External Influences

  • Political

    • Advantages and disadvantages of privatization and nationalization.
    • Employment practices regulations.
    • Laws protect workers from wrongful termination.
    • Unfair dismissal: terminating employment without cause.
    • Only fire a worker if:
    • Redundancy occurs when a position is eliminated.
    • Serious indiscretions include stealing from the business or behaving violently at work.
    • Failing to complete things "satisfactorily"
    • The end of a temporary contract.
    • Industrial tribunal: Employees can file a claim for compensation if they feel their termination was unfair.
    • Working conditions: number of hours worked, paid holidays, safety and security.

  • Laws and business location decisions

    • Laws relating to marketing behavior and competition to protect consumers and businesses.
    • Industrial estates are constructed where businesses might locate.

  • Political/Legal Effects on Business Decisions

    • Changes in laws can negatively affect businesses by increasing manufacturing costs.
    • Businesses may experience a decline in sales, market share and profitability.
    • Changes can benefit businesses: employee motivation and performance may improve.

  • Business responses to changes in the political and legal environment:

    • Reduce production and/or create new goods
    • Asset sales and purchases
    • Price and target market changes

  • Government policies to encourage enterprise:

    • Infrastructure investments in highways, bridges, airports, railroads, etc.
    • Advising businesses on recruiting, training, finance, international trading, and new product development.
    • Financial Support: Loans to start-ups.
    • Non-financial assistance: Lowering taxes for small firms.

  • How governments regulate business activity:

    • Subsidizing: governments cover a portion of the cost of production
    • Providing information: advertising to raise public awareness so that customers can make wiser purchase selections.

  • Economic influences

    • Economic growth: change in a nation's gross domestic product (GDP).
    • Tax cuts and inflation can promote short-term economic growth by allowing for increased borrowing and expenditure.
    • Benefits: Government promotes the growth of businesses, shopping, and boosts sales for businesses.
    • Drawbacks: There can be a labor and material scarcity as enterprises expand, and wage-push inflation.
    • Businesses may experience pressure from growth and greater sales and revenue growth will be seen in the country's wealthier regions.

  • Economic cycle and business activity

    • The business or trade cycle represents regular fluctuations in an economy which occur over time.
    • It consists of four stages: recovery, boom, recession and slump.

  • Inflation

    • Inflation is the consistent and steady rise of prices associated with a decline in the value of money.
    • Demand-pull inflation: When demand in a country exceeds its ability to supply. Prices are increased to restrict demand.
    • Cost-push inflation: Wage push inflation occurs when trade UNIONS are successful in negotiating higher wages without a rise in productivity to offset these costs.
    • The prices of imported materials may increase due to a declining exchange rate.

  • Unemployment

    • Structural: Occurs when some industries to die out due to fall in demand, technological advancement or rising overseas competition.
    • Cyclical: Cyclical unemployment occurs as the business cycle changes stages.
    • Frictional: When people shift jobs, there is a brief period of unemployment as they cannot acquire a new position immediately.

  • Impact of macroeconomic policies on business activity

    • Monetary policy: The monetary policy relates to controlling the circulation of money in an economy and therefore spending. It may be used to adjust interest rates, manipulate the money supply and exchange rate.
    • Exchange rate: An appreciating exchange rate rises in value against other currencies. A depreciating exchange rate declines in value against other occurs.
    • Fiscal policy: Fiscal policy consists of using government expenditure and taxation as a means of controlling economic activity.
    • Supply side policies: These measures promote the effective utilization of the labor resource in a country.
    • Privatization: This refers to selling state-owned organizations to the private sector, meaning these businesses are controlled by individuals or groups of individuals.

  • Social Influences

    • Corporate Social Responsibility (CSR): Businesses should consider betterment of society beyond legal obligations.
    • CSR is related to the stakeholder concept (Employees, Shareholders, Suppliers, Government, Local community, Customers)

  • CSR in practice

    • Social auditing: independent assessment of the impact of the business’s activities over general society.
    • Unethical business activities examples: Paying incentives for the award of contracts. ,Accounting practices Misrepresenting the business or its products.

  • Demographic influences on business decisions

    • Demographics are various traits that can be used to determine product preferences or buying behaviors of consumers.
    • Impact of demographic changes on business decisions: Growing population will offer opportunities for businesses. ,Increasing migration results in ethnic groups to expand within countries. ,Urbanization is associated with a range of issues related to businesses.

  • Technological influences

    • New products: Businesses have software that can analyze big data including purchasing patterns, consumer demographics, needs and wants etc.
    • Promotion: The internet allows businesses to quickly identify different types of consumers and segment its market.
    • Internal communication: There are now hundreds of platforms through which communication within organizations has become more effective and efficient.
    • Methods of production: Developments in technology allows businesses to reduce their costs of production, meet consumer wants effectively and become more competitive.
    • Human relations: Improved software gives companies access to highly skilled workers across the globe.

  • Competitors and Suppliers based influences

    • Barriers to entry: through multiple mediums and invest in creating a unique brand image. Larger businesses can afford to cut back on prices significantly, making their product more competitive.
    • Responding to competitors: An established business may take over a new and smaller enterprise to eliminate competition.
    • Relationship with suppliers: Having favorable and long-term relations with suppliers benefit businesses in a number of ways.

  • International trading links and agreements

    • The impact of international trading links on business decisions: Many business decisions and strategies are formed as a response to increasing international trading links
    • The impact of international trade agreements on business decisions: such as tariffs and quotas, which may have existed between them.
    • Multinational corporations (MNCs): An MNC is a company which has its headquarters in one country, but has set up operations in a range of different countries. Examples include Glaxo-Smith Kline and Toyota.

  • Environmental Influences

    • Production: Businesses try to redesign products which require less packaging and materials.
    • Marketing: Businesses use ‘green credentials’ in their advertisements in order to convince consumers to purchase from them, an environmentally responsible brand rather than competitors.
    • Environmental audits
    • Environmental audits are conducted by independent bodies to assess the level of damage to the environment caused by business activities.
    • The impact of sustainability on business activities: Sustainability can be broken down into three areas; economic, social and environmental. The aim of sustainability is to meet current needs without adversely affecting the ability of future generations to meet their needs.