Almost everything happening in the world will have some kind of effect on business. Internal factors, such as profits, efficiency and new product lines, have clear consequences, but the external factors are less well understood, and largely out of the control of individual companies. The external business environment can be broken down into two main areas, micro and macro.
The micro business environment includes factors which have a clear correlation to business operations. These are normally seen as factors quite close or essential to the running of the company.
Suppliers, distributors and retailers are all considered part of the external business micro environment. These companies are completely separate organizations, so any problem with them will directly affect any company relying on them. For example, if a distributor goes bust the company will have to spend more money contracting a new firm to deliver its products.
Obviously, any drop in demand for a company's products will have clear repercussions for the company. Customer demand can be affected by a number of factors, including the macro-economy. Consumer confidence falls if the national economy is struggling, turning a macro problem into a micro problem.
Financiers are the lifeblood of the business environment because if companies cannot access money they can do very little. Although cash flow issues are normally seen as an internal issue, the modern multinational structure of banking institutions has turned it into an external one as well.
Name recognition and company reputation are vital parts of the external micro environment. Without these a company cannot succeed. The section of the external environment includes issues such as press and media coverage, growth in consumers and the local economy.
The macro environment includes issues which a company has no control over but which have an effect on a company. These issues tend to be more abstract and harder to attribute to a single business problem.
If the economy is struggling, companies struggle because people spend less money on products. Successful businesses are able to predict when economic conditions are going to change, and so are in a position to prepare for any eventuality. Nevertheless, an external issue such as a sluggish economy can have an effect on a company's bottom line.
New laws are passed every day and some of these will affect businesses. This can also be seen as a political issue, but precedents are set by judges all the time which can have an even greater effect on companies.
A change in government leadership is always going to have an effect on business because different politicians have different views on such issues as taxation and regulation.
Any new technological development is going to have an effect on competing businesses as there will be a race to be the first to use it and make it profitable. This kind of development requires investment in time and money and does not guarantee success.