The relationship between a firm and the various levels of external environment.

 

The relationship between the company and the different levels of the external environment is absolutely vital. Since the external environment has a huge impact on whether or not a business will perform in the long run. As a result, coping with the external environment is a challenge for businesses. The term "external environment" refers to everything outside of a control of a company. That has the ability to have an impact on it in some way. As a result, we work on the assumption that, both as individuals and as businesses, we have very limited control. There is a plenty of things that happens outside of a company's control. Firms can only do their best to pay attention and foresee them. There are three layers to the external environment. Broad environment, industry environment, and competitor environment are the three levels. 

The first level is the broad environment, often known as the general environment. If a firm seeks to be in business for years, it must be aware of its surroundings. Businesses will not be able to thrive in the long term if they are not aware of the components of the larger environment, which include economic factors, technical factors, sociocultural factors, and political/legal factors. They must analyze the broader environment based on these characteristics in eliminating dangers and act on opportunities that emerge from the broader environment. If it's done, they will be successful in the long term.

The next level is the industry environment, sometimes known as the operating environment. Businesses must also analyze the industrial environment in order to remain in business for an extended period of time. The examination of the industrial environment will benefit the organization in finding the proper industry. It will provide business insights on whether or not the industry is successful. The industry analysis is carried out using Porter's five forces of competition model, which determines whether or not the sector is appealing. Threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products, and Intensity of Rivalry among rivals are the five factors. When the five forces threats are high, industry profitability is low; when the five forces threats are low, industry profitability is high. Hence it is critical to understand the industry environment; otherwise, whereas if industry environment is not evaluated, companies may select the wrong industry for them, which may negatively impact their business in the long run. 

In the operating environment, I believe the buyer is perhaps the most essential stakeholder since whether the firm survives or not in the long term is completely dependent on the purchasers. If the companies are unable to meet the demands of the customers, they will be unable to sell their products to them, leading to huge loss. Therefore, as result when firms are producing products, they must consider whether their customers will like them or not, because it is eventually through the money of customers that firms will be able to survive.

The third level of external environment is the competitor environment, sometimes referred to as the task environment. Companies must also analyze the competitive environment in order to identify who their main rivals are. Businesses will be able to learn about their direct competitors' actions, responses, and intentions with the help of competitor analysis. The results of these three analyses, when combined, have an impact on the firm's vision, mission, strategy selection, and competitive actions and responses.