Summary of External Influences on Business

Business Environment

  • Definition: Refers to the surrounding conditions influencing business operations.

  • Categories: Internal (factors within control) and External (factors outside control).

External Influences on Business

Economic Influences

  • Business Cycle: Fluctuations in economic activity, characterized by 'booms' (growth) and 'busts' (recession).

  • Characteristics of Boom:

    • Higher employment levels.

    • Possible inflation increase.

    • Increased consumer spending and wages.

  • Characteristics of Recession:

    • Rising unemployment and reduced sales.

    • Stable or declining inflation.

    • Decreased consumer spending and wage stagnation.

Financial Influences

  • Deregulation: Removal of government controls to boost competition.

  • Emergence of new banking products enhancing industry competition.

Geographical Influences

  • Demographics: Changes in population characteristics (age, income, etc.) affecting demand.

  • Globalization: Increased international trade and faster movement of ideas and goods, reshaping markets.

Social Influences

  • Responding to changes in consumer tastes is crucial for sales.

  • Growing environmental awareness and demand for family-friendly policies.

Legal Influences

  • Compliance with regulations is essential; increasing complexity can burden businesses.

  • Understanding legal responsibilities is vital for avoiding penalties.

Political Influences

  • Major political changes (e.g., tax reforms) can affect business confidence and operations.

  • Privatization: Transfer of government-owned businesses to the private sector.

Institutional Influences

  • Regulatory bodies oversee compliance and fair practices within industries.

Technological Influences

  • Rapid tech advancements improve efficiency and product quality.

  • Adoption of technology is critical for competitiveness.

Competitive Situation Influences

  • Competition fosters market efficiency and consumer choice.

  • Business competitiveness influenced by market concentration, entry barriers, and marketing strategies.

  • Types of Market Concentration: Monopoly, Oligopoly, Monopolistic Competition, Perfect Competition.

  • Local vs. Foreign Competition: Same market variables for local; global impacts for foreign.

Changes in Markets

Financial/Captial Markets

  • Enhanced mobility of finance; easier access to foreign investments.

Labour Markets

  • More restrictions on worker mobility; not as ‘freed up’ compared to other markets.

Consumer Markets

  • Specialization leads to cost savings and larger market opportunities, especially in developing economies.