Which Statement About The External Environment Is True?

Which Statement About The External Environment Is True? A. It includes all relevant forces outside the organization's boundaries. B. It involves federal regulators who work within the organization. C. It includes only the organization's customers and clients. D. It refers to human resources who work on satellite campuses.
Answer of MCQ | What is External Environment

The correct option of this multiple choice question (mcq) is A, as in External Environment, we consider all the uncontrollable external environmental factors which affect the company’s business operations, activities and its performance. These factors include economic conditions, technological changes, government laws, suppliers, competitors, customers and Natural Environment. These are the stakeholders of the company who have vested interests in the organization. These can affect and influence the economic decisions of the organization and the management of the organization also takes decisions by considering the effects of these strategic decisions on his organization and its stakeholders.


1. Economic Conditions

If there is boom period of economy, then there are lots of opportunities for the organization to grow and such period of economy has positive impacts on the economic decisions of the organization. The inflation rate is declining during this period, so they can purchase products from suppliers at low prices and sell at high profits to customers or sell at minimal profits but purchase products at large scale to earn profits from huge sales volumes. In case of depression period, it negatively affects the organization i.e., its sales is decreasing as due to high inflation level, the prices of goods rise which decreases the purchasing power of customers and they purchase less from the company. A manager should take precautionary measures to cope with this difficult situation such as store products in safe to avoid wastage of resources, maintain reserves to be utilized in difficult situation, etc.

2. Technological Changes

A management should adopt the latest technological changes to compete and attract the customers in the market. If latest technological tools such as computerized accounting system, AI (Artificial Intelligence), cloud computing, automation, etc., are installed in computer system, then the working performance is improved to achieve organizational goals. By adopting updated technology systems such as using email service, AI chat, live video calls, etc., the organization can serve the customers efficiently and effectively.

3. Government Laws

Government laws provide opportunities to the organization as well as control the activities of the organization. For example, if the govt gives subsidies on a product to increase its production, then the govt lowers its prices and lowers the cost of production, so that the company produces more output which the company can sell to customers and increases its sales.

However, in free trade, there is no involvement of gov in determining the prices of goods, instead, the prices are determined with the equilibrium of demand and supply.

4. Suppliers

An organization is also affected with the actions of suppliers. If the company purchases goods at lower prices from suppliers in bulk and they supply the quality goods at time then the company is able to sell products to lots of customers at low prices and get profits easily to gain competitive edge over its competitors.

5. Competitors

A company also affected from the strategic decisions of its competitors. For example, if the goods are substitute to each other, such as 7up and sprite, then decrease in price of one product affects the competitors to lower the price of substitute product to retain and attract the customers. If one competitor lowers the price of substitute product competitors fails to do so, then such competitor gets comparative advantage over its competitors and influence many customers will surely buy from such competitor that, now, are offering lower prices (without losing quality) of such substitute product. So, the management must consider its competitors before making any business strategy.

6. Customers

Customers also affect the company by their buying behaviors. If the customers are not satisfied with the quality of the products, or the company ignores or fails to fulfill customers’ needs and wants, then such company loses many customers and they show dissatisfaction and become disloyal with company’s products. To regain customers’ loyalty and to satisfy them, the company should value customers’ demands, needs and wants to influence and persuade them to buy again the company’s products.

7. Natural Environment

Changes in natural environment also affect organization's strategic decisions. For example, when there are abundant natural resources available to the company, then that company can produce more products and sell these products in the market at lower prices to make huge sales to gain competitive edge over its competitors.

The options B, C and D are incorrect choices of this mcq.

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