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(iii) Physical factors: These are the factors which result in loss or damage to the property of the
firm. They include the failure of machine and equipment used in business, fire or theft in the
industry, damages in transit of goods, etc. They also include losses to the firm arising from the
compensation paid by the firm to the third parties on account of intentional or unintentional
damages caused to them.

 The various external factors which lead to business risk are as follows:

(i) Economic factors: Economic factors are the most important cause of external risks.They
result from the changes in the prevailing market conditions in the form of:

(a) Change in demand for the product

(b) Price fluctuations

(c) Change in tastes and preferences of the consumers

(d) Change in the income of the consumer

(e) Change in output of competing firms

(ii) Natural factors:

These are the unforeseen natural calamities over which an entrepreneur has very little or no
control. They result from natural calamities such as earthquakes, flood, famines, cyclones,
lightening, tornadoes, etc. Such calamities may cause loss of life and property to the firm or
may damage its products, e.g, the Gujarat earthquake caused irreparable damage not only to
business enterprises, but also adversely affected the whole economy of the state.

(iii) Political factors. These factors influence the functioning of the business, both in the long,
as well as, in the short-term. These factors result from political changes in a country, such as:

(a) Fall or change in the government

(b) Communal violence or riots in the country

(c) Civil war

(d) Hostilities with the neighboring countries

(e) Changes in government policies and regulations

3. Role of Technology and Social Media in Today’s Business