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External Factors That Affecting Business

Introduction to External factors

External factors affects business of any organisation to great extent. There are various factors which influences business are political factors, environmental factors, legal factors, governmental policies and  technological factors. Small business organisations need to take these all issues in account for developing  their market share. There are some social an ethical policies made for business organisation which can affect the functional activities of firm. Present report describes about external factors which can affect the business of small run organisations. Social and ethical responsibilities of the firm has been discussed in the report. Moreover, environmental issues related to enterprise and issue arising form business activities are also illustrated.


1.1 External factors affecting business

There are various factors which can affect small business organisation's function activities (Factor affecting business . 2017). These factors are as follows:

Pressure groups

These groups are the coordinators that influences business functions of the small firms. These groups affects government policies to secure the supporters of  their group. Pressure groups have single cause of actions (Sekaran and Bougie, 2016). For example harms caused to environment by activities of firms. They can have multiple cause too when company is not following the rules and regulations made by government. The can influence business which have unpopular practices of legislations. They boycott the organisation which are directly or indirectly causing harms by their  activities.

Government policies

Various rule and policies made by government that can affect small business organisation (Fernandez-Feijoo, Romero and Ruiz, 2014). Operations of firms changes according to change in policy of government. Economical policy and market rules directly impacts the profitability of the organisation. Policies implemented by government can change social aspects of business organisations. Eg. taxes levied by government on carbon footprint and subsidies. High tax rates on importing and exporting of product can influence small business firm. Political stability also affects functional activities of small businesses firms. If there is stability in the politics of particular country then it supports in decision making of the business. Instability in politics challenges the decision making process of the firms (Chen and et.al , 2014).

Recession and competition

Recession impacts business firms to great extent. Price of raw material gets increases due to recession problem. Its become difficult for a company to make products in such high prices (Bryman and Bell, 2015). Manufacturing if product gets influenced due to recession. Competition in market also impacts the business activities of the organisation. Rapidly increasing globalization is making pressure on small firms. These firms have to make innovation in their product in order to lead the competitive market.

PESTLE  analysis for small business firm

PESTLE is tool used to identify impact of external factors of the organisations. It helps in  determining the influence of political, environmental, legal, social and various other factors.

Political factors

These factors incorporates political issues and stability of government. Political situation of the region affects decision making of the small business (Nguyen, Newby and Macaulay, 2015). Policies made by government for small business firms impacts on productivity of organisation. Various type  of taxes and  subsidies levied by government influences the trading of products.

Economic factors

Economic factors involves condition of economy in the account. This includes rate of  inflation, rate of interest, fiscal policies and monetary policies.  Rate of foreign exchange affects the import and export of the firm (Yeboah-Boateng and Essandoh,  2014). Business organisation's strategies get impacted due to economic situation of the country. Small firms have to analyse this factor in making strategies that are congenial with it.

Social factors

Social factors are the ones which include the mindset of people of the region. This mindset can influence the sale and profit of the organisation. Services and products of the business  get affected by social values of the particular area (Frank, Ribeiro  and Echeveste, 2015). Cultural value and factors related to to gender , lifestyle of people and should be considered by small business firms.

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Technological factors

These factors involves impact of latest tools and technologieson functional activities of business. Technology is changing at very fast rate and thus it makes pressure on company to stay updated with new technologies. These factors also determines reaction of consumers on technological trends.  Changes in technology affects business strategies and plan of the small firms.

Legal factors

Rules and legislations for organisations changes time to time and this affects the business activities of the small firms. If nay regulatory authority sets up rules for a particular industry then it impact all the firms working in that industry (Bryman and Bell, 2015). Legal developments and rules must be analysed by firms to survive to maintain their market share. Firms should stay updated with all the happening in business environment.

Environmental factors

Location in which the organisation is carrying out it business activities affects the trades. Change in climate condition has major influence on small firms. Product made by company should not harm the surroundings in anyway. Local authorities also make some policies to ensure the protection of environment. These policies impacts productivity of small business firms. Government is also focusing on reducing carbon footprint generated by production of organisation.

1.2 Social and ethical responsibilities of business

There are several responsibilities of a business organisation which should be fulfilled. The major responsibilities of small business firms are social and ethical.

