The general or contextual environment - Business Environment

Contextual Environment of Business

The general or contextual environment
After going through the external factors, It is useful at this point to gain an overview of the business environmentby highlighting some of the key environmental influences on business activity. In this section we examine what arefrequently referred to as the ‘PESTLE’ factors, i. e P:political
E:economic
S:socio-cultural
T:technological
L:legal and
E:ethical influences
A ‘PESTLE’ (or ‘PEST’) analysis can beused to analyse a firm’s current and future environment as part of the strategic management process.

The political environment

A number of aspects of the political environment clearly impinge on business activity. These range from general questions concerning the nature of the political system and its institutions and processes, to the more specific questions relating to government involvement in the working of the economy and its attempts to influence market structure and behaviour Government activities, both directly and indirectly, influence business activity andgovernment can be seen as the biggest business enterprise at national or local level. Given the trend towards the globalisation of markets and the existence of international trading organisations and blocs, international politico economic influences on business activity represent one key feature of the business environment. Another is the influence of public, as well as political, opinion in areas such as environmental policy and corporate responsibility.

The economic environment
The distinction made between the political and economic environment and, for that matter, the legal environment is some what arbitrary. Government, as indicated above, plays a major role in the economy at both national and local level and its activities help to influence both the demand and supply side. Nevertheless there are a number of other economic aspects related to business activity which are worthy of consideration.

The social, cultural and demographic environment

Both demand and supply are influenced by social, cultural and demographic factors. Cultural factors, for example, may affect the type of products being produced or sold, the markets they are sold in, the price at which they are sold and a range of other variables. People are a key organizational resource and a fundamental part of the market for goods and services. Accordingly, socio-cultural influences and development shave an important effect on business operations, as do demographic changes.

The technological environment
Technology is both an input and an output of business organizations as well as being an environmental influence on them. Investment in technology and innovationis frequently seen as a key to the success of an enterprise and has been used toexplain differences in the relative competitiveness of different countries. It has also been responsible for significant developments in the internal organization of businesses in the markets for economic resources.

The legal environment
Businesses operate within a framework of law which has a significant impact onvarious aspects of their existence. Laws usually govern, among other things, the status of the organisation, its relationship with its customers and suppliers and certain internal procedures and activities. They may also influence market structures and behaviour. Since laws emanate from government (including supranational governments) and from the judgments of the courts, some understanding of the relevant institutions and processes is desirable.

The ethical environment

Ethical considerations have become an increasingly important influence on business behaviour, particularly among the larger, more high profile companies. One area where this has been manifest is in the demand for firms to act in a more socially responsible way and to consider the impact they might have on people, their communities and the natural environment.


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