General Environment or Remote Environment or Macro Environment
General/remote/macro environment
The general environment is composed of the factors that are broad and affect the industries and the firms competing with each other. The general environment should be scanned, monitored, forecasted, and assessed to determine its effects on the firm i.e. to recognize and evaluate opportunities and threats. The different components of the general environment are;
Economic environment
The economic environment refers to the nature and direction of the economy in which a firm competes or may compete. In general, firms seek to compete in a relatively stable economy with strong growth potential.
Being an economic entity, the economic environment becomes the most important environmental component for a business. The components of the economic environment are;
1. Economic system:
It determines the degree of private participation in the economy and the role of market forces. Three types of economic systems are prevalent. They are;
- Free market economy: it is based on private sector ownership of the factors of production.
- Centrally planned economy: it is based on public ownership of all the factors of production.
- Mixed system: it is based on the co-existence of both private and public sectors.
2. Economic policies:
They are the economic guidelines of the government. Economic policies aim at the development and growth of different sectors of the economy. Some of the important economic policies are;
- Monetary policy: it deals with money supply, interest rates, credit availability, and exchange rates.
- Fiscal policy: it is related to taxation and government expenditure.
- Industrial policy: it is concerned with industrial licensing, location, incentives, facilities, foreign investment, technology transfer, and nationalization of industries.
3. Economic conditions:
They represent economic soundness of a country. They are represented by;
- Gross domestic product (GDP); It is the broadest measure of a country’s economy. It represents the total market value of all goods and services produced in a country during a given year.
- Inflation: it represents changes in the level of retail prices for the basic consumer basket. Inflation is tied directly to the purchasing power of a currency.
- Balance of payment: it represents the ratio between the number of payments received from abroad and the number of payments going abroad.
- Income distribution: it shows how a nation’s total GDP is distributed amongst its production.
- Business cycles: They affect the health of an organization. They may be depression (contraction), recovery (revival), prosperity, and recession.
4. Economic integration:
Regional and global economic integration are also important components of the economic environment. Economic integration facilitates removing or minimizing tariffs and other restrictions on the economy at the international level. It promotes cooperation and free trade among the countries. Economic integration has been promoted by SAARC, APEC, ASEAN, EU, and the WTO.
Political environment
The political environment of business refers to the government actions which affect the operations of a business. These actions may be on a local, regional, national or international levels. Managers pay close attention to the political environment to measure how government actions will affect their company.
The political segment represents how organizations try to influence governments and how they understand the influences of government actions on their strategic move.
The basic components of the political environment are;
1. Political Ideology:
It may be defined as a set of ideas, principles, and philosophy. The main political ideologies are;
- a. Democratic: Under democratic ideology, the power is vested in the people. Fundamental rights are ensured. The private sector is regarded as an indispensable part of the development of the country.
- b. Totalitarian: Under it, power is centralized to the government that does not tolerate parties of differing opinion. The private sector doesn’t flourish under such ideology.
2. Constitution:
The constitution is the fundamental law of the country. It is the duty of every citizen to follow the constitution. Nepal has recently promulgated its constitution. It declared Nepal as a federal, democratic, republic state by legally ending the monarchy.
3. Political parties:
Political parties are regarded as the pillars of the democratic system. They try to win the support of the people to elect their representatives and form legislation.
4. Government and its branches:
It involves legislative, executive, judiciary, and other constitutional bodies.
- a. Legislative: Its main responsibility is the formulation and enactment of the law. It also forms the executive i.e. the government.
- b. Executive: It refers to the organ of the state that is responsible for the overall administration of the nation. It is composed of the government and its organs as bureaucracy, army, and police.
- c. Judiciary: It refers to the court of law. It is responsible for settling disputes and interpreting the rules and laws if required. It has the right of judicial review under the constitution.
- d. Other constitutional bodies: They are the constitutional bodies created by the constitution. Some of them are; The commission for the investigation of abuse of authority. Office of the auditor general, federal public service commission, election commission, and national human rights commission.
Legal environment
The legal environment of a business is composed of the constitution, business-related laws, courts, and law administration. The legislative framework of a country provides both opportunities and threats to the business.
The components of the legal environment are mentioned below:
- Constitution: It is the fundamental law of a country.
- Business laws: They consist of an array of laws that regulate business activities.
- Courts of law: They are the institutions to define and solve legal disputes.
- Law administrators: They are the various law enforcement agencies, which ensure implementation of the laws as well as judgments made by the courts of law.
Socio-cultural environment
A business is a social system. It conducts its activities in society. The socio-cultural environment is the sum of all the cultural elements that affect the operation of a business directly or indirectly.
The norms, value, belief, attitudes, language, symbols, and behavior which are learned and developed over time collectively form culture. It is a complex phenomenon and transfers over generations. Some of the important constitutions of the socio-cultural environment are mentioned below.
- a. Attitudes: It is the positive or negative concept towards a product, person, organization, and other elements.
- b. Beliefs: Beliefs are descriptive thoughts about something. They are based on knowledge, experience, and religion.
- c. Religion: Religion reflects and shapes culture. It is shared beliefs, values, and rituals.
- d. Language: It is a medium of communication. It also reflects culture.
- e. Education: it is a continuous process of learning. Education is very important for developing and nurturing a culture.
- f. Family structure and social organizations: Social organizations are in the form of common interest groups and communities.
Technology environment
The technological segment of the business environment includes the institutions and activities involved in creating new knowledge and translating it into new products, processes, and materials. Technology has pervasive and diversified scope. Hence, it affects many parts of society. Given the rapid pace of technological change, it is vital for firms to study the technological segment thoroughly. The importance is that early adopters of new technology often achieve higher market shares and earn higher returns. The following are the important elements of the technological environment.
- Level of technology: It may be manual, mechanized, automated, computerized, and robotized technology.
- The pace of change: It is the stage and speed of the technological change.
- Technology transfer: It implies technology imported from foreign countries.
- Research and development budget: It is the spending by the government or business organizations for technological adaptation, up-gradation and development.
Physical/Natural Environment
The physical environment refers to potential and actual changes in the physical environment. It also refers to the business practices that are intended to positively respond to those changes. There are many parts of the physical environment that firms should consider.
- Energy consumption: It is concerned with both organizations and nations.
- Environment policy: Companies are required to develop environmentally-friendly policies due to increasing concern about sustaining the quality of the physical environment.
- Compliance of environmental laws: Businesses should comply with all environmental laws. Besides, they should seek to understand their impact and continuously improve the business practices in many areas.
- Natural resources: It involves the availability and the sustainable use of natural resources like water, land, forest, mines, and minerals.
Global environment
The global environment of a business includes relevant global markets, international political events, and critical cultural characteristics of global markets.
Globalization of business markets may create opportunities to enter new markets. It may also invite threats in form of increased competition. Firms competing in global markets should recognize the different socio-cultural and institutional attributes of global markets. The following are the important elements of the global environment.
- Relevant global market: It involves the size and width of the market.
- International political events: It involves international political events which are likely to affect the operation of a business.
- Degree or regional and global integration: It indicates the involvement of the country with regional and global organizations.
