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 companys 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 companys 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 firms 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

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

socio-cultural factors that are present in the country should be given critical
consideration by top management because these influence both the firms
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 governments five-year
plan, for instance, can be of great assistance.
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 firms 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.

INTL ENVIRONMENTAL FACTORS

International environmental factors are those which affect a firms 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 CONSTRAINTS
Educational Factors
Specialized vocational and technical
training and general secondary
education
Special management program
Education match with requirements
Socio-Cultural Factors
Inter-organizational cooperation
Industrial managers and
management
View toward wealth and material
gain
View toward risk-taking
View of authority and subordinates
Economic Factors
Market size
Fiscal policy
Organization of capital markets
Central banking system and
monetary policy
Administration and Political Factors
Relevant legal rules of the game
Foreign policy
Defense policy
International Factors
Nature and extent of nationalism
International trade patterns
View toward foreigners
Import-export restrictions

Higher education
Attitude toward education

Literacy level

View toward achievement and work

Class structure and individual
mobility
View toward specific method

View toward change

Economic stability
Factor endowment
Competition

Government attitudes toward

private enterprise
Political organization
Political stability

General balance of payments

position
Memberships and obligations in
international financial organizations
Relevant legal rules for foreign

 International organization and treaty

obligations

business
International
restrictions

investments

The Total Environment of the Firm From the viewpoint of top management, the environment in which
the firm operates consists of a rich kaleidoscope of cultural, political, and economic factors. These
serve as a combination of constraints and opportunities within which the internal make up of the firm
impinges on it as either constraints or strengths, weaknesses, or capabilities. For purposes of
establishing the companys policies and goals, top management must fully understand and take into
account all these external and internal environmental considerations. Once top management has set
the companys goals, it must establish its strategic plan toward achieving these goals. The only
things which are certain are death and taxes. Today, we are certain that there is another thing that
is certain, namely, change. Changes that affect the firm usually lie outside the firms sphere of
influence, the most effective and bestlaid plan is that which anticipates and works toward change.
Change also takes place within the firm itself, in those areas where top management has control over;
its financial structure, the physical plant or factory, the capabilities of its management and its workers,
and so on. These changes must be considered hand-in-hand with the external environment in
accordance with the goals and the overall targeted plan established by top management. Educational
Factors The first category, the educational factors, is clearly an integral part of the environment and
may be viewed from a number of perspectives. Factors within the environment that can affect the
management of the firm 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 of that will be in demand vary according to
individual tastes, which in turn are shaped by the educational backgrounds of the prospective
consumers. Even the media and techniques used in advertising these products are also largely
dictated upon by these very same factors. 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. Foremen will necessarily spend more time supervising workers who are poorly educated and
who are slow to learn. If some supervisors are illiterate, managers will have to take pains in
conveying instructions orally. When this is experienced by management, planning any significant
growth becomes much more difficult. In the case of a large firm, decentralization becomes a must,
requiring a substantial amount of written communications up and down and among departments.
There is little the individual firm can do to affect the external educational environment. But, since the
environment will keep on changing, the firm must be able to anticipate the extent and direction of such
changes in order to develop sound strategic plans. On the other hand, there is much the firm can do
about the educational levels of its workers and managers. Literacy and technical training can be given
to workers and foremen. 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 Sociocultural factors that are present in the country should be given critical consideration by top
management because these influence both the firms external environment as well as its internal
system. Firms are constantly interacting with the cultural environment. They affect eachother. In the
United States, the large corporations shape the attitudes and the value system of the communities
these attitudes and values, inturn play upon the motivation, behavior, and performance of both the
people dealing with the firms and those working the firms. When a firms top management institutes
its own elaborate training program and creates an atmosphere for the exercise of authority,
responsibility, imitative, risk etc., the culture the value system of the people working for the
company undergoes a change. The company itself becomes a cultural subsystem. In fact, it can even
become much more efficient than the surrounding firms and the surrounding society. There are limits
of course, to the extent of cultural change that can take place within a firm. After all, employess must
continue to interact with the more dominant (national) cultural system once they step out of their work
premises and shed off their working roles. But change can be achieved, and the effect can be
significant. 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.
Competition is multi-faceted. The existence and potential growth of competitors are economic factors

which are of primary importance in developing a firms strategy. Administrative and Political Factors
It is important for the manager to remember that the political climate is only a part of the total
environment acting upon his firm. Political factors operating in the environment should not, therefore,
overwhelm management. 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
perspective in order to be realistic and effective as possible. International Factors International
environmental factors are those which affect a firms ability to most efficiently import equipment and
goods, to export part or all of its production, and to enter into agreements with foreign companies so
as to gain access to technology, patent rights, management know-how, financing and markets.
Environmental Constraints Educational Factors 1. Literacy level 2. Specialized vocational and technical
training and general secondary education 3. Higher education 4. Special management programs 5.
Attitude toward education 6. Education match with requirements Socio-cultural factors 1. View toward
industrial managers and management 2. View of authority and subordinate 3. Inter-organizational
cooperation 4. View toward achievement and work 5. Class structure and individual mobility 6. View
toward specific method 7. View toward risk-taking 8. View toward change Economic Factors 1. 2. 3. 4.
5. 6. 7. 8. Market size Central banking system and monetary policy Fiscal policy Economic stability
Organization of capital markets Factor endowment Social ahead capital Competition. Administrative
and Political Factors Relevant legal rules of the game Defense policy Foreign policy Political
organization Government attitudes toward private enterprise 6. Political stability 1. 2. 3. 4. 5.
International Factors 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. View toward foreigners Nature and extent of
nationalism General balance of payments position International trade patterns Membership and
obligations in international financial organizations International organization and treaty obligations
Power or economic blog grouping Relevant legal rules for foreign business Import-export restrictions
International investment restrictions Profit remission restrictions Exchange control restrictions