External Factors Affecting Business

Economic Factors:

• When market conditions are tough (2008 UK Recession) there are business failures as they run out of cash (La Senza & Woolworths).
• Huge pressures placed on employees as they are faced by redundancy or real wage cuts.

Disruptive Change:

• Caused by radical innovation or new technology (introduction of iPad into tablet market).
• Old producers stuggle as they try to remain competitive.

Competitive Structure:

• Markets dominated by large companies (chocolate) are more difficult to enter and compete within.

The tighter the economic and market conditions, ther greater the competitive pressures

(e.g. 2009 price cutting was rife within airline market).

Competitive pressures stem from...

• Price - to be the cheapest for customers and for the firm to benefit from economies of scale.
• Experience - in modern markets value-added is key.

In order to meet these competitive pressures, firms invest heavily in research and development (Apple spent $1.6billion on R&D).

In 2014, real household incomes fell by 6% between 2007 and 2014, meaning that supermarkets faced a 3.2% decrease in sales volumes.

Household incomes are affected by three main things:

• Changes in real incomes of the breadwinner, as real incomes drop more inferior good are purchased (Sainsbury's Basics) instead of luxuries.
• The number of people within the household who work (during the recession fewer younger people left home which reduced pressures on consumer spending for hosueholds & more people participated in part time wortk meaning they had less to spend).
• Government decisions on taxation and benefits - cuts on benefits in recent years have impacted the power of consumer spending for many (Trussell Trust reported the use of food banks rose from 346,992 in 2012 to 913,138 in 2013).

• They affect consumer demand, especially for goods bought on credit (houses & cars). The higher the interest rates, the lower the sales volume.
• People tend not to save their money as they don't benefit from the interest rates.
• Interest rates also affect operating costs (the higher the interest rates, the igher the cost of running an over draft, therefore squeezing profits).
• Higher interest rates are less attractive for firms to invest money in the future of the business. This causes a fall in demand for items such as lorries and factory machinery.

Demographic trends have become significantly more important for businesses to grasp new ideas and opportunities to tailor their products for success relating to future demographics.

• Age - an ageing population is forecast for the UK, therefore creating opportunitites to tailor products to attract the older generation to be successful in the future.
• Gender - games consoles tend to be purchased mainly by males, where as cosmetics are more female dominated.
• Etnicity - opportunities are created and seized in the food and makeup sector relating to specific ethnicities. Food and confectionery targetted at the olish population in the UK has become extremely popular.

Some businesses may decide to do the minimum for the environment because they are more focused on profit maximisation. Other businesses may chose to go the extra mile for ethical reasons - Fairtrade and moral standards are great marketing opportunities.

4 factors to consider:

• The immediate effect on the environment of actions the businesses take.
• Sustainability - ensuring the actions of your business will not rob future generations of the availability of key resources.
• Gloabl warming - the impact of the business on green house gas emissions, many firms set aims to reduce their carbon footprint.
• Fairtrade supplies - this is when a business signs an agreement that all their raw material will be bought via the Fairtrade organisation. This guarentees that all supplies will be bought at a more favourable higher price than the cheapest market price. Ensuring Uganda producers and farmers in LICs who rely on exports receive their 'fair share' of money in return.