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The external environment and internal environment are two fundamental dimensions of strategic management because they influence an organisation’s ability to achieve its objectives, maintain competitiveness and respond effectively to change. Strategic management involves analysing both environments, identifying opportunities and threats, understanding organisational strengths and weaknesses, formulating appropriate strategies and implementing them effectively. While the external environment consists of factors outside the organisation that influence its operations and performance, the internal environment includes resources, capabilities, structures and processes that exist within the organisation. The external environment refers to all forces outside an organisation that can affect its decisions, activities and performance. These forces are generally beyond the direct control of management, although organisations can sometimes influence them through strategic actions. External environmental analysis helps managers understand changes in the business environment and prepare suitable responses. It enables an organisation to identify opportunities that can be exploited and threats that need to be managed. The external environment can broadly be divided into the macro environment and the industry or competitive environment. The macro environment consists of broad factors that affect organisations across industries. Political factors are important elements of the external environment. Government policies, political stability, taxation policies, trade regulations, labour laws and government attitudes towards business can significantly influence organisational strategies. For example, changes in import duties may affect the cost structure of manufacturing companies and require them to reconsider their sourcing strategies. Economic factors also have a major influence on strategic decisions. Economic growth, inflation, interest rates, unemployment, exchange rates, income levels and consumer purchasing power affect demand, investment and profitability. During periods of economic recession, consumers may reduce spending, forcing organisations to adopt cost-control strategies. Conversely, economic expansion may create opportunities for market expansion and investment. Social and cultural factors include population growth, demographic characteristics, education, lifestyles, values, attitudes, consumption patterns and changing social expectations. Changes in consumer preferences can create new markets while making existing products less attractive. For example, increasing awareness of health and environmental issues has encouraged many companies to develop healthier products, sustainable packaging and environmentally responsible business practices. Technological factors are _____ ____ _____ ________ ___.
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