EXTERNAL FACTORS AFFECTING BUSINESSES

 

 

 

 

 

EXTERNAL ENVIRONMENT ON BUSINESS OPERATION

Introduction

External factors play a substantial part when it comes to shaping the future of individual engineering organizations and entire industry at large. Therefore, for businesses to compete well in the industry, managers ought to incessantly adjust their strategies to match the environment in which the organizations operate. Conducting an external analysis at the beginning of strategy review process is a useful exercise. These analyses are necessary for getting an outline of the atmosphere an organisation is operating in, various external factors that may affect the organization as well as all the pertinent issues that require responsiveness in the strategy (Chittithaworn, 2011, p.79). This paper explores importance and effects of external factors on the operation of an engineering organization.

External Factors Affecting Businesses

Political Instability

This factor leads to financial instability. Today, engineering firms are able to outsource production to emerging economies to ensure cost reduction. However, factors like slowing economies, swift societal change, and oppressive regimes have in different ways led to political and financial instability. Political factors define competition rules, costs of operation as well as presence of different lobby groups (Mercer, 1992). In the UK, local legislations is an important political factor that regards cross-ownership, foreign ownership and concentration. For engineering organisations, political instability results in shortages of raw material, increases in price, and frequent interruptions in production.

Innovation and Technological changes

Innovations and technological changes provide the avenue for engineering firms to adopt new breakthroughs, inventions and innovations to reduce costs and come up with new products (Khan, 2014, p. 165). Furthermore, technological advancement has totally transformed the way organizations do their business. 3D printing is an example of technology that is being used by both small and large engineering organizations to cut their costs and create secure atmosphere that can maintain sensitive info (Grayson, 2012, p. 168). Innovation and modern technology ensure that products and services provided will be up to standard and competitive. As such, engineering firms in this industry need to be innovative-failure to which they will be wiped out of competition.

Availability of suitable resources

All firms-including engineering firms-face serious problems of locating adequate and appropriate resources (which comprise personnel), these resources must be used cost-effectively and efficiently as possible to produce quality products that consumers will appreciate. Engineering industry faces acute shortage of both raw materials and skilled personnel, and as a result, they have to compete for the same market which imposes more pressure to be effectual and to look for ways to compete effectually (Mercer, 1992). Many of these pressures result into shaping of human resource management. For instance, during economic recession, engineering firms will tend to suspend recruitments, reduce their manpower, freeze personnel requirements in future just to cut down operation costs and stay relevant in the market.

Customer relationship

In the United Kingdom, there is increased competition in the engineering industry, thus, customer relation is one of the most fundamental aspects for the companies in this industry (Grayson, 2012, p. 170). For example, in the telecommunication market, there is an increased competitive atmosphere and in order to sustain the customer base expanding and be stabilize, telecommunication companies should develop a strategy of providing a range of product discounts, appropriate product plans, and valuable offers. However, before initiating such strategies, an organization should embark on studying consumers’ value in a corporate perspective as well as consumer behaviour. According to such high expenses and targeting to keep the firm in a profit operation, it’s advisable for firms to establish an actual and effectual customer loyalty programs.

Effects of Economic Environment on Businesses

Balance of Payment

The trade deficit is concerned with measuring the difference between the value of products imported by the United Kingdom from overseas and the value of United Kingdom exports. Traditionally, United Kingdom runs a deficit in its products’ trade; however, this is balanced by extra revenue from trade in service (like music royalties, shipping, and insurance) and overseas investments (Mercer, 1992). There has been worsening trade deficit in recent times because United Kingdom consumers purchase more products abroad. On the other hand, the British exports abroad have been severely affected by high pound value, making them more expensive. In the long run, the Bank of England may be forced to raise interest with the view of curbing further weakening of the pound.

Gross Domestic Product (GDP)

This is the national pointer that signifies the total demand for United Kingdom’s products over a specified period. Response to variations in the GDP has an indirect impact on the supply and demand for products in the United Kingdom. As a result, these reactions are substantial in the process of stabilizing UK’s economy, targeting toward stable growth in the lo-term. Increase in the GDP results in inflation whereas a decrease in GDP results into fall in overall demand for UK’s products; these will prompt the Bank of England to respond by increasing the national interest rate and lowering interest rates respectively(Chittithaworn, 2011, p.82).

 

 

Conclusion

It is, therefore, prudent for engineering companies to understand various aspects relating to the external and economic environment. The managers should be quick to understand- effects of technological advancements on their firms, how government policies impact their operations, competition impacts their operation, political instability, and lastly, how labour laws affect the company. This knowledge will be instrumental to managers in determining ways in which the factors can affect their companies. Furthermore, the managers will design appropriate measures of dealing with external factors. Conversely, if managers fail to assess these external factors, they may be caught uninformed and unprepared for changes that impact their firms in various ways.

 

 

 

 

Reference List

Chittithaworn, C. (2011). Factors Affecting Business Success of Small and Medium

            Enterprises (SMEs) in Thailand, Asian Social Science.Vol7, No 5, pp 78-87.

Mercer, D. (1992). Managing the external environment: A strategic perspective. London:

            Sage Publications.

Grayson, D., Mclaren, M., & Spitzeck, H. (2012). External enabling environment: External

            organisations and networks. Social Intrapreneurism and All That Jazz - How Business

            Innovators Are Helping, 162-172.

Khan, M. W., & Khalique, M. (2014). Strategic Planning and Reality of External

 Environment of Organizations in Contemporary Business Environments. BMS

Business Management and Strategy, 5(2), 165.

 

 

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