What is general environment and its components?

1. Career development
2. General Environment: 6 Factors That Influence Business

By Indeed Editorial Team

Updated June 23, 2022 | Published May 3, 2021

Updated June 23, 2022

Published May 3, 2021

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Many forces can influence how a business performs in the marketplace. When considering strategic business decisions, organizations analyze the six general environmental forces. These forces, which spell out PESTEL, are categorized as (P)olitical, (E)conomic, (S)ociocultural, (T)echnology, (E)nvironment and (L)egal factors. Understanding the variety of factors and how they affect business can direct how your organization seeks to achieve its goals and how they articulate themselves.

In this article, we will define the general environment in business and explore the six forces affecting a business's operations using the PESTEL analysis tool.

What is the general environment?

The general environment, or macro-environment, is the variety of factors beyond an organization's control that affect their operation and performance. These external influencers can determine whether a business experiences opportunities or setbacks in the marketplace.

The general environment can shape how a company brands itself, the products they choose to sell and how it interacts with other businesses and regulatory agencies. Companies also examine the general environment when conducting market research and strategic analyses.

Related: 10 Techniques for Effective Business Analysis

What are general environment forces?

General environment forces are external factors that influence the success of a company's operations. While these forces affect organizations differently than internal factors, such as turnover rates, managers consider them when planning, organizing, leading and controlling their projects. Executives use the PESTEL analysis tool, which stands for political, economic, sociocultural, technology, environment and legal, to understand how factors affect their industry:

1. Political factors

Changes in politics and regulations may determine how freely a business can operate. Political factors include government influences such as changes in trade tariffs and tax policies that may impact a business.

For example, a nation with a stable government and consistent trade regulations often attracts more international business, as international companies know that these factors will ensure that the nation conducts business effectively. Those same companies may be less likely to do business within nations that lack this infrastructure.

Related: Factors of Production: A Definitive Guide

2. Economic conditions

Economic conditions can affect how well an organization performs in the marketplace. Economic conditions and factors can include things such as unemployment rates, consumers' disposable income, interest rates and gross domestic product.

An example of this factor in action is an economic recession. When the overall economy suffers, there tends to be a decrease in discretionary income, or the amount of money individuals have left over after paying for their necessities. When the discretionary income is low, nonessential vendors like toy and luxury item companies are less successful than companies with essential products like grocery stores and pharmacies.

Related: What Is Economic Forecasting? (Definition and Examples)

3. Sociocultural factors

Another factor affecting organizations is social demographics and socioculturalism, or a combination of social and cultural contributors. Some sociocultural factors include population size and cultural trends as well as demographics like age, gender and race. When advertising to consumers, businesses keep their target demographics in mind to find ways to best reach their audience.

One example of a sociocultural factor that impacts businesses is the rise in health consciousness in the general population, leading companies to market some products differently. As a result of this new awareness among consumers, some soda companies now offer more diet soda options and natural fruit flavors to attract health-conscious consumers.

Related: 10 Business Tips For Success

4. Technology

Technology often helps businesses improve their own internal processes, but technological developments that occur in the general environment also shape how businesses operate. Depending on the organization, these improvements can negatively or positively affect their operations.

For example, cameras are becoming less common household items as more people use their cell phones to take similar quality images. The technological advancement of cell phones changed the camera industry. Another advancement in technology is the switch to online ordering for restaurants and coffee shops. Though food service is not the only industry that uses online ordering, this technological change in the general environment allows food service businesses to offer an additional service to their customers.

Related: How To Stay Current With Technology Trends

5. Environment

The physical conditions in the environment also have an impact on how businesses conduct themselves. Environmental factors like climate change, natural disasters and pollution levels can affect the supply chain or increase costs for raw materials. This is clear in the recent trend of energy companies creating clean energy alternatives for their consumers, such as solar and wind energy.

A specific example of environmental factors in the general environment impacting businesses is when some plastic water bottle companies switched to using recycled plastic to manufacture their bottles in response to used bottles ending up in landfills.

Related: What Is the Disaster Management Cycle?

6. Legal

The legal system also influences business activity. Some legal factors include health and safety regulations, employment laws, antitrust laws and discrimination laws. These also could include industry-specific regulators, which create rules that shape the competition in a specific industry. The Federal Trade Commission and the Food and Drug Administration are some examples of regulatory agencies.

An example of legal factors impacting businesses would be the law in the U.S. that protects intellectual property rights. This ensures that piracy doesn't occur, which could cause a movie company to lose profits for their latest film if it were being sold illegally on other streaming platforms. Additionally, the Sherman Antitrust Act, which bans monopolistic business practices, is an example of a legal general environment factor that directly relates to businesses.

Related: A Definitive Guide to Regulatory Affairs Careers and Skills

How do general environment forces affect business?

General environment forces have the ability to shape the task environment and a company's abilities to resource needed materials and export goods. They also can affect important aspects of their business, such as their customer's willingness to purchase their product. Take, for instance, how the sociocultural force of individuals switching to streaming movies is making movie theaters and movie rental services become less popular.

These forces also affect the planning and overall performance of an organization. When making big decisions about what to sell and how to market their items, a it's helpful for a business to consider all the forces influencing their success so they are proactive at identifying opportunities and potential setbacks.