Environmental Dynamics & Change

Entrepreneurs need to evaluate the environment not only prior

to the start-up of their business but also during the growth
stage of ventures. An environment is the situation where
business ventures operate. Ventures environments can be
divided into two parts, which are:

 Macro view of the External environment

 Micro view of the External and Internal environment

 The Components of Venture Environment

External Environment Internal Environment

Macro Micro
Environment Environment
Political
Socio
and Customers Competitors
Cultural
Legislation

Economy Technology Financial

Suppliers
Institutions

Non Govt Govt

Organizations Agency

Organization Structure Culture Resources

 External Environment(Macro)
Political & Legislation
This is the environment where entrepreneurs exercise their political power.
To a large extent, usually entrepreneurs have to take the given political
and legislative elements of the new ventures. They have to obey and adhere
to the policy, legislation and regulations where the business operates.
Economy
The economic environment plays a vital role in the success or
failure of any new venture. A macroeconomic environment encompasses the
total of all goods and services produced, distributed, sold and consumed.
Entrepreneurs need to analyze this environment at the global, national and
local levels where their business operates.

Each business is related to one another at these three levels of the

macro economics environment. However, one should know which level has
a greater impact on entrepreneurs. Entrepreneurs should scan, monitor,
forecast and assess the macroeconomic conditions that affect the new
venture. They should be able to see the changes that happen in the
economy and be able to determine the variables that are relevant for
analysis.
Socio Cultural
Demographic changes - They occur due to changes in the population,
ethnic groups, and population structure according to age, gender,
geographical location, and population distribution of income. These
elements are the contributing factors to consumers’ demand, purchasing
power and industrial capacity. Entrepreneurs should also closely examine
these elements which contribute to the creation of markets. However, the
demographic trend and changes are beyond an entrepreneurs’ control.
Entrepreneurs need to assess demographic changes in order to identify
business opportunities.

Social Changes - They relate to the modes and manner in which people live
their lives. Lifestyle reflects the peoples’ tastes and preferences.
Entrepreneurs need to scan and monitor lifestyle changes in order to
identify business opportunities.
Technology
The branch of knowledge that deals with industrial arts, applied science,
engineering, process, invention or method can be defined as technology.
Technological analysis requires scanning and monitoring from the time of
basic research through product development and commercialization.
Technological change takes two forms:

Pure Invention - Pure invention refers to the creation of something new

that is different from existing technology or products.

Process Innovation - Process innovation refers to the small changes in

design, product formulation and manufacturing, materials and
distribution. This will be discussed in further detail in the section on
opportunity identification.
 Micro Environment
Customers
Customers are the main target group in business. They consume
goods and services produced by the industry. Customers can be among
individuals in the society, such as housewives, workers, students or groups
of people. The consumer is king in the market system.

Competitors
Entrepreneurs in new venture businesses must really analyze their
competitors in the industry. The competitors are the businesses that fulfill
the same customer needs or have the potential to serve those customers.
They can be identified by asking the customers (of existing business) or
potential customers (of new business) where they can buy the product or
services. Entrepreneurs can identify them through business directories.
Suppliers
Suppliers are the second group of people that have great
influence on entrepreneurial activities. They can increase the prices they
charge for the products and services they sell. They can also decrease
the quality of those products and services that are in the market.

Financial institutions
Financial institutions are one of the sources for external funding
to initiate a new business venture or for expanding an existing business.
Loans from financial institutions are not only hard to get for new
venture entrepreneurs because of their lack of track record, but also
because of the cost in terms of interest payment, which burdens the new
business. Thus, financial institutions have a direct influence on
entrepreneurs.
Government Agencies

Government influences the entrepreneurial activities through

policy implementation. Some examples include the New Economic Policy,
Privatization Policy and the Malaysian Agriculture Policy which have been
implemented in our country. Some policies have direct impact on
entrepreneurial activities.

Non-government organizations
Non-government organizations such as consumer societies,
political organizations, religious groups, business society, environmental
groups and others are among interest groups that can influence
entrepreneurs. These groups can influence entrepreneurs through
campaigns against products or services and by disseminating the
information regarding certain products. Later these actions can influence
customers and pressure the government to take action on certain issues.
 Internal Environment

An organization’s internal environment consists of:

 Resources
 Structure
 Culture

These elements influence the entrepreneur’s decisions and

activities. Entrepreneurs need to assess the strengths and
weaknesses in their business before making any decision or
formulating any strategies.
Resources - Among the internal resources in an organization are the
entrepreneur himself, financial, human resources, tangible and
intangible assets, technology and reputation. Entrepreneurial personality
characteristics, skills, energy, ideas, knowledge and experiences are part
of entrepreneur resources. All these resources are processed together in
the business venture to produce goods and services.

Structure - Organizational structure must be suitable for a new venture

to adapt to changes in the environment.

Culture - Positive culture and values should be inculcated into the

business organization for the benefit of all human resources.