Are there other external factors than recession that might f

Are there other external factors than recession that might force a company into bankruptcy

Solution

The bankruptcy of an organization depends on a number of factors which can range from the company itself, the industry in which it is operating, the quality of its management and both the internal and external factors which have a direct and indirect effect on the operations and profitability of the organization. External factors are equally important as internal factors when it comes to the profitability and financial health of the organization.

A smart company management is one which takes care of almost every factor into consideration while preparing the strategic plan. Good managers not only include the external factors but various other factors while framing a strategy.

The significance of external factors is quite important and it can include government policies, competitor’s strategies, and economic condition of the country, taste, and preferences of the customers and so on.

In the strategic planning, the internal factors can also not be ignored by the management. The skill set of the employees, the policies of the management, operational efficiency waste control, financial strength, technology used, product line, and marketing strategies are some of the factors to name out.

Apart from this, strategic planning is mainly concerned with the internal factor of “budget constraints”. Due to limited resources, the funds are very limited and these need to be allocated quite carefully, while at the same time considering external factors such as economic volatility, unemployment, high interest rates, and government regulations as pertains to their specific business.

Government policies can have a greater impact on the sustainability of the organization. If there is a change in the policy of the government which can hamper its operation, production or change in technology then it can have a very negative consequence on the financial health of the firm.

Technology is also one of the external factors. There are a number of firms which were not able to keep pace with the latest technology and despite being one of the successful firms, they found it very difficult to deal with new technology and ultimately vanished over a period of time. Nokia is a typical example of this.

Thus from above discussion, it is quite clear that not only the recession but various external and internal factors can result in the bankruptcy of any organization.