## External Environment Analysis
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### Key Issues to Consider for Strategic Analysis
1. Strategy evolves over time — A current strategy is the result of several small choices made over time. It is influenced by experience and must be updated when results become clear.
2. Balance of external and internal factors — Strategic analysis requires balancing conflicting challenges. A perfect fit between internal and external factors is unlikely; management must consider opportunities, influences, and constraints together.
3. Risk — Competitive markets, liberalisation, globalisation, booms, recessions, technological changes, and inter-country relationships all pose risk. An important aspect of strategic analysis is to identify potential imbalances or risks and assess their consequences.
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### Micro Environment
The environment in which an organisation exists can be described in terms of:
- External environment — opportunities and threats
- Internal environment — strengths and weaknesses
Micro environment relates to the small area or immediate periphery of an organisation. It influences an organisation regularly and directly.
Micro environment consists of: suppliers, consumers, marketing intermediaries, competitors, etc.
#### Issues to Address in the Micro Environment
a. The employees of the firm, their characteristics and how they are organised.
b. The existing customer base on which the firm relies for business.
c. The ways in which the firm can raise its finance.
d. Who are the firm's suppliers and how are those links being developed?
e. The local community within which the firm operates.
f. The direct competition and their comparative performance.
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### Macro Environment
The macro environment has broader dimensions. It is the portion of the outside world that significantly affects how an organisation operates but is typically much beyond its direct control and influence.
#### Six Components of the Macro Environment
1. Demographic Environment
- Demographics: characteristics of a population classified by race, age, income, education, assets, home ownership, job position, region, degree of education.
- Key questions: What demographic trends will affect market size? What trends represent opportunities or threats?
2. Socio-Cultural Environment
- Consists of factors related to human relationships and the impact of social attitudes and cultural values on business operations.
- Beliefs, values and norms of a society determine how individuals and organisations interrelate.
- Differs from demographics: it is not about characteristics of the population, but about the behaviour and belief system of that population.
- Businesses must adjust to social norms and beliefs — they cannot easily change core values.
3. Economic Environment
- Refers to the overall economic situation at regional, national, and global levels.
- Determines the strength and size of the market.
- Purchasing power depends on: income, prices, savings, circulation of money, debt, and credit availability.
- Key indicators: GDP, per capita income, capital availability, foreign exchange reserves, foreign trade growth, capital market strength, interest rates, disposable income, unemployment, inflation.
4. Political-Legal Environment
- Considers: level of political development, political morality, law and order, political stability, ideology of the ruling party, scope of governmental intervention.
- The type of government is a powerful influence on business.
- Businesses must understand changes in the regulatory framework and maintain knowledge of major laws protecting consumers, competition, and organisations.
5. Technological Environment
- Technology and business are linked and interdependent.
- Technology enables: reduced paperwork, efficient payment scheduling, better inventory coordination.
- Technological advancements may require businesses to alter operational, production, and marketing strategies drastically.
- Technology creates both opportunities and threats — it can render existing products/services obsolete while enabling new businesses.
6. Environmental (Ecological) Environment
- Includes ecological/environmental issues, environmental hazards, environmental legislation, energy consumption, and waste disposal.