External factors

What are the external factors of a company?

The external factors of a company are those agents that can generate a positive impact or negative in business management and on which the organization cannot exercise any type of controlexcept adapt to change.

It is important to identify what these external factors are in order to take the necessary measures that prepare the organization to counteract negative external variables, or take advantage of those that benefit it.

Once the variables that affect the company have been identified, an order of priorities must be established to carry out actions to address them. It is necessary to define key indicators, KPI, to measure the performance level of the chosen solution.

Examples of external factors

The most important external factors are:

• Inflation: the sustained and generalized increase in prices in the economy generates changes in the purchasing power of consumers, which directly affects the demand for a company's products or services. There must be an efficient inventory system or a relationship with raw material suppliers, etc. to keep costs within a reasonable value and avoid having a strong impact on the price.
• Exchange rate: in the same way, if part of the raw material comes from other countries, the variation in the exchange rate of the currency will strongly influence the price of a good, for which the competition to buy abroad or substitute imports by buying in the local market.
• Substitute products: the variation of prices in a good or service similar to that of the company can generate changes in its demand. The company must be attentive to these fluctuations, making the necessary adjustments to avoid affecting its sales.
• Fiscal policy: it is the branch of the economic policy of a State that configures public spending and taxes. If public spending increases, the tax burden will also do so. Although most of the taxes are passed on to the final consumer, the increase in the price of the good or service can reduce the quantity demanded.
• Foreign trade: Regarding its foreign policy, a government can relax or restrict the entry or exit of merchandise from the country, favoring or harming the national industry. Many companies have emigrated to other countries due to the negative impact that this factor has had on the development of their activities.