The external environmental factors are conditions, entities and events surrounding an organisation which influence its activities and choices anddetermine its opportunities and risks. The external environment includes all those factors which influence business and exist outside the business. Business has no control over these factors.
II-External environmental factors
It is generally accepted that performance is the major objective of any organisation but the structure of decision making is influenced by environmental complexity (e.g.Miles and snow 1978; May et al. 2000).
Most organisations face external environmental factors that are highly turbulent, complex and make interpreting those environments difficult.
Changes in theexternal environment have a direct impact on the way organisations are run and people are managed. Some of these changes represent opportunities and some of them represent real threats to the organisation(Bohlander and Snell, 2009).
The essentials external environmental factors affecting organisations are:
1) The economy environment
Factors like, inflation rates, interest rates, trades deficits orsurpluses, budget deficits or surpluses, personal savings rate, business savings rate, gross domestic product affect the availability of worker.
Example: there is a considerable difference betweenfinding a qualified applicant in a 5% unemployed market and in a 10% unemployed market. When the unemployed rate increase, the number of qualified people looking for job increase(Robert l. Malthis andJohn H. Jackson 2007)
Example: higher interest rate could deter investment because it will cost more to borrow
Example: when the national income grow, demand for firm’s product is boosted2) The industry environment
Factors like threat of new entrants, power of suppliers, power of buyers, threat of product substitute, intensity of rivalry among competitors...