What is the external environment for a business?

When we refer to the external environment of a business,
we are talking about everything that happens outside the firm that affects the firm's
operations and prospects.

Typically, it is said that the
external environment consists of a number of aspects.  These
include:

• Competition.  The amount and intensity
  of competition that the firm faces.


• Ethics.  The ethical
  standards of the country or countries in which the firm
  operates.


• Social attitudes.  The kinds of values and
  beliefs that exist in a country and can affect the way the firm's practices and products
  are perceived.


• Legal.  The laws that affect what the
  business can do.  This can also include the amount of predictability and stability there
  is in the relevant laws.


• Economic.  The general strength
  or weakness of the economy of which the firm is a
  part.

All of these are factors that exist
outside the firm but which affect the firm's operations to varying
degrees.