Explain the Internal and External Factors of the Business Environment

Internal Factors

Internal factors can influence the working of a business from both way possible either it will be positive or negative. 

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The main internal factors are business culture, staffing, financing, and technology. They are factors within a business that can be controlled by the organization. Some examples of internal factors include:

Shareholders and owners

They determine the company culture, financial position, and hiring and firing decisions. Their actions can have long-lasting effects on the organization.


They are the source of ideas, execution, and problem-solving in a company. A well-trained and skilled workforce can contribute positively to the organization’s success.

Internal processes

Documented and efficient processes can help maintain consistency in products and services, making it easier to onboard new staff and freelancers.

Policies, procedures, and plan

These serve as the framework for how people behave in specific situations and work together with owners and culture to impact the company’s success.

External Factors

External factors are elements outside a business that can have an impact on its success, either positively or negatively. A business cannot control external factors, but it must respond to them and make decisions to remain successful. External factors are commonly categorized into PESTEC factors:


Government policies and regulations can affect a business’s operations, such as safety requirements or taxation.


Economic conditions, such as inflation or unemployment rates, can influence consumer spending and the overall business environment.


Changes in taste, fashion, or demographics can impact consumer demand and preferences.


Technological advances can create new opportunities or challenges for businesses, such as selling goods online or automating production processes.


Weather conditions, natural disasters, or the growing interest in sustainability can affect sales, production, and business practices.


Rival firms’ actions, such as launching similar products or lowering prices, can impact a business’s market position.

Other External factors 

External factors can be further divided into micro and macro factors

Micro factors

These factors impact a specific industry or business directly but may not have an impact on the economy as a whole. Examples include changes in government policy that require specific safety procedures for staff.

Macro factors

These factors affect the entire economy and can influence all businesses and industries. Examples include changes in interest rates or currency exchange rates.


Understanding both internal and external factors is crucial for a business to adapt and succeed in a constantly changing environment. By monitoring these factors and making informed decisions, a company can mitigate risks and capitalize on opportunities.

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