Organization and

Management
3rd Quarter – Module 2
Environmental Forces That Affect Local
and International Business

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 Lesson ENVIRONMENTAL FORCES THAT AFFECT
LOCAL AND INTERNATIONAL BUSINESS

This module explains the need to understand the internal and external
factors that affect the operation of a local and international business. This
enables the learner to analyze various environmental forces through the use
of environmental scanning the PEST Analysis and SWOT Analysis.

The following are the things that you will

learn at the end of the lesson:

➢ differentiate internal and external environment;

➢ perform and appreciate the importance of SWOT in a
business success; and
➢ identify the different factors that may harm or help a
business.

The following words will help you understand the lesson:

Environmental Forces – these are factors that affect the operation of the
business be it internal factors (within the business) or external factors (outside
forces).

International Business – business activities are carried outside the country.

Domestic/Local Business – a business operating in their own country and are

affected by the economic, legal and cultural factors specific to that domestic
environment, or nation.

Environmental Scanning – a method used to analyze strategic plan of action

and helps organizations to gain knowledge of possible influences from the
outside environment that affect the business.

Internal Environment – are factors that occur within the premises of an

organization and direct affect the different functional areas in the organization.

External Environment – are those that exist outside the firm and often
regarded as uncontrollable factors.

SWOT Analysis – the oldest popular method used for environmental scanning.

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 Let’s see how far you know by
simply answering the following
questions below.

fiow far do you knowY

Direction: Read carefully and encircle the letter of your answer from the given
option that describes the given statement.

1. These factors occur within the premises of an organization and directly affect the
operation of the business.
A. Internal factors C. External factors
B. Political factors D. Social factors

2. Business activities operating in one’s own country and is affected by the

economic, legal and cultural factors of the nation.
A. International business C. Domestic Facility
B. Domestic Policy D. Local/Domestic business

2. This factor includes government policies, laws and legalities.

A. Economic factors C. Financial factors
B. Political factors D. Social factors

3. This is the oldest yet popular environmental scanning used by the business.
A. SWOT Analysis C. Porters Five Forces
B. PEST Analysis D. None of the above

4. These are factors that are concerned with the financial policies, financial position
and capital structure that also affect business performance and strategies.
A. Economic factors C. Financial factors
B. Political factors D. Social factors

5. This includes the society together with its preference, priorities, pattern of beliefs,
purchasing power, educational background and others.
A. Internal factors C. External factors
B. Political factors D. Social factors

7. A business activity that is carried outside the country.

A. Local Business C. International business
B. Domestic Policy D. Domestic Facility

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 Now, try the activity before you
proceed to the lesson. Have fun!

Do this…
Activity #1 – Clustering of Environmental Factors

Direction: Group the following words below accordingly whether it belongs to

internal factors or external factors.

Missions & Objectives Technological Factors Marketing Intermediaries

Social Factors Staff/Employees Financial Factors
Political Factors Internal Relationship Economic Factors
Demographic Factors Value System Suppliers
Policies & Procedures Competitors Products & Services

INTERNAL FACTORS EXTERNAL FACTORS

Have you grouped them accordingly?

Now, you will be able to learn the
importance of those factors in the
organization as you go along with the
discussion

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 The Internal and External
Environment of Business

Understand that…
When a business activity is performed in an international level, this can be
termed as international business. The functions, techniques and processes are just
the same with the domestic or local business. The only difference is that in
International business, activities are carried outside the country. While the term
environment of a business firm, pertains to external factors and forces that surround
the firm and at the same time influence the firm in decision making and operations.
The international business environment includes different aspects like: social,
political, economic, regulatory, tax, cultural, legal and technology. They do not have
control over the external environment, their success depends upon how well they
adapt to it.

A domestic environment in business is affected by economic, legal and cultural

factors specific to its domestic environment, or nation. A business can’t control these
factors, but it can work to respond to these factors appropriately. Despite its
complications, domestics business is far simpler than internationalbusiness.

The different environmental factors that affect the business can be broadly
categorized as internal and external factors. Internal factors are those that occur within
the premises of an organization and directly affect the different operations of the
business.

Macro
environmental
Factors
External Factors
Micro
environmental
*Value System Factors

*Mission & Objectives

*Financial Factors

*Internal Relationship Internal

Factors

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The internal factors are:

➢ Value System. It denotes the culture and norms of the business. This is the
regulatory framework of a business which every employee must abide and act
within the context.

➢ Missions and Objectives. Different priorities, policies, and philosophies of a

business are guided by the mission and vision of a business.

➢ Financial Factors. These are the factors like financial policies, financial
position and capital structure which also affect a business performance and its
strategies.
➢ Internal Relationship. Factors like the amount of support the top management
enjoys from its shareholders, employees and the board of directors also affects
the smooth functioning of a business.

External Factors include those factors which exist outside the

firm and often regarded as uncontrollable. These can be
characterized as micro and macro environment

Micro environment includes the following factors:

• Suppliers are those people who are responsible for supplying necessary inputs
to the organization and ensure the smooth flow of production.

• Competitors are the close challengers of the business. It also refers to the
numbers of similar competitive product brand, size, and marketcapitalizations.
And in order to survive the competition, one has to keep a close look in the
market and formulate policies and strategies to produce innovative output.

• Marketing Intermediaries aid the company in promoting, selling and

distributing goods and services to its consumers. Therefore, marketing
intermediaries are vital link between business and the consumers.

