External Influences on Business Activity

Business Sectors

  • Private Sector: Businesses owned and controlled by individuals or groups.

  • Public Sector: Organizations controlled by government.

Privatization

  • Selling state-owned businesses to private investors.

  • Arguments For: Increased efficiency, faster decision-making, subject to market forces, raises capital, no political motives, access to private capital.

  • Arguments Against: Shareholder interest-driven, loss of economies of scale, potential for private monopolies.

Nationalization

  • Transfer of private businesses to state control.

  • Arguments For: Government control, integrated industrial policy, prevents monopolies, economies of scale.

  • Arguments Against: Reduced efficiency, political interference, high cost, loss of private financing.

Public-Private Partnerships (PPP)

  • Government services/ventures funded and managed through partnerships.

PEST: Political/Legal

  • Impact of government and law on business.

  • Legal constraints: Employment practices, marketing behavior, business competition, location.

The Law and Employment Practices

  • Objectives: Prevent worker exploitation, control trade unions.

  • Legal Constraints: Recruitment, contracts, termination, minimum ages, working week limits, anti-discrimination, health and safety, minimum wages.

Impact on Businesses of Employment Laws

  • Benefits: Secure workers, reduced accidents, avoid court cases, attract better employees, positive culture.

  • Costs: Supervisory, higher wages, increased benefits, increased staff size, protective equipment.

Consumer Protection Laws

  • Reasons for Intervention: Weak consumers, complex products, pressurized selling, globalized marketplace, increased competition.

  • Laws (UK): Sale of Goods Acts, Trade Descriptions Act, Consumer Protection Act.

Impact of Consumer Protection Laws

  • Increased short-term costs, long-term profit gains.

Law and Business Competition

  • Benefits to Consumers: Wider choice, lower prices, improved quality.

  • Government Role: Control monopolies, limit uncompetitive practices.

Monopolies

  • One supplier controlling 25%+ of the market.

  • Positives: Lower prices, new products.

  • Negatives: Higher prices, limited choice, less investment.

Uncompetitive/Restrictive Practices

  • Refusal to supply, full-line forcing, market sharing/price-fixing, predatory pricing.

PEST: Social

  • Corporate Social Responsibility (CSR): Obligations to stakeholders.

  • Social Audits: Report on societal impact; covers pollution, health and safety, supplies, customer satisfaction, community.

  • Environmental Audits: Assess environmental impact.

Social Audits: Benefits and Limitations

  • Benefits: Identify responsibilities, set targets, improve image.

  • Limitations: Lack of checks, costs, consumer focus on price.

Pressure Groups

  • Organizations pressuring policy changes (e.g., Greenpeace, Fairtrade).

  • Methods: publicity, influencing consumers, lobbying.

Demographic Changes

  • Aging population, changing role of women, better education, early retirement, rising divorce rates, job insecurity.

Impact of Social and Demographic Changes

  • Opportunities: Demand for targeted products, rising population, increased consumer spending, part-time flexibility.

  • Threats: Reduced demand, labor shortages, increased taxation, need to restructure work patterns, difficulty building loyalty.

PEST: Technological

  • Technology: Use of tools, machines, and science.

  • Information Technology: Electronic technology for information management.

  • Innovation: Creating effective processes and products.

IT Systems and Their Impact

  • Advantages: Faster, cheaper, wