External factors affecting business

External factors include competition, demographics and environmental issues. Demographic factors involve population composition and trends; environmental factors deal with short- and long-term 'green' issues.

4.1 Introduction

Business thrives on confidence. Confident consumers are willing to dip into their savings for a holiday or to borrow to buy a new carpet or car. Confident investors are willing to put more money into businesses in returm for shares. And companies themselves will spend to invest in their future: new factory buildings, new machinery and new computer systems. This spending can create an upsurge in economic activity.

The reverse also applies: gloom can spread doom. Therefore the economic climate is important. 

4.2 Market conditions

State of the economy - when the economy is good the general expectation is that the markets will be positive, with the size of markets expanding on a regaular basis. When market conditions are tough, as in 2008/09 there are likely to be failures as businesses run out of cash. People may also be forced into redundancy and real wage cuts.

Customer taste and fashion - In 2012, consumers because sceptical of foods with 'diet' claims. One result was that Weightwatchers' yoghurts suffered a sales decline of 13.7% in 2013.

Disruptive change - Resultig from radical innovation or new technology. This can mean that old-established producers are suddenly struggling to remain competitive in the face of radically new market conditions.

The competitive structure - 70% of the UK chocolate market is held by three firms: Cadbury, Mars and Nestle. If the structure changes, market conditions would also change - perhaps making it even harder for a new small firm to enter the chocolate market.

4.3 Competition

The tighter the deconomic and market conditions, the greater the competitive pressures tend to be. In 2009 price cutting was rife within the markets for airline travel, posh hotels, executive cars and more basic things such as furniture and carpets. 

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