Businesses do not work alone. They have dealings with all kinds of people and organizations. These people or groups are influenced by or influence the business. These shall be known as stakeholders. Internal stakeholders and external stakeholders are the two main types of stakeholders.
Now, let us turn towards external stakeholders. They are external clients or stakeholders. They do not work within the company but still shape it. These can range from customers, suppliers, government agencies, media, society, and investors. These external stakeholders exert influence on the operation and growth of a business.
External stakeholders are people or organizations outside of a business that have an interest in the business, though they are not necessarily directly involved with it. For instance, product quality and service matter are key focus areas for external stakeholder customers. The government wants the company to obey the law. The suppliers want their pay on time.
What are external stakeholders, their significance and needs of external stakeholders are described in this article. We also turn to external stakeholders analysis, which allows businesses to identify these people and manage them.
Businesses grow when they identify internal and external stakeholders through the stakeholder theory. They can make better decisions if they know who they affect and who affects them.
What are External Stakeholders?
External stakeholders are those individuals, groups or institutions that are not part of the company. They are not affiliated with the company but still care about its impact. They can affect or be affected by the course of business activities.
These stakeholders contribute significantly to the success of any business. If the media say bad things about a business, people may stop buying from it.
For example: The business might get hurt if the government changes a law. The business relies on customers, and if they do not purchase, their business dies. This is precisely why businesses need to be aware of their external stakeholders.
To define external stakeholders, a business can identify people outside the company who have an interest in it. These might be local communities, pressure groups, environmental bodies or investors.
Examples of External Stakeholders
- Customers — They purchase the products or services.
- Suppliers — They sell raw materials and expect payment on a regular basis.
- Government – Makes the laws and collects taxes.
- Creditors – They provide loans to the firm.
- Media – They shape how the public perceives the business.
- Community – They care about jobs and a healthy environment.
So, in order for a business to function well, it must know internal stakeholders and external stakeholders. The external ones are more challenging to manage, being outside the business, while the internal ones will have a strong impact.
Importance of External Stakeholders
They have no choice, businesses should care for its external stakeholders. These are people who shape the running of a company. They influence public image, sales, growth and profits. You may run into some trouble by ignoring them.
The role of External stakeholders involve establishing trust, complying with legal regulations, and customer satisfaction. They bring new ideas and feedback as well.
Businesses grow fast when they take care of the needs of external stakeholders. When a business listens to its customers, it can make better products. When it pays suppliers in a timely manner, they provide higher quality materials. If it acts according to the law, it avoids penalties.
External stakeholders analysis is a handy tool for many organizations to make well informed decisions. This allows them to understand what each stakeholder desires and how to make them happy. It also helps avoid risks.
Why Businesses Need to Listen to External Stakeholders?
- They create a better brand perception.
- They provide commentary that betters the enterprise.
- They ensure that the business is legal and ethical.
- They Provide Partnerships and Funding
- They provide good or bad word of mouth.
In summary, external stakeholders are not just outside observers. They influence how a business operates. A wise enterprise always pays attention to both internal and external stakeholders.
Types of External Stakeholders
External stakeholders can be a group or individuals. Each of these has a different use case. So now let us see what they are.
Customers
Clients or customer are external stakeholders with the highest priority They buy the products. If they are satisfied, they are loyal. Increased customer loyalty translates into X% more repeat business. And if they don’t have that, they go to competitors.
Needs of external stakeholders customers must be met by the company by:
- Giving good service
- Keeping prices fair
- Making quality products
- Respecting customer feedback
- A business thrives on repeat sales and good reviews from satisfied customers.
Suppliers
Manufacturers receive raw materials, components, or finished products from suppliers. They want prompt payment and contracts that last for years. If a business does not pay, the supplier can cut off delivery. This can stop production.
Which means, companies need to ensure good relations with the suppliers.
Government
The government makes rules. It wants businesses to:
- Follow safety rules
- Pay taxes
- Treat workers well
- Avoid harming the environment
But when a business violates the law, the government can penalize or shut down that business. Thus, corporations are law abiding and clean.
Investors and Creditors
This is financed by means of Investors and creditors. They’re looking for their profits and their repayments. If people stop trusting them, they will withdraw support.
