Impact of external influences, Business Growth, 14-22 (3.1.4/3.2)

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What is pestle?
Pestle looks at external factors and how they might affect a business.
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What does pestle stand for?
Political, Environmental, Social, Technological, Legal, Economic.
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What is analysed when looking at the political factor?
Taxation, whether direct (e.g corporation tax) or indirect (such as VAT) can affect a business. When taxes are increased businesses must compensate for this. Increasing prices may put off customers whereas lowering production costs reduces quality.
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What are other elements to consider surrounding politics?
The EU. Businesses that operate within the EU have access to millions of customers and skilled workers. Achieve economies of scale by purchasing in bulk without high import/export costs. However, businesses must comply with laws, increasing costs.
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What are economic factors?
Consumer demand increases as an economy moves through the business life cycle. A rise in demand, companies are able to generate more sales and profit. This increases cash flow, opening more opportunity for investment and employment of staff.
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How are exchange rates a factor within economic?
A fail in exchange rate, for instance, would benefit exporters who sell their products abroad. But for importers, if exchange rates rise the more money businesses will pay.
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What are social factors within PESTLE?
Trends come and go, and in the fashion industry this can be major. If a company is following a trend, and the trend stops, if a company has left over stock it will loose money. Changing demographics are another factor.
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How are ethical business practices a factor within social?
These have grown in importance for the average consumer so any business that ignores this could lose sales.
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What are technological factors within PESTLE?
New improved processes and technology can affect a business, as well as rival products. New tech can increase efficiency and reduce staff costs. Cost is a significant factor.
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What are the legal factors within PESTLE?
Legislation such as the equal pay act and disability discrimination act affect businesses through costs mainly due to new tech/facilities. Businesses that do this, will find it easier in attracting staff/customers/suppliers etc.
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What are the environmental factors within PESTLE?
CSR is an integral part to any business. Some parts of business's CSR have become law such as the Climate change act. If a firm strives to be environmentally friendly then this can attract customers and staff. However, costs may be high.
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What does Porter's five forces describe?
It describes the competitiveness of a market as determined by its key external factors.
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What are Porter's five forces?
Rivalry of the market (middle), Bargaining power of market suppliers (top), Threat of substitute products (right), Bargaining power of buyers (bottom), Threat of new entrants (left).
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Why are new entrants a factor?
If new competitors come into a market then this can pose a threat to businesses and their profit so need to be able to retain customers. A lot of markets have barriers to entry, marking it harder for new firms to enter and give more control to firms.
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Why are substitutes a factor?
There are many alternatives a customer can buy instead of your business's product. This may be because of price/quality etc. E.g Mars are in competition with Toffee crisp, consumers may purchase a toffee crisp due to price or another food to have.
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What can affect the power of substitutes?
Price, perception, availability and convenience.
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Why is buyer power a factor?
If a market has many producers but only a few consumers, the buyers have a lot of power. However, if there are many consumers and few producers the buyer power is less. Consumers that buy in bulk have a lot of power. New technology also gives power.
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Why is supplier power a factor?
Where there are many suppliers to a market, the power is very low whereas in a market with few suppliers, the power is high. E.g plane industry, supplier power is high.
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What are economies of scale?
As output increases and becomes more efficient, the average cost of production falls. This is an example of technical EOS. EOS is also achieved through buying in bulk, as the more you buy the cheaper goods become.
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What is the equation to find the SP of 1kg?
SP of 100kg / 100 Then divide this by the price of 100kg (example)
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How do businesses achieve an increase in market share and brand recognition?
Mainly through advertising, either digitally or through posters etc. Businesses aiming to keep costs low but still have a suitable quality will often gain large market share.
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What is profitability?
Shows how capable a business is of turning revenue into profit (generally presented as a ratio).
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How do businesses often achieve the increase of profitability through economies of scale?
Purchasing raw materials in bulk as it decreases costs. Increasing output can decrease the cost of operations. Aggressive marketing can increase brand awareness on a wide scale. Decreasing selling prices can mean more sales overall.
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What are the main problems which come from growth?
Diseconomies of scale, Internal communication and Overtrading.
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Why is diseconomies of scale a problem?
This is when costs rise from buying in bulk rather than decrease. This could be because of too much stock purchased.
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Why is internal communication a problem?
As a firm grows, the internal network of communication can become more complicated and therefore less efficient. This can affect employees mainly. As the chain of command grows, the weaker workers voice can become.
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Why is overtrading a problem?
This is when a company makes sales in which it cannot fulfil. This will cost more in money and also cost the business's reputation.
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Card 2

Front

What does pestle stand for?

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Political, Environmental, Social, Technological, Legal, Economic.

Card 3

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What is analysed when looking at the political factor?

Back

Preview of the front of card 3

Card 4

Front

What are other elements to consider surrounding politics?

Back

Preview of the front of card 4

Card 5

Front

What are economic factors?

Back

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