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Analytical Essay on Components of a Company’s External Environment

Strategically Relevant Components of a Company’s External Environment

When analyzing the external environment of a company, it is possible to distinguish certain components that are strategically important for its development and successful functioning. In this essay I will explain the main such components and in particular their importance for the future of the company.

The factors of the macro-environment that influence the company in the outer ring are:

  • General economic conditions, such as cutting of costs by companies.
  • Country’s legislation and regulations, such as in retail there cannot be FDI.
  • Societal lifestyles and values, such as no beef in McDonalds production in India.
  • Technology, such as using of video-conferencing by companies.
  • Population demographics, such as designing of insurance programs for youth in India.

There are also factors that directly influence the company’s competitive environment: suppliers, buyers, rival firms, substitute products, new entrants. The outer ring factors usually do not impact the company closely, but they help to shape its trends and developments.

There are seven important questions that allow understanding of organization’s competitive environment:

  1. What kinds of competitive forces the industry has to face and what strength does each force possess?
  2. What market position do the company’s rivals occupy and what the strength of each company’s position is?
  3. What are the main economic features of the industry, in which the company works?
  4. What are the possible nearest strategic moves of the rivals?
  5. What are changes driven by in the industry?
  6. Does the industry outlook allow substantial prospects for company’s profitability?
  7. What are the key factors for company’s competitive success?

Answers to these questions will help reveal the strategically important aspects of the company’s external environment, which will help to gain the right focus for the company’s activities.

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