So, companies must:
- Show good financial results
- Be honest in reports
- Maintain trust
Media
Business image can be made or broken by media. Reports, reviews and social media posts can go viral. External stakeholder media is a strong external stakeholder in the digital world.
Smart companies develop good relationships with the media to spread good news.
Local Community
Communities care about jobs, safety, pollution and traffic. If a business hurts the neighborhood, they protest. If it helps, they support it.
Companies have to engage with communities and operate clean businesses.
External Stakeholder Analysis
For businesses, the study of individuals who influence these external forces is called an external stakeholder analysis. This is called business strategy and planning.”
A tool that businesses use to identify key stakeholders, understanding their wants and how to deal with them. This is not just a valuable process but also an essential one. It decreases problems and enhances relationships.
How to Do External Stakeholder Analysis?
- Identify All External Stakeholders- Have it include customers, suppliers, government and more.
- Know Their Needs and Interests- Find out what each group wants.
For example: Customers demand low prices and good service. Suppliers do not want a surprise one-time order; they are looking for consistency of orders and timely payments. Governments want taxes, and legal work.
- Gaze Into Their Impact on the Business– Not all stakeholders are created equal when it comes to their impact on the business. Learn who the key players are.
- Create a Communication Plan- Try to touch base with each group every once in a while. It helps in creating trust and sustainable success.
- Take Action Based on Feedback- Use their feedback to improve products, services, and beyond.
Companies that do not do stakeholder analysis suffer more woes. They miss out on the early alerts, and their trust is betrayed. Conducting this type of analysis helps keep businesses safe and ensures their better growth.
Needs of External Stakeholders
External stakeholders have a different set of needs from those within the business. These needs define the way businesses behave.
To thrive, a business must juggle all the interests. When they meet the needs, they scale very fast. Some major needs of outside organizations are the following:
Customers Needs
- Quality products
- Fair prices
- Quick service
- Honest communication
Suppliers Needs
- Steady orders
- Timely payments
- Clear agreements
Government Needs
- Tax payments
- Legal actions
- No pollution
Communities Needs
- Jobs
- Clean environment
- Safety
Media Needs
- Quick updates
- Clear facts
- Transparent data
This connection makes strong bonds when businesses address these needs. Data-driven sales organizations reap loyalty from their external stakeholders. This equates to higher profitability and sustainability.
Internal vs External Stakeholders
Stakeholders are important for every business. They contribute toward its growth, stability, and credibility. We generally classify these into two groups; internal and external. There are different stakeholder groups based on their relationship to the business.
- Internal stakeholders are employees at every level of the business.
- External stakeholders are people who are not part of the business but are affected by it, or can affect it.
Businesses need to have a complete understanding of internal stakeholders as well as external stakeholders to get the fullest picture.
| Feature | Internal Stakeholders | External Stakeholders |
| Work inside business | Yes | No |
| Control over business | High | Low to Medium |
| Examples | Employees, Managers, Owners | Customers, Supplies, Government |
| Direct payment | Yes (salary, profit) | No (indirect dividends or interests) |
| Interest in business | Daily operations | Policies, services, environment |
Both types are important. All businesses need to make that balance and grow on both ends.
Relevance to ACCA Syllabus
Learn how ACCA advocates can understand external stakeholders that are important in ACCA exams (SBL, LW, and P1). ACCA focused on the ethical, legal and governance obligations to external stakeholders and how their needs drive corporate strategy.
External Stakeholders ACCA Questions
Q1: Which is an External Stakeholder example?
a) Managing Director
b) Shareholder
c) Department Head
d) HR Manager
Answer: b) Shareholder
Q2: Why should a company take external stakeholders into account in formulating its strategy?
a) They work at the finance departments
b) They affect internal audit functions
c) Their interests can impact your business
d) They only govern HR practices
Answer: c) Their interests can influence the success of a business
Q3: Who is the most interested external stakeholder in corporate tax compliance?
a) Marketing team
b) Regulatory body
c) Product development team
d) HR department
Answer: b) Regulatory body
Q4: Heuristic describes the best approach in managing external stakeholders?
a) Legal complaints carry more weight.
b) One-way communication only
c) Regular communication with and feedback of stakeholders
d) Only entering into contracts with customers
Answer: C) Ongoing stakeholder engagement and feedback
Q5. And on the top one there; to outside investors.”
a) Staff training
b) the Company profitability and transparency
c) Product testing
d) Recruitment policy
Answer: b) Company’s profit and transparency
Relevance to US CMA Syllabus
In Part 1 (Financial Planning, Performance & Analytics) and Part 2 (Strategic Financial Management) in US CMA, knowledge of external stakeholders enables candidates to judge risks, trends within the market, as well as external influences on financial results and strategic objectives.
External Stakeholders US CMA Questions
Q1: Key external stakeholders concerned about pricing and quality of products include:
a) Investors
b) Employees
c) Customers
d) Internal auditors
Answer: c) Customers
Q2: Why a cost accountant needs to recognize suppliers as external stakeholder
a) They assist you in developing necessary goals
b) they are critical for operations to run
c) They control HR policies
d) They approve expense reports
Answer: b) They provide resources critical to operations
Q3: Which category is least likely an external stakeholder group?
a) Creditors
b) CEO
c) Customers
d) Government agencies
Answer: b) CEO
Q4: What is the best way to describe a risk of neglecting the interests of external stakeholders?
a) Lower staff morale
b) Poor cash flow forecasting
c) Legal Blows and Reputational Shatters
d) Reduced employee training
Answer: c) Legal penalties and damage to reputation
Q5: What is the significance of stakeholder mapping in strategic cost management?
a) To improve the time from candidate to hire
b) To predict financial crashes
c) To manage stakeholder expectations to values created
d) To manage budget sheets
Answer: c) To align stakeholders understanding/theme of value creation
Relevance to US CPA Syllabus
There are three sections include external stakeholders in which Regulation (REG), Business Environment and Concepts (BEC), Auditing & Attestation (AUD). CPAs need to understand how laws, financial reporting and assurance services impact and are influenced by stakeholders such as regulators, investors and creditors.
External Stakeholders US CPA Questions
Q1 Which of the following is an external stakeholder from CPA audit perspective?
a) Tax accountant
b) Chief Financial Officer
c) Shareholder
d) Cost controller
Answer: c) Shareholder
Q2: External Stakeholders Needs Consideration by CPAs
a) Talent Intelligence helps to improve recruiting decisions
b) for the management of social media accounts
c) So that you can report accurately and in an ethical manner
d) To plan office maintenance
Answer: c) To ensure accurate reporting and ethical standards
Q3: Who directly addresses IRS and SEC regulations?
a) Internal audit committee
b) Legal department
c) External regulatory bodies
d) HR manager
Answer: c) Outside regulators
Q4: What role do stakeholders play in external financial reporting?
a) It reduces sales productivity
b) It enables media coverage in a piece
c) increase transparency and credibility
d) It causes operational lagging
Ans: c) It improves authenticity and trust
Q5: Provide one example of an external stakeholder that relies on timely disclosure of financial statements?
a) Internal marketing team
b) Board secretary
c) Investors and financial analysts
d) HR associates
Answer: C Investors and financial analysts
Relevance to CFA Syllabus
Who Are the External Stakeholders? CFA candidates should consider how stakeholders shape both corporate governance decisions and investment choices.
External Stakeholders CFA Questions
Q1: What external stakeholder group is most concerned with CSR (CSR — corporate social responsibility)?
a) Internal monitoring obligations
b) Supply chain managers
c) Community / ESG Stakeholders
d) Board committee
Ans: c) Communities & ESG investors
Q2. Like the consequences of adversarial media coverage to outsider stakeholders?
a) Boosts internal morale
b) Decreases cost of capital
c) Corrodes public faith and investor confidence
d) Has no long-term effect
Ans: c) Damages public trust and investor confidence
Q3: How does stakeholder theory best describe itself?
a) All choices should consider board bonuses first
b) Business should get a big fat asterisk on short-term profit maximization
c) Business needs to strike a balance of stakeholders interests.
d) Interests of shareholders alone should prevail
Answer: c) Businesses should balance stakeholders when making business trade offs
Q4 What group plays a strong part in shaping ESG ratings when trying to analyze investments?
a) Product managers
b) Tax auditors
c) Environmental regulators
d) HR specialists
Answer: C Environmental regulators
Q5: Why is an external stakeholder relationship study relevant for an equity analyst?
a) To predict the turnover of employees
b) To fit dividend announcement patterns
c) For determining company risk and sustainability
d) For internal job promotion management
Ans: c) To assess company risk and sustainability
