Business 3.1.3
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- Created by: Tasha7318
- Created on: 16-10-20 14:06
External Environment
Anything outside of the business that may have an impact on the way it operates.
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Examples of External Environment
Customers, Political change, local communities, investors
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What does PESTLE stand for?
Political, Economic, Social, Technological, Legal, Environmental
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Define politics
Any impact that government decisions make on business.
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Politics- impact on costs
Corporation tax and VAT which can be raised or lowered.
High rates of taxation mean more money for the government to spend on public services, but lower profits for business.
High rates of taxation mean more money for the government to spend on public services, but lower profits for business.
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Politics- impact on demand
Political influence can include protectionist policies
The UK government will want to protect UK businesses, so will impose tariffs and quotes to deter companies from exporting to the UK
As it raises prices for UK customers, they are less likely to dema
The UK government will want to protect UK businesses, so will impose tariffs and quotes to deter companies from exporting to the UK
As it raises prices for UK customers, they are less likely to dema
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Economics- impact on costs
If UK economic growth is increasing, consumer confidence grows and they begin to spend
As a result, businesses will be able to employ more staff
In a recession or economic downturn, staff may be made redundant as the business downsizes their workforce in
As a result, businesses will be able to employ more staff
In a recession or economic downturn, staff may be made redundant as the business downsizes their workforce in
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Examples of economic factors that impact demand
GDP
Inflation
Interest Rates
Exchange rates
Inflation
Interest Rates
Exchange rates
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Economics- impact on demand
Many economic factors have an impact on the income of consumers; if their income increases they will demand less inferior goods, more necessity goods and some luxury goods
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Social- impact on costs
Increase in migrant workers in the UK means producers have a large supply of workers prepared to work for minimum wage, which means that the costs will be lower.
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Social- impact on demand
Social impacts can refer to fads, trends and tastes, which change over time
Demand can change depending on what influential people wear, drink or use on social media
Demand can change depending on what influential people wear, drink or use on social media
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Examples of technology that impacts cost
Automation
E-commerce and M-commerce
Robotics
R&D Research and Development
NPD New Product Development
E-commerce and M-commerce
Robotics
R&D Research and Development
NPD New Product Development
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Technological- impact on costs
Using robots in production means less staff, no lunch breaks or holidays and reduced costs.
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Technological- impact on demand
Changes and innovations in technology can provide consumers with more ways to connect with each other and buy online, which means an increase in the demand for wifi / broadband.
Demand for Internet service and mobile communications has grown in response t
Demand for Internet service and mobile communications has grown in response t
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Categories of laws that affect businesses
Consumer laws
Employment laws
Environmental laws
Employment laws
Environmental laws
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Legal- impact on costs
Each time new laws are brought out, the business must make sure that it complies or it could face fines. Compliance will mean increased costs, for example in new quality measures, or to reduce pollution levels.
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Legal- impact on demand
If a business makes goods which do not comply with the consumer rights act of 2015 then customers will complain, the reputation of the business may be impacted and demand for goods will fall.
In another example, if a restaurant fails to meet hygiene laws,
In another example, if a restaurant fails to meet hygiene laws,
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Environment- impact on costs
Being “eco-friendly” is expensive for a business. It may mean new fabrics, techniques, processes giving out less emissions (gas) waste or a lower carbon footprint.
Sustainable materials cost more to grow, are expensive to find, and will have a negative i
Sustainable materials cost more to grow, are expensive to find, and will have a negative i
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Environment- impact on demand
87% of consumers will have a more positive image of a company that supports social or environmental issues.
88% will be more loyal to a company that supports social or environmental issues.
87% would buy a product with a social and environmental benefit,
88% will be more loyal to a company that supports social or environmental issues.
87% would buy a product with a social and environmental benefit,
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Competition
In a highly competitive market there are many producers who want to supply the same customers with the same goods (like petrol stations or agriculture), but no one company can set the prices
As there are many competitors, demand is high and they try and k
As there are many competitors, demand is high and they try and k
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Market Conditions
Market conditions can be defined as the type of market which a business is going into. This includes: numbers of competitors, amount of rivalry and market growth rate
If there are lots of competitors in a market, then the businesses may try to compete on
If there are lots of competitors in a market, then the businesses may try to compete on
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Incomes
If incomes rise, then wages might have risen (NMW), which means the costs of a business will have risen
If incomes rise, then customers will have more disposable income, so demand will rise for products and services
Consumer incomes may also rise if the g
If incomes rise, then customers will have more disposable income, so demand will rise for products and services
Consumer incomes may also rise if the g
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Interest Rates
The interest rates of the UK are the cost of borrowing money. If interest rates go up, then customers will not be able to afford to borrow on a credit card or loan to buy the goods, so demand will fall
If interest rates go up, then the business selling th
If interest rates go up, then the business selling th
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Demographic Factors
Shift in demographics; the UK has an older population, which means that the demand for some mobility products has increased
Cultural and ethnic diversity changes in the UK means there is an increased demand for specialty foods e.g. Kosher or Halal
Cultural and ethnic diversity changes in the UK means there is an increased demand for specialty foods e.g. Kosher or Halal
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Environmental Issues
If businesses are more eco-friendly they tend to have higher costs, but they can experience higher demand as customer perception is improved
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Ways a business can be eco-friendly
Conserving water
Reduce single use plastic packaging
Recycling
Using solar power or green energy
Going paperless (cloud)
Reduce single use plastic packaging
Recycling
Using solar power or green energy
Going paperless (cloud)
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Fair Trade
“Fairtrade is about better prices, decent working conditions, local sustainability, and fair terms of trade for farmers and workers in the developing world.”
Fairtrade requires companies to pay prices no lower than the market price, to protect the weakest
Fairtrade requires companies to pay prices no lower than the market price, to protect the weakest
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What happens to cost and demand if VAT rises?
Increase in costs, Decrease in demand
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What happens to cost and demand if interest rates fall?
Decrease in costs, Increase in demand
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What happens to cost and demand if a business switches to selling FairTrade products?
Increase in costs, Decrease in demand
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Other cards in this set
Card 2
Front
Customers, Political change, local communities, investors
Back
Examples of External Environment
Card 3
Front
Political, Economic, Social, Technological, Legal, Environmental
Back
Card 4
Front
Any impact that government decisions make on business.
Back
Card 5
Front
Corporation tax and VAT which can be raised or lowered.
High rates of taxation mean more money for the government to spend on public services, but lower profits for business.
High rates of taxation mean more money for the government to spend on public services, but lower profits for business.
Back
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