Principles of Hotel Management

E
XTERNAL
C
LIMATE
External environment may be classified into two parts :
The micro environment consists of the factors or
activators within the immediate environment of the
organisation. Such an environment directly affect
the performance of the organisation. It is, therefore,
also known as the direct-action environment. The
main components or factors of such an environment
are : (i) Shareholders, (ii) Consumers, (iii) Trade
unions, (iv) Suppliers, (v) Market intermediaries,
(vi) Competitors, (vii) Financial institutions and
creditors, (viii) Government and government
agencies.
The word macro means large or whole. The macro or general
environment means the environment composed of all
those major forces and conditions that affect the organisation’s
activities and behaviour. Such an environment provides
opportunities and poses threats to the organisation. The macro
environment forces are beyond the control of the organisation.
The main components of macro or general environment include
economic, social, cultural, religious, political, legal, technological,
educational, international and so on. Macro environment is

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39
sometimes classified into economic and non-economic
environment. Economic factors of macro environment constitute
economic environment whereas the other factors of macro
environment constitute non-economic environment. The main
components of macro environment are briefly described as
follows :
Economic environment refers to the economic factors and
forces that have economic effects on organisations. Such
environment affects the direction and working of organisations.
The main factors and forces of economic environment are as
follows :
(i) Economic system, whether capitalistic, socialistic,
communistic or mixed economic system.
(ii) Stage of the economy, whether developed, under-
developed or undeveloped.
(iii) Present state of economic or trade cycle, price level and
rate of inflation.
(iv) Economic structure i.e., the structure and sources of
national income, income distribution pattern, rate of
capital formation, rate and growth of GNP, per capita
income, export-import and balance of payment position,
stock of foreign exchange, etc.
(v) Economic planning, such as Five Year Plans, annual
budgets etc.
(vi) Economic policies including industrial policy, licensing
policy, exim policy, fiscal policy, agricultural policy, taxation
policy, labour policy, etc. These policies have far reaching
effects on organisational environment.
(vii) Economic laws, including the companies law, business
laws, FEMA, competition law, banking law, law relating
to securities and stock exchanges.
(viii) Other factors including the following :
(a) Disposable income with consumers.

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40
Principles of Hotel Management
(b) Conditions of resource market i.e. money market,
human resource market, raw materials market,
services and supply markets and so on.
All these economic factors form economic environment of
an organisation. These factors influence the performance of all
organisations. These factors decide the supply of inputs, their
costs, quality availability and reliability of supplies and
performance of organisations.
Market environment directly affects the success and failure
of business organisations. The main components of market
environment are as follows :
(i) Customer or client factors such as needs preferences,
attitudes, values, bargaining power, buying motives and
psychology and so on.
(ii) Product factors such as demand and image of products,
features, design, utility and functions of products, product
life-cycle, price, differentiation, and so on.
(iii) Distribution factors such as channels of distribution or
middlemen, level and quality of customer service,
transportation system and its costs, delivery system
etc.
(iv) Promotional factors such promotional measures and
promotional mix, advising and promotion media and
methods and so on.
(v) Competition-related factors such as different forms of
competition and competitors, entry and exit of
competitors; nature of competition, and relative strategic
position of major competitors.
The single most important factor that has greatly affected
modern business organisations is the technological environment.
Technological environment is the most dynamic of all the
environmental factors. It refers to the forces that help
transformation of organisational resources into goods or services.

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