External Factors of a Business – Defining Business Terms

It is important to mention that these are factors beyond the control of the company and which can be constantly changing. All of these factors can positively or negatively affect the development and execution of the project.

In addition, both internal and external factors must be taken into account in project management. However, external factors should be treated with greater attention. This, due to the fact that they exert greater limitations in the realization of the project, since they are difficult to control and can be constantly modified.

External factors of a company

Classification of external factors

The external factors that can affect the realization of a company’s projects are:

1. Cultural and social aspects

The social and cultural aspect can influence the realization of a project, since the social and cultural aspects reflect the way of thinking and acting of people. This has a particular impact on the way of managing human resources, in the definition of corporate actions and in the decisions concerning the strategies to be adopted in terms of products and markets. The social and cultural pioneers that the company must follow to maintain acceptance and approval in the market.

2. Political system

Second, each company operates within the legal system of the country or countries where it is located and competes. Therefore, government-enforced policies can act as limitations on a project when they adversely affect it.

Whereas, when they have a positive effect, they offer opportunities to the company carrying out a project. The political system through the government can generate business opportunities for a company. This, through fiscal and/or economic policies and national and international trade regulations.

3. The market

Third, it is important to analyze the market where the project is developed and the market for which the project is developed. Sometimes it can be the same market and sometimes it can be separate.

The most important aspects of the market are:

To. The competitors

Competitors are all companies that participate in a market offering goods and services. All this with the aim of winning customers and expanding its market share. Undoubtedly, small and large companies can be competitors

Obviously, among competitors, we are interested in how they use their strategies, including pricing, new product introduction, and communication. This can help you gain a competitive advantage over them.

b. Suppliers

Suppliers provide the company with the necessary resources to complete its production process. Suppliers can be:

  • Schools and universities that provide the company with human resources.
  • Production and distribution companies that supply inputs and raw materials.
  • Organizations and institutions that provide important information for the company.

vs. Customers

Naturally, customers are the people or organizations that purchase the goods and services produced by the business. Customers are the cornerstone of a business’s survival. For this reason, it must be considered that customer service is essential for success in any project.

4. Industry standards

Fourth, we find industry standards. A standard is the model or model that should be followed or taken as a reference for the achievement of something. When you compete in an industry that meets certain standards, the actions are standardized, that is, they must be followed exactly as documented.

Generally speaking, many companies are certified to ISO (International Organization for Standardization) standards, so these standards must be followed to meet the required quality standards. Thus, when carrying out a project, these requirements must be met.

5. Legal Restrictions

Fifth, a project may be affected by the legal rules and regulations of a certain industry in which it competes. Of course, every business and every project is carried out within the framework of a set of legal rules that must be respected. Depending on the size of the project, it may be affected by national legal restrictions if only operated in one country. But, if it has an international scope, it must also respect international legal standards.

6. General environment

Finally, in the general environment, the following aspects should be considered:

To. Economic

It is logical to assume that the economic context has a considerable influence on how companies operate and how they make decisions. This, since the cost of capital, the ability of customers to demand and the ability of the business to expand, will depend on many economic variables.

Among these variables, we can mention the inflation rate, the interest rate, the exchange rate, economic growth, purchasing power, among some that we can mention.

b. Demographic

Likewise, demographics is an important aspect of population composition and market growth. For this reason, demographic trends must be analyzed to make the right decisions and anticipate the changes that may occur, so that the necessary strategies are applied that best adapt to these changes.

vs. Geography and environmental conditions

Finally, geography and environmental conditions can also affect the outcome of a project, since certain elements such as the location, space, topography and climate where the organization is located can affect its results.

External environment 2External environment 2

To conclude, we can say that the analysis of the external factors of the company is important for the management of any project. This, since external factors are external to the organization, are constantly changing and are difficult to control. For this reason, they can limit the development and execution of a project.

2023-06-03 16:00:36

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