What Are Environmental Factors in Business?

Environmental factors are external factors that can’t be controlled by a business, according to the Houston Chronicle. These factors fall into several categories, including socioeconomic, legal or ethical, political and technological factors.

When a business operates in a particular location, it must consider how internal and external factors will affect various business operations and strategies. Internal factors are modified through the actions of company executives and management, where external factors are regulated by entities outside a business’s chain of command. For example, the legal, ethical and government environments determine the laws and code of ethics a business has to abide by in order to function as a legal entity. Changes in the technological environment also influence the types of products or services offered by a business as well as its configuration of supply chains and distribution channels.

One of the most important external factors for business is competition from other companies. Businesses use competitive analysis to gain a competitive advantage in the marketplace and to compare their product offerings to those of competitors. Changes in consumer tastes are also taken into consideration when creating a plan to achieve competitive advantage. Companies must be quick to adapt to changes in the external environment in order to keep up with the latest industry trends and regulations.