The Influence of the External Environment on Business Strategy Planning and Implementation

ABSTRACT


INTRODUCTION
Micro, Small and Medium Enterprises (MSMEs) are the backbone of the Indonesian economy, contributing significantly to employment, innovation and economic growth.However, the operational landscape of these enterprises is characterized by a myriad of challenges, mainly due to the constantly evolving external environment.The success of MSMEs is closely linked to their ability to understand, respond to, and effectively navigate the dynamic external forces that shape their business environment.These external forces can include a variety of factors such as economic conditions, technological advancements, social trends, and political and legal regulations [1].
Quality, technology, and innovation are identified as the main variables that determine a company's success.MSMEs must face many market challenges to be competitive and survive.They have to adjust their strategies and organizational capacities to the changing, uncertain, unstable environment of local, national, and international economies [2].
During the COVID-19 pandemic, it was found that MSMEs needed to sustain good internal business factors and the government and external stakeholders' role in creating clear policies and guidelines was crucial.The study also highlighted the importance of understanding internal and external business factors for business sustainability [3].A study on Mutiara Bakery MSMEs suggested that formulating strategies based on critical success factors was important.The proposed strategies included creating new, more attractive packaging designs and making sales online using social media platforms [4].
Another study showed that the external environment has an effect on business performance based on a balance score card on handycraft MSMEs in the city of Bandung.The magnitude of the influence of the external environment in contributing to business performance based on a balance score card was 38.3% [5].In the context of the COVID-19 pandemic, the study revealed that employees' and customers' safety, prudent cost management, and online presence/doorstep services were key for startups to succeed in today's changed business landscape [6].
MSMEs, which operate in a diverse range of industries and services, are a ubiquitous feature of Indonesia's economic landscape.Despite being an essential component of the nation's economy, these businesses confront a number of difficulties, such as restricted access to funding and the constant need to innovate and adapt [7]- [9].The effect of the external environment on the strategic planning and implementation process within MSMEs is one of the major issues that must be investigated [10], [11].
The external environment is by its very nature dynamic and unpredictable, encompassing economic situations, regulatory frameworks, technology breakthroughs, sociocultural shifts, and competitive dynamics.For MSMEs to be sustainable and thrive over the long run, it is essential to comprehend how these external influences affect their strategic decisionmaking.The purpose of this study is to clarify the complex interplay between the external environment and the MSMEs' strategic moves in Indonesia.

Business Strategy and the External Environment
The significance of matching corporate strategy with the external environment was underlined in [12] groundbreaking work from 1980.He determined that the competitive environment is shaped by five forces: alternative products, customer and supplier negotiating power, competitive rivalry, and threat of new entrants.Subsequent studies broadened this concept, taking into account other elements as technical, social, political, and economic dynamics (PEST analysis).The body of research highlights the vital role that environmental scanning and analysis play in the process of making strategic decisions, which helps companies to flourish in the face of changing external circumstances [13], [14].

MSMEs in Indonesia
Indonesia's MSME scene is distinguished by its variety and importance in fostering economic growth.Numerous studies [15]- [17] draw attention to the difficulties MSMEs in Indonesia confront, such as their lack of technological capabilities, restricted access to capital, and susceptibility to outside shocks.The literature highlights the necessity of certain tactics that take into account the distinct environment in which these businesses operate [18]- [21].

External Environmental Factors Affecting MSMEs
MSMEs' strategic decisions are heavily influenced by economic factors, such as interest rates, inflation rates, and general economic stability [22]- [25].While economic growth may present chances for expansion, economic downturns may necessitate costcutting measures.For MSMEs, the rapid advancement of technology presents both benefits and constraints [21], [25], [26].The adoption of technology like automation, data analytics, and e-commerce can boost productivity and competitiveness, but it takes careful planning to implement these innovations [27], [28].
The operational environment of MSMEs is shaped by the regulatory environment, which consists of laws and government regulations [29].Adherence to regulations is crucial, and modifications in legal frameworks may call for alterations in corporate tactics [30].MSMEs are greatly impacted by the competitive environment, which is determined by elements including the level of competition, the danger of new competitors, and the negotiating power of suppliers and buyers [31], [32].Sustaining success in the competitive marketplace requires strategic positioning.

Research Gaps and Challenges
The current body of literature offers valuable perspectives on strategic management and the external environment; nevertheless, there is a discernible deficiency of research that focuses on MSMEs in Indonesia.Due diligence is necessary due to the distinct difficulties these companies encounter and the ever-changing business environment in Indonesia.Furthermore, there is a dearth of quantitative research examining the relationship in this setting between MSMEs' strategic decision-making and external environmental factors.

