5 Types of External Environment Factors That Affect Businesses


External environment factors are forces that exist outside of a company’s working environment but can affect it nonetheless. These are the factors that can either contribute to a business’s growth and profitability or present challenges to its overall functioning. 

As such, being aware of external environmental factors and the way they can affect your business can help you develop effective strategies to overcome these challenges.

So, here are the five main types of external environment factors you should know about:

Technological Factors

Technological factors are perhaps the most important external environment factors that can affect businesses. This is because technology is constantly evolving and can have a major impact on the way businesses operate. For example, the advent of the internet and social media has completely changed the way businesses market themselves and connect with their target audiences. 

Similarly, new technologies can also lead to the development of new products and services, which can give businesses a competitive edge.

Economic Factors

Economic factors refer to the overall state of the economy and can have a direct impact on businesses. For instance, when the economy is doing well, businesses tend to flourish as consumers have more money to spend. 

However, during economic downturns, businesses may struggle as consumers cut back on spending. As such, it’s important for businesses to keep an eye on economic indicators so they can adjust their strategies accordingly.

Social Factors

Social factors refer to the way society views and interacts with businesses. These can be influenced by a variety of factors, such as cultural trends, demographic changes, and social media. For instance, if there’s a negative perception of a company’s products or services, this can lead to a decline in sales. 

Similarly, if a certain demographic is no longer interested in a company’s offerings, this can also have an adverse effect. As such, businesses need to be aware of social trends so they can adjust their strategies accordingly.

Political Factors

Political factors refer to the policies and regulations set by the government that can affect businesses. For instance, if the government imposes high taxes on businesses, this can lead to an increase in the cost of goods and services. 

Similarly, if the government implements strict environmental regulations, this can also impact businesses, particularly those in the manufacturing sector. As such, it’s important for businesses to stay up-to-date with changes in government policy so they can adapt their operations accordingly.

Legal Factors

Legal factors refer to the laws and regulations set by the government that businesses must comply with. Failure to do so can result in hefty fines or even jail time. As such, it’s crucial for businesses to ensure they are always compliant with the latest laws and regulations. This can be a challenge, particularly for businesses operating in multiple jurisdictions. However, there are many resources available to help businesses stay compliant, such as online legal databases and consulting with legal experts.


External environment factors can have a major impact on businesses, both positive and negative. As such, it’s important for businesses to be aware of these factors and the way they can affect their operations. By doing so, businesses can develop strategies to overcome any challenges that may arise.