Social responsibilities

Social responsibilities includes causes that should be considered by company in order to make reputation in public's eyes. There are certain social requirements of the region which should be fulfilled by small business firms (Yeboah-Boaten and Essandoh, 2014.). For example, firm can meet its social obligation by gibing support to charitable trusts. It can give donation to these trust. There are various rules made in which black money to the company is managed  by using donation option. Social responsibilities also involves following :

  • An organisation should give proper share of it profits to shareholders.
  • Fair salaries should be provided to each employee of the company.
  • Proper supply of good quality product should be f given by organisation.
  • Firm must follow all the rules and regulations of government to ensure business related policies.
  • Company must contribute in social welfare and betterment of society. It should give some part of profit in building schools, hospitals etc.  to ensure its social obligations.
  • Business firm must ensure that its activities should not directly or indirectly harms the surroundings of the location (Chen and et.al , 2014).

Ethical responsibilities

Ethical responsibilities of the business are the guideline which must be followed by business organisations. It is an obligation to follow the path which is correct morally and ethically. Ethical responsibilities are the practices which should be done in the company. Products made by company should be of quality as described. Organisation have ethical obligation towards consumers, employees and overall society (Nguyen, Newby and Macaulay, 2015). Forms should be honest with its workers so that they can make decision about careers of them. Product delivered by the firms should be of  quality which is expected by them. Organisation must fulfil its obligation towards supply and demand  chain. Relationship with the distributor should be good. Firm should fulfil obligation towards  all the transactions. Fair price should be given by owner to it suppliers. Price of nay product should be reasonable  which can justify the quality of product. There are some ethical  responsibilities of firms towards environment also. Internals and external balance should be maintained by organisation to ensure ethical obligations.

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1.3  Environmental issues related to business

Manufacturing activities of business firms cause various problem in environment. Production processes of the firms cause pollution and degradation problems. Waste is also generated by firms which causes harms to environment (Sekaran and Bougie, 2016). Government has also made some policies for ensuring safety of environment. These policies can impact the small business firms. Recycling policies  is also made by authorities for managing waste produces by firms. Utilization  requires extra finance support which  influence the revenue of the organisation. Additional cost is required for managing waste using recycling process. Another aspect of environmental issues is that raw material should be natural and this put burden on the environment.

Developments of the raw material should be sustainable.  Firms should ensure that their requirement are not causing forest depletion.  Process of manufacturing generates air emissions which often involves chemicals. These chemicals causes environmental degradation. Small business have to consider this policies while making strategies. This impacts the business activities of small firms. These policies impacts productivity of small business firms. Government is also focusing on reducing carbon footprint generated by production of organisation. Local authorities also make some policies to ensure the protection of environment. All of these factors can impact the small business firms.


Summing up the above report it can be concluded that external factor impacts the growth of the small business firms to great extent. There are some factors like political, environmental, economical and legal that influences the small business firms. Further more it can be evaluated that there are some social and ethical obligations of businesses which should be fulfilled by them. Product made by company should not harm the environment in anyway. Activities of business should not cause problems in environment.


  • Bryman, A. and Bell, E., 2015.Business research methods. Oxford University Press, USA.
  • Chen, Y. and et.al , 2014. IT capability and organizational performance: the roles of business process agility and environmental factors.European Journal of Information Systems. 23(3).  pp.326-342.
  • Fernandez-Feijoo, B., Romero, S. and Ruiz, S., 2014. Commitment to corporate social responsibility measured through global reporting initiative reporting: Factors affecting the behavior of companies.Journal of Cleaner Production. 81.  pp.244-254.
  • Frank, A. G., Ribeiro, J. L. D. and Echeveste, M. E., 2015. Factors influencing knowledge transfer between NPD teams: a taxonomic analysis based on a sociotechnical approach.R&D Management. 45(1).  pp.1-22.
  • Nguyen, T. H., Newby, M. and Macaulay, M.J., 2015. Information technology adoption in small business: Confirmation of a proposed framework.Journal of Small Business Management. 53(1).  pp.207-227.
  • Sekaran, U. and Bougie, R., 2016.Research methods for business: A skill building approach. John Wiley & Sons.
  • Yeboah-Boateng, E. O. and Essandoh, K. A., 2014. Factors influencing the adoption of cloud computing by small and medium enterprises in developing economies.International Journal of Emerging Science and Engineering. 2(4).  pp.13-20.
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