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What is an External Environment in Business? - Definition, Types & Factors

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  • 0:00 Buying a Business
  • 0:23 Definition of an…
  • 0:43 Types of External Environments
  • 1:09 The Micro Environment
  • 2:22 The Macro Environment
  • 3:56 Lesson Summary
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Lesson Transcript
Instructor: Ashley Johns

Ashley has taught college business courses and has a master's degree in management.

What leads to the success of a business? Does it all come from within the company? No, business environments and how companies react to external factors are key to their success. In this lesson, you'll take a look at these external environments and test your new knowledge with a quiz.

Buying a Business

You've just purchased a gas station that has been open for the last five years. Prior to making the purchase, you reviewed the finances and inner workings of the company. You plan to change the way the business is run but need to examine all the factors that influence success in this industry. To do so, you need to look at the external environment.

Definition of an External Environment

An external environment is composed of all the outside factors or influences that impact the operation of business. The business must act or react to keep up its flow of operations. The external environment can be broken down into two types: the micro environment and the macro environment.

Types of External Environments

  • The micro environment consists of the factors that directly impact the operation of a company.
  • The macro environment consists of general factors that a business typically has no control over. The success of the company depends on its ability to adapt.

Each type of environment has factors, or influences, to take into account. We will review factors for both micro and macro environments, as well as how they relate to our gas station example.

The Micro Environment

There are five factors that affect the micro environment: suppliers, customers, marketing intermediaries, financiers, and public perceptions.

Suppliers: At your gas station, what happens if your suppliers don't show up with food, beverages, gas and other products? You'll have nothing to sell, which will have a direct impact on your operation.

Customers: Customers are a requirement to run a business. If no one is buying, your gas station will have to close its doors.

Marketing Intermediaries: Middlemen have a direct impact on your business operation. They could be your distributors, wholesalers, and other related people.

Financiers: Typically, business owners take out a loan to get started, and the growth of the business depends upon their ability to obtain additional loans. Let's say you've decided to add a large kitchen to your gas station and offer fresh foods to your customers. This is a big investment. If the bank tells you no, it may directly impact the way you want your business to operate in the future.

Public Perceptions: Does your gas station have a good reputation with the general public? You may have to work on this as you revitalize the business.

The Macro Environment

There are six factors that affect the macro environment, and these include economic, sociocultural, political, legal, technical, and environmental considerations.

Economic: Economic factors include supply and demand, exchange and interest rates, taxes, and government spending. The way your company reacts to economic changes is key, and this is where creativity comes into play.

Sociocultural: This includes how consumers behave. For example, are consumers choosing to improve their health by walking or biking to work, which could impact the sale of gas?

Political: Changes in government policies and spending can affect your business. For instance, does your gas station accept electronic benefits transfer (EBT)? Are there government projects in your area that will increase traffic? If so, the projects might have a positive effect on your business.

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