Macro environment includes the following factors:

• Economic Factors include economic conditions such as growth rate, inflation,

restrictive trade practices and others which have considerable impacton the
business.

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 • Social Factors include the society together with its preferences, priorities,
pattern of beliefs, purchasing power, educational background and others.

• Demographic Factors refer to the study of people, such as their age, sex,
marital status, occupation, family size etc. Since demography is uncontrollable
because you cannot control the sex, age, marital status in the environment, this
enabling you to predict future trends and consumptions of your product.

• Political Factors include government policies, laws and legalities. This, in a

way, affects the business operation. For instance, the government restricted the
importation of a particular substance and as a result this action will delay the
production of your product.

• Technological Factors. Technology sets challenges to dealer. It affects the

kind of product that a dealer is offering. You cannot stop the advancement of
technology, but you can learn to adapt to its changes and maximize it for the
advancement of the organization.

Now, Try this!

Activity #2 – SWOT Analysis

Direction: You own a computer shop in the city; identify factors that might affect your
business as mentioned in the above discussion. Specifically, what might beyour
shop’s strengths and weaknesses compared from other internet shops nearby. What
are also the opportunities and threats your shop might be facing? Enumerate them
using the table below.

Business Name

Strengths: Weaknesses:

Opportunities: Threats:

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 What more ihould I knowY

Organizational Environmental Scanning

Environmental scanning helps organizations to gain knowledge of possible

influences from outside environments and how it can strategically affect the business.
It is also a method of analyzing relevant gathered information and use them to
determine strategic and planned action on the business environment.

ENVIRONMENTAL SCAN

Internal Analysis External Analysis

Strength Weaknesses Opportunity Threats

SWOT MATRIX

It also assesses the internal strength and weaknesses of an organization in

relation to the external opportunities and threats it faces. One popular method of
environmental scanning is SWOT analysis. Each letter stands for Strength,
Weaknesses, Opportunity and Threats. The strength and weaknesses are factors
within the company, and the opportunities and threats come from the outside of the
company.

Strengths Opportunities
These are the These are chances for
advantages of your development,
company over the advances or
Internal other. expansions. External
Factors Factors

Weaknesses Threats
These are the limited These are
resources available in circumstances or
your company. situation which you
cannot control.

SWOT Analysis

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 Practice Task 1

Direction: Read carefully the statement below. Write TRUE if you agree that the
statement is correct and FALSE if not.

1. SWOT analysis is the only tool used by organization to conduct

environment scanning.

2. Social factors include the preference, priorities, pattern of beliefs,

purchasing power, and educational background of the society.

3. External factors are said to be uncontrollable.

4. Inflation does not affect both local and international businesses.

5. You cannot stop the advancement of technology, but you can adapt to
changes it offers.

6. The internal factors occur within the premises of an organization and

directly affect the operation of the business.

7. Environment scanning does not influence strategic decision making

and plan of actions in the organization.

Practice Task 2

Direction: Read carefully and underline the right word/s that is being described by
the statement.

1. (Internal relationship, Social factors) include/s the society together with its
preference, priorities, pattern of beliefs, purchasing power, educational background
and others.

2. These are factors concerning financial policies, financial position and capital
structure that also affects business performance and strategies. (Financial factors,
Economic factors)

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3. The (PEST analysis, SWOT analysis) is the oldest yet popular environmental
scanning used by the business.
4. The (internal factors, external factors) occur within the premises of an
organization and directly affect the operation of the business.

5. (International Business, Local Business) involves business activities that is

carried outside the country.

6. These are people who are responsible for supplying the needs of the organization
and ensure the smooth flow of production. (Suppliers, Marketing Intermediaries)

7. Calamities are good examples of (Weakness, Threats) which is uncontrollable

and will greatly affect the operation of the business.

the module by answering the final test

Assessment:

Direction: Encircle the letter from the given options that identifies the given
statement.

1. It is an internal environmental factor that denotes culture and norms of the

business.
A. Value System C. Missions and Objectives
B. Internal Relationship D. Financial Factors

2. This are factors that exist outside the company and often regarded as
uncontrollable factors
A. Internal Factors C. External Factors
B. Social Factors D. Financial Factors

3. They are said to be the challengers of the business which they offer similar
competitive products and services.
A. Supplier C. Market Intermediaries
B. Competitors D. Internal Relationship

4. This refers to the study of people, such as their age, sex, marital status, occupation,
family size and etc. which can be used to predict future trend on products.
A. Social Factors C. Technological Factors
B. Economic Factors D. Demographic Factors

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5. It is the simplest and oldest tool used for environmental scanning.
A. SWOT Analysis C. PESTLE Analysis
B. PEST Analysis D. Porter’s Five Forces
6. A business activity that is carried outside the country.
A. Local Business C. International business
B. Domestic Policy D. Domestic Facility

7. This is the adaption of technological changes for advancement in order for the
business to survive.
A. Economic Factors C. Technological Factors
B. Political Factors D. Social Factors

8. Business activities operating in one’s own country and is affected by the

economic, legal and cultural factors of the nation.
A. International business C. Domestic Facility
B. Local Business D. Domestic Policy

There are two kinds of external environmental factor namely: 9.

and 10. .

1. Think of a simple business you would like to venture and have the following:
a. Name of your business
b. Location of the business
c. Make a simple SWOT analysis

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