The environment of the businesses consists of all the factors internal or external of the company which would some or the other way influence the competitive structure of the firm.The Business environment is divided into three categories of environment namely, the macro environment, micro environment and the industry environment.
The external environment is capable of handling all the opportunities and the threats to the firm. Opportunities here refer to the processes that can help the firm to get more of the success from the outside environment and threats are those processes that can stop the firm to get the success or to become more competitive. The phenomena of understanding the external environment can be different for different managers, for eg. Any process coming in the business can be a source of opportunity for one manager but it can be a threat for the other. But it has been seen that the more the firms can collect the complete information about the process, more likely are the chances for the process to be an opportunity for the firm rather than being a threat.
The firms decide to maintain some strategies for their business to make it competitive. The balance between the strategy created and the resources available with the firm with respect to the environment in which it operates, is known as strategic fit.
PEST stands for political, economic, social and technological factors that can influence the business activities for a firm. PEST analysis helps the managers to identify those factors which are the part of macro environment which can affect the firm
- Integration of different regions like NAFTA, SAPTA etc.
- Government policies
- Political Risk
- Economic corruption
- Changes in the society
- Similarity in the needs and wants of global customers
- Cost incurred in the production process of the businesses
- Exchange rates of the currency value
- Cost of the capital in the firm
- Scanning of the technological factors globally
- Increasing knowledge base of the economy
- Growing speed of the internet
Porter’s Diamond Model
The porter’s diamond model states that the income generated from the country’s home base is the key factor in gaining the competitive advantage in the global market rather than the income that has been generated internationally by the firm.
There are four main characteristics of Porter’s diamond model which are as follows :
1) factor conditions
2) demand conditions
3) related and supporting industries
4) firm strategy, structure and rivalry