External Environment Analysis : It includes factors like different situations, different conditions, stresses etc .

Besides, economic, social, cultural, political, legal, technological and geographical factors also affect business environment . As per ours syllabus, we shall discuss here mainly economic , social and technology factors . Economic factors : Economic factors have a maximum impact on a business firm . The firm does not have an independent control over such factors . These factors are broadly of two kinds : (a) Factors affecting demand for goods and services . (b) Competitive factors . (A) Factors Affecting Demand for goods and Services : The demand for goods and services largely depends on : (1) Purchasing power of the consumers , that is , their ability to purchase , (2) Willingness to buy the product, that is, willingness to purchase . (3) The purchasing power of the consumers is determined by the following factors : (a) Employment which leads to earning of income (b) Level of taxes (c) Savings (d) Price level of goods and services . As for the willingness to purchase, it mainly depends on two factors : (a) Choice of preference in respect of goods and services (b) Expectations about future changes in income . (B) Competitive factors : Competitive factors also affect the business operations of a firm . This may be done through price reduction, aggressive marketing, improving the quality of the product, better and attractive packaging, product differentiation, offering better customer services etc . Apart from the above factors, the following factors, the following factors either independently or jointly also affect the operations of a business firm . (1) Rates of saving and investment . (2) Trends agricultural and industrial production . (3) Changes in the pattern of income distribution . (4) Trends in exports and imports . (5) Sector allocation in government budget . (6) Monetary and fiscal policy of the government . (7) Growth rate of money supply and inflation rate . (8) tax-structure and public debt . Social and Cultural Factors . Social and cultural factors too are an integral part of business environment . Thus, for example social customs and traditions, beliefs, religious dogmas, tastes and preferences of the people, consumers habits and fashions etc . affect business decision . These social and cultural factors include amongst other things social structure role of social structure, role of social organisations and institutions, religious beliefs, trends towards social responsibilities , public welfare etc are important for business firms in taking appropriate decisions . Technological Factors : Technological factors too after in a very significant manner the business operations of a firm . New researches and new inventions affect the decision-making process of a firm .

In particular , industries like chemicals, electronics, aerospace, oil exploration, communications, power and energy sectors etc are witnessing continuous technological changes . There are broadly three main stages of changes in technological environment : (1) Research-invention of new product and new productive process . (2) Innovations practical application and use of new product and new productive process . (3) Generalisation widening the spread base of new product and new productive process .