Design & Sample
This study adopted a cross-sectional research design, collecting data at a single point in time.The cross-sectional design makes it possible to examine the relationship between variables within a specific time frame.This approach is suitable for capturing the impact of the external environment on business strategy planning and implementation in Indonesian MSMEs.
This Respondents will be asked to rate the perceived impact of these factors on their business.

Business Strategy Formulation and
Implementation: Assesses the strategies employed, perceived success of implementation, and challenges faced during the implementation process.
The survey is being conducted electronically, to ensure efficiency and ease of participation.Participation will be voluntary, and confidentiality will be maintained.

Data Analysis
Quantitative data is analyzed using SPSS statistical software.The analysis will involve both descriptive and inferential statistical techniques.Descriptive statistics will be used to summarize the demographic characteristics of the sample and provide an overview of the perceived impact of the external environment on MSMEs.Inferential statistics, including regression analysis, will be used to examine the relationship between independent and dependent variables.Regression analysis enables the identification of significant predictors of business strategy formulation and implementation success.The survey included questions on various aspects of the external environment, such as economic conditions, technological changes, regulatory factors, and competitive forces.Participants were asked to rate the perceived impact of these factors on their businesses.The diverse perceptions across industries underscore the need for a targeted and industry-specific strategic approach.MSMEs in each sector should carefully consider their perceived impact when formulating and implementing business strategies.The findings also suggest that certain external factors may have a greater impact on certain industries, thus requiring specialized strategies for resilience and growth.The regression model shows a statistically significant positive relationship between Formulation Success and Economic Conditions (β = 0.322, sig = 0.045).This suggests that as economic conditions improve, there is a corresponding increase in the success of business strategy formulation.Technological Change, Regulatory Factors, and Competitive Strength also show positive relationships, with varying levels of significance.The highest impact is seen in Competitive Forces (β = 0.372, sig = 0.008), suggesting that businesses that are more attuned to competitive dynamics tend to have higher success rates in formulating strategies.

RESULTS AND DISCUSSION
For Implementation Success, the regression model shows a positive relationship with Economic Conditions (β = 0.256, sig = 0.067).Although the p-value is slightly above the conventional significance level of 0.05, this relationship suggests that when economic conditions improve, there is a tendency for higher success in implementing business strategies.Technological Change and Competitive Strength showed statistically significant positive relationships with Implementation Success.The impact is more pronounced for Competitive Strength (β = 0.294, sig = 0.022), which emphasizes the importance of navigating competitive dynamics for successful strategy implementation.
The R-squared value gives an indication of the proportion of variance in the dependent variable (Formulation Success or Implementation Success) explained by the independent variables.The R-squared value is 0.31, implying that 31% of the variation in Formulation Success can be explained by the variables included in the model.

Discussion
The discussion section interprets the findings and places them in the context of existing literature and practical implications.The demographic characteristics of participants reflect a diverse MSME landscape, highlighting the need for industryspecific approaches.Perceived impacts of external factors vary across industries, with economic conditions and competitive forces standing out as influential across sectors.The success of strategy formulation is high, indicating a robust planning phase, yet challenges in implementation are evident.The regression analysis underscores the significance of external factors in shaping business strategy success.The study contributes to the literature by offering insights into the intricacies of MSME strategic management in Indonesia, prompting considerations for future research and policy interventions.The discussion concludes by emphasizing the practical implications for businesses and policymakers to foster a more resilient and adaptive MSME sector.

CONCLUSION
In conclusion, this research illuminates the complex interplay between the external environment and business strategy in Indonesian MSMEs.The diverse demographic characteristics of participants underscore the heterogeneous nature of the sector, calling for tailored strategies.The perceived impacts of external factors and the success rates of strategy formulation and implementation provide nuanced insights into the challenges and strengths of MSMEs.The regression analysis establishes meaningful relationships between external factors and business strategy success, offering predictive value for practitioners and policymakers.The study contributes to both academia and practice by enhancing the understanding of strategic management in the Indonesian MSME context.As the external environment continues to evolve, leveraging these insights will be crucial for businesses and policymakers aiming to foster a resilient and adaptive MSME sector in Indonesia.

Table 2
Perceived Impact of External Environment on MSMEs

Table 3
Business Strategy Formulation and Implementation Success

Table 4 .
Regression Analysis Results