Five segments of the general environment: How do they impact the small business?

Five segments of the general environment:
– Macroeconomic
– Sociocultural
– Political/legal
– Technological
– Global

The macroeconomic segment can affect a small business due to changes in inflation, interest rates and currency exchanges. For example, a business processing mortgages can experience a decline in mortgage applications when the interest rate is high and an increase when the interest rate is low.

Sociocultural trends might affect a small business as far as the type of service or product is offered and how it is offered. For example, with the recent World Cup, many small retailers and kiosks in the malls are selling World Cup gear, such as tee shirts and arm bands, et cetera. Once the demand is over, these small business may go out of business or be forced to change their product offering.

Political and legal segments impose rules and regulations that affect many small businesses. For example, a car mechanic cannot operate a repair shop from his home if it is located in a certain zone. Certain materials for resale cannot be stored in home businesses or certain locations, again because of zoning laws. This forces a small business operator to seek locations that will accommodate their type of service, even if it means an increase in overhead costs.

Technological segment is perhaps the most important to small businesses. This segment has created many new ventures and has made others obsolete. It affects small businesses in that it helps small business owners handle certain aspects of the business personally; it provides convenience, speed, and accuracy, which equals increased profit. For example, a small business owner can complete certain registrations – trade name, associations, etc – online, reducing time spent in long lines. They can hire virtual assistants to assist with their daily administrative tasks, while they focus on the strategic goals of the business.

The global segment can help small business to expand into other markets. For example, large companies can outsource to small data entry businesses in other countries. Also, because of globalization, businesses are more aware of what is in demand in other countries and can tailor their business ideas and opportunities to meet those demands.

Source: Small Business Management. Longenecker et al (2006).