The quantitative research basis is the data of surveys which were filled in by teachers of vocational education institutions and employers. The research is based on researches and reports regarding vocational education, strategic planning documents of development of education of Republic of Latvia and EU, studies, statistics on vocational education (data basis of the Central Statistical Bureau, statistics of the Ministry of Education and Science (MES) on vocational education) also are used. The aim of the research is to analyze factors of the internal and external environment that affect vocational education in order to determine how these factors create challenges for the vocational education system and educational institutions. The article analyzes the correlation between the elements of internal environment: resources, processes and results and external environment (political, demographic social) factors. The challenges make the vocational education change the existing paradigm of vocational education. The research was performed with a purpose to analyze the environmental factors; the quantitative research combines: an analysis of normative documents and a survey of employers and teachers of vocational education. The key results of the research: demographic trends in Latvia have an essential impact upon the human resources of the vocational education institutions; in order to implement the lifelong learning strategy, it is important to involve more adults in the vocational education; the learning environment of vocational education must be developed by following the principles of lifelong learning; cooperation between the state institutions, employers and teachers is required in order to provide effective solutions to the challenges that vocational education is facing. The cooperation between the employers’ institution, educational institutions and state institutions is essential in the process of planning and implementation of the curriculum and evaluation of the results. The prestige of the vocational education in the society affects students’ choice regarding their further education; it also influences the assessment of employers. If there were developed and implemented such curricular, which would imply the key competences that are relevant to the vocational areas of education and on the basis of which a flexible transformation of the content of curricular would be possible, the competitiveness and quality of the vocational education would be ensured. Key words: external environment, internal environment, learning environment, vocational education.