European Journal of Scientific Research - EuroJournals

435 Cihat Polat
Table 1: External Environment of Business and Role of Forecasting
Environmental Factors Forecasting Methods Useable Role of Forecasting
1) Macroeconomic
environment
a) Economic Growth Direction and size of economic growth
b) Inflation Rates Direction, size, and increase (decrease) of inflation rates
c) Interest Rates Direction, size, and increase (decrease) of interests rates
d) Exchange Rates
2) Technological
Environment
3)
Social Environment
4)
Demographic
Environment
5) The Political & Legal
Environment
6)
Statistical (including
Artificial Intelligence such as
Neural Networks and Genetic
Algorithms) and Judgemental
Methods
Global Environment Judgemental (e.g. Delphi Method and
Macroeconomic Environment
Executive Judgement)/Statistical
Direction, size, and increase (decrease) of exchange
rates
The direction of technological developments and their
effects on company and industry.
The direction of changes in social environment and
their likely effects on company and industry
Population growth (decrease) rates, population
structure, and company’s and/or industry’s future
customer potential (e.g. forecasting potential tricycle
customers in the next 10 years based on population
growth rates)
Political and legal changes and developments and their
effects on industry and company
The direction of global changes, new industries created,
global economic changes (e.g. economic trends) and
their effects on country, industry, and company (e.g. the
amount of foreign investments that the country X can
obtain and their likely effects on the industry Y)
Forecasting has an important role in understanding the dynamics and behaviour of many of the
macroeconomic factors and predicting their future. Compared to the microeconomic factors at the
business level, the forecasts of these factors may sometimes be more difficult and costly at the same
time for a firm due to the fact that this forecast area may differ from the forecasts of microeconomic
factors in terms of the expertise required. In modelling macroeconomic area, the strategic managers
and forecasters in a firm has a more limited control over the factors in terms of data sources, everchanging
economic factors and variables, and effects on them. In contrast to this in microeconomic
area, strategic managers have the forecasts first, and then, based on these they have a power to change
the outcomes with their decisions. In other words, while strategic managers are active players in the
microeconomic decision area, they are in passive form and affected by external factors in their
decisions in macroeconomic environment. Information obtained prior to strategic decisions about the
future behaviour of these external factors provides invaluable contribution to the management. That is
exactly the point that strategic managers need the support of forecasting function in such decision
areas. Some of the major macro-environmental factors and the role and use of forecasting can be
explained as follows:
Economic Growth: It has a direct impact on the level of opportunities and threats that companies face.
Economic growth leads to an expansion in consumer expenditure and gives companies opportunity to
expand their operations. On the other hand, economic decline does the opposite and leads companies to
reduce and shrink their operations [Hill & Jones, 1992: 93]. Companies are supposed to form their
policies by considering the current and/or and the future state of the economy. For instance, it would