What Are Environmental Factors in Business?

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What Are Environmental Factors in Business?
High end luxury purchases, like jewellery, are less important to consumers in a tough economy. (Jupiterimages/BananaStock/Getty Images)

Business environmental factors are those elements surrounding an organisation that impact its survival and growth opportunities. Common factors include physical, cultural, demographic, economic, political, regulatory or technological environmental factors, according to Business Dictionary. While organisations have some influence in some of these areas, many of these factors are external to the organisation and are considered in building and developing business plans and strategies. Environmental factors can have positive or negative business effects.

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Demographics are personal traits that are commonly used in business and marketing to describe similarities of a given market. Age, race, gender, ethnicity, income, occupation and education are among the common demographic identifiers. Changing demographics of a geographic population over time may serve as a positive or negative for an industry and its organisations. If population growth is heavily concentrated in market segments that are targeted by the organisation, business growth is generally positive.


The economy is an important environmental factor that is always trending. Many businesses struggle during tough economic times because their customers do not have as much money to spend on nonessential or discretionary items. Interestingly, though, certain businesses actually flourish when the economy is bad because their business models emphasise low cost and value orientation. As consumers are out of jobs and operating on tighter budgets, they are more likely to opt for lower cost solutions and to avoid higher end luxury purchases.

Political and Regulatory

One of the environmental considerations that greatly affects industries is the political and regulatory environment. Some industries are heavily regulated by governments, which restricts entry for other companies and may lead to a concentrated competitive landscape. In other industries, government involvement is minimal, making it more open to competition. Common factors affected by politics and regulations are subsidies, safety, efficacy and operational regulations, licensing requirements, materials access restrictions and price controls, according to the Business Resource Software "Marketing Plan" overview.


Advances in technology can have positive or negative effects on a business. Some businesses in industries in which technological improvements are rampant benefit because it helps them surge ahead competitively. Other companies may struggle to keep up with technology because of limited budgets and concerns about time and obstacles in implementing new hardware and software. Stephen J. Kerr notes in his article "Technology: How It Affects The Value of Your Business" that small business owners are sometimes reluctant to buy into technology because they do not fully understand how advanced technology improves operational efficiencies and profit potential.

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