Total Environment of a Firm

TOTAL ENVIRONMENT OF A FIRM The environment which the firm operates consists of a rich kaleidoscope of cultural, political and economic factors. For purpose of establishing the company’s policies and goals, therefore, top management must fully understand and take into account all these external and internal environmental considerations, lest the goals may turn out to be far from being realistic. Once top management has set the company’s goals, it must establish its strategic plan toward achieving these goals. Again, it is essential that, during the planning process, top management should be fully cognizant of the firm’s capabilities as well as the weaknesses and to understand where the firm stand at all times in relation to its environment. Factors affecting the Environment of the Firm  Educational factors  Socio-cultural factors  Economic factors  Administrative and political factors  International factors 

EDUCATIONAL FACTORS

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an integral part of the environment

The literacy level and the percentages of the population that belong to the different educational strata for one, bear upon the marketing approach for the products which the firm is to produce.  The types-even qualities of goods will be in demand vary according to individual tastes, which in turn are shaped by the educational backgrounds of the prospective consumers.  Percentages of literacy and educational levels also affect the type of workers and managers the firm will be able to hire in the course of working towards its goals. (Internal) there is little the individual firm can do to affect the external educational environment but there is much the firm can do about the educational levels of its workers and managers. (e.g., literacy and technical training). Personnel development must thus be an important part of any long range plan if the firm wishes to strengthen its ability to achieve its set goals. 

SOCIO-CULTURAL FACTORS

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socio-cultural factors that are present in the country should be given critical consideration by top management because these influence both the firm’s external environment as well as its internal system.

Four socio-cultural factors: 1. The legacy of the frontier: a spirit that has fostered a sense of opportunity pervading American industrial and community life; 2. Faith in business and in the individual: a faith reflected in the high esteem the American national community gives the businessman; 3. Belief in change: a belief whereby a successful experiment is not allowed to crystallize into mere custom and that an unsuccessful experiment is accepted as an occupational risk, valued for the experience that was gained in the process; and 4. The idea of competition: an ideal that leads “even those companies which are not operating in a highly competitive market to run their enterprises as though they were…” (American managers) know that their firms must maintain their competitive positions if they are to provide their people with a continuing career. Although, socio-cultural factors that work within the firm greatly affect management style, practices and the contents of the operating policies, this should not preclude top management from drawing up company policies and objectives, designing strategic plans, organizing, formulating operating policies, controlling operations, etc.

“View Toward Change”. As a country develops, its culture changes accordingly. Development, by definition, means change, and the most important aspect of change is neither economic nor technological but the change in people. And, change in people ultimately means change in culture, in the attitudes, in the value system. ECONOMIC FACTORS The size of the market is inevitably a critical factor. This relates to present products, as well as to other products and/or services into which the firm might diversify. Hence, corporate goal-setting and the strategic planning effort must depend closely on prospects for future growth in GNP, in per capita income, and on income distribution. Every effort must be made to look as far into the future as possible to anticipate this. A government’s five-year plan, for instance, can be of great assistance. Educational Factors

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Specialized vocational and technical training and general secondary education

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Higher education

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Literacy level

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Education match with requirements

Attitude toward education Special management program

Socio-Cultural Factors

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Inter-organizational cooperation View toward achievement and work Industrial managers and management Class structure and individual mobility View toward wealth and material gain View toward specific method View toward risk-taking View of authority and subordinates View toward change

Economic Factors

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Market size Fiscal policy Economic stability Factor endowment Organization of capital markets Competition Central banking system and monetary policy

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Government attitudes toward private enterprise Administration and Political Factors

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Relevant legal rules of the game Political organization Foreign policy Defense policy Political stability

International Factors

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Nature and extent of nationalism

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Import-export restrictions

General balance of payments position International trade patterns View toward foreigners Memberships and obligations in international financial organizations

Relevant legal rules for foreign business International organization and treaty obligations International investments restrictions

ADMINISTRATIVE AND POLITICAL FACTORS Operational aspects of a business firm that need a permit from the government: 1. Start a company 2. Buy land for factories 3. Utilize foreign exchange import equipment or raw materials 4. Export goods and services 5. Enter into an agreement with a foreign firm 6. Increase prices The government gets involved in labor negotiations. The government has a monopoly on the importation of many critical items, etc. Government laws, policies, and the ways in which these are administered in effect become crucial to the firm’s operations. On top of these, since permits and other pertinent actions cannot usually be obtained by writing a letter, the chief executive officer (or his assistant) must normally attend to these in person, instead of using his time

as an effective internal manager. This is, hence, a major cause of inefficiency in management. It is important for the manager to remember that the political climate is only a part of the total environment acting upon his firm. It should not prevent the utilization of scientific management. It merely means that the goals and strategy of the firm must take this aspect of the environment into proper perspectives in order or be realistic and as effective as possible. INT’L ENVIRONMENTAL FACTORS International environmental factors are those which affect a firm’s ability to most efficiently import equipment and goods, to export part or all of its production, and to enter into agreements with the foreign companies so as to gain access to technology, patent rights, management know-how, financing and markets. ENVIRONMENTAL CONSTRAIN