3.1.4 impact of external influences

What are external influences?

Factors outside a business that can affect its decisions, performance and objectives.

What is PESTLE analysis used to analyse?

Political, Economic, Social, Technological, Legal and Environmental factors affecting a business.

How can political factors affect a business?

Government policies, taxation and political decisions can change a business's costs and opportunities.

How can higher taxes affect a business?

Higher costs → lower profit.

How can government spending affect businesses?

Increased government spending can increase demand for goods and services in the economy.

What is inflation?

A rise in the general price level.

What are interest rates?

The cost of borrowing money.

How do higher interest rates affect consumers?

Less disposable income → lower demand.

What is an exchange rate?

The value of one currency against another.

How can a weaker pound help exporters?

UK goods become cheaper overseas → exports may rise.

How can a weaker pound hurt importers?

Imports become more expensive → costs rise.

What is economic growth?

An increase in economic output.

How can a recession affect businesses?

Lower spending → lower sales and profits.

What are social factors?

Changes in consumer lifestyles, tastes and demographics.

How can technology benefit businesses?

Higher productivity, lower costs and new products.

How can technology threaten businesses?

Existing products may become outdated.

What are legal factors?

Laws and regulations businesses must follow.

How can employment laws affect businesses?

They can increase labour costs.

What are environmental factors?

Issues involving sustainability and the natural environment.

How can environmental concerns affect businesses?

Pressure to reduce waste, emissions and pollution.

porters five forces

threat of new entrants

bargaining power of suppliers

bargaining power of customers

threat of substitutes

rivalry

power of suppliers

more power supplier has, higher price they will charge a business

determined by number of suppliers, firm size compared to supplier or costs involved of changing suppliers

reduce power by backwards vertical integration

power of customers

more power customer has, cheaper price they will pay for good or service

gain power by switching to cheaper supplier, when many businesses offer same supplies

reduce by forward vertical integration or horizontal integration

threat of substitutes

high threat happens when price of substitute falls, when it is easy for a customer to witch from one sub to another or when a customer are willing to swap for a sub

reduce threat via R&D, patents or buying shelf space in supermarkets

threat of new entrants

look at degree of customer loyalty, government legislation or how quickly a firm can enter the market

can reduce by heavily advertising, backward vertical integration

competition rivalry

aims to reduce rivalry to reduce chances of failure

greater rivalry if little differentiation between goods/services, competitors have similar corporate strategies, it is easy for customers to move to substitutes

can reduce by engaging in competitive pricing, promotional offers, innovation