A host of external factors influence a firm's choice of direction and action and, ultimately, its organizational structure and internal processes. These factors, which constitute the external environment, can be divided into three interrelated subcategories: factors in the remote environment, factors in the industry environment, and factors in the operating environment. There are complex necessities involved in formulating strategies that optimize a firm's market opportunities. There is an interrelationship between the firm and its remote, its industry, and its operating environments. In combination, these factors form the basis of the opportunities and threats that a firm faces in its competitive environment.
The remote environment (macroeconomic) comprises factors that originate beyond and usually irrespective of, any single firm's operating situation: (1) economic, (2) social, (3) political, (4) technological, and (5) ecological factors (Pearce & Robinson, 2004). Economic factors concern the nature and direction of the economy in which a firm operates. Because consumption patterns are affected by the relative affluence of various market segments, each firm must consider economic trends in the segments that affect its industry. On both the national and international level, managers must consider the general availability of credit, the level of disposable income, and the propensity of people to spend. Prime interest rates, inflation rates, and trends in the growth of the gross national product are other economic factors they should monitor (Pearce & Robinson, 2004).
There is difficulty in assessing the probable impact of remote, industry, and operating environments on the effectiveness of alternative strategies. Asses ...