A South African perspective: the external environment and its effect on businesses

When it comes to running a business these days, the sole aim often revolves around generating a return on investment for shareholders. However, businesses do not operate in a vacuum, and there are a number of forces at play that will influence a business at any given point, both positively and negatively.

As business owners, it is important to focus on the controllable factors within the business, but it is equally important to recognise that there exist external factors that are largely out of your control. These are some of the external issues that are present on a regular basis:

1. Government policy

There are a wide range of rules and regulations that businesses need to comply with; from Industry Protection and BEE compliance, to rules regarding minimum wage, taxation and VAT.

2. The economy

While economies go through phases of growth and contraction, business owners need to be aware of these cycles, as they will have an effect on operations and profit. There is an opportunity in each cycle and owners need to adjust strategies accordingly.

3. Competitive business

All business owners need to be aware of their competitors insofar as their product offering, business model and target markets, as these factors will impact their pricing and profitability.

4. Political influences

Political parties come and go, gaining and losing support along the way. Business owners need to be aware of these changes to be able to adjust their business strategies where required.

5. The social system

Business owners need to be in touch with the attitudes and behaviour patterns of the society in which they exist. Consumer behaviours and attitudes change as demographics do, which requires a business to adapt accordingly.

6. Monetary system

This system is influenced by a number of factors and they can have an impact on the relationship with financial institutions like banks, debtors, creditors, as well as interest rate policy.

7. Legal frameworks

It is crucial that owners are in touch with the legal system and know how a business should be run according to the law.

8. Customers and consumers

Consumer patterns change and evolve all the time. Business owners need to be fully aware of the driving factors behind these changes, so product offerings can be adapted to suit the ever changing consumer.

9. Environmental factors

A very important factor in all societies, each business should analyse the impact their operations are having on the environment.

10. Technological advances

Technology is changing at a rapid rate and there is not an industry out there that isn’t affected by digital disruption. It is critical for all businesses to ask the following questions:

• What technologies are being applied in the business’s industry and how will it affect the way it operates in the next few years?
• What technology can be applied or developed to help a business operate in the disruptive market?
• What technology can be applied to provide a business with an opportunity to achieve not just 10-30% growth, but 10-30 times growth per annum?

As you can see, there are a number of factors that will have a significant influence on businesses. This forces owners now more than ever, to ensure there is a plan of action when it comes to these external factors.