspect impacts the scientific processes used in changing inputs such as resources, labor and money to outputs which are the commodities. A company’s identity and response to the external technological changes will greatly affect the success of the enterprise. Most managers have resorted to the use of the available and affordable system called the Management Information Systems (MIS).
The economic aspect will comprise the worldwide financial conditions. The major economic conditions to organizations include interest rates, inflation, unemployment rates, gross national product, and the value of the U.S. dollar in relation to other currencies. A country like Kenya has been adversely affected by this menace in the near past. The growth in many industries will depend purely on the condition of the economic climate. A favorable economic climate will accelerate the growth of the organization such as in the sales of clothing, jewelry, and new cars. However, a portion of businesses traditionally benefit in poor economic conditions. An example is the alcoholic beverage industry which traditionally fares well during times of economic turn over. The factors in other countries also affect the U.S. organizations. These constitute the global aspect of the environment. As much as the general management function is to plan, organize, staff, lead and control, these roles are still similar whether the company operates locally or internationally. The managers still encounter these difficulties and risks in an international scale which of course they would have not experienced in their home countries. (Goodman et al 2005).
The external environment in which an organization operates presents both threats and opportunities. Examples of some of the economic and political environment which have a substantial effect on the marketing of the maritime industry include growth or reduction in international trade, national protectionism and regional trading blocs. There is also a comprehensive and very broad classification of the external environments. This is referred to as the macro-environment. This is as follows: demographic environment, economic environment, natural environment, technological environment, political environment, cultural environment.
Demography is the study of the statistics of social nature of populations. Due to its considerable impact on the marketing of consumer goods, it is considered the most vital tool in evaluating the external environment. This generally reflects changes in Australia. The international students may note some similarities with demographic changes in their country of residence. It is pretty obvious that a country with a rapidly growing population would require more consumer goods plus greater access to maritime industry facilities for the delivery of those goods. This would lead to the competition between the ports including those which are far geographically, as much as it would between freight forwarders and shipping lines (Hitt et al 2010)..
Social and cultural factors in the environment interfere much more with consumer goods and services than with industrial services. Legal and political environment have had a great effect on the maritime sector of the economies of both New Zealand and Australia. This has led to the increased encouragement and legislation of deregulation and privatization which have in turn led to the improved awareness of the benefits of strategic planning and management.
For the purposes of this paper I will only critically analyze the external environment of the Wal-Mart stores in the US. Wal-Mart stores Inc has 80 different banners in about 28 countries which are capable of dealing with customers and members for more than 250 million times in a week in more than 9,500 retail units. It employed 2.1 million associates worldwide and with a turnover rate of $405 billion in the year 2010. Wal-Mart is a great achiever and leader in sustainability, corporate philanthropy and employment opportunity. Among the top ten most fortunate retailers, it was ranked in the top ten in the Fortune magazine of 2010(Hitt et al 2010).
Wal-Mart was started in 1962. This was done with the opening of the first discount store in Rogers, Ark. The company incorporated as Wal-Mart Stores, Inc on Oct. 31, 1969 where it grew to 276 stores in 11 states by the end of the decade. In 1983, the company opened its first Sam’s Club membership warehouse. In 1988, it opened the first supercenter which is currently the dominant feature of the company. In addition to having general merchandise, it also has a complete grocery. In 1991, Wal-Mart became an international company. This was the time it inaugurated its first Sam's club near Mexico City.
Saving people's money in order to empower them and help them lead an improved life was the vision of Sam Walton. Started the first Wal-Mart. This mission is more important than ever today to their customers and members around the world. The staffs work hard every day in all their sectors of the markets to deliver on this promise. It is due to these values and culture that Wal-Mart continues to make a difference in the lives of the customers, members and associates both economically and socially. (Shaikh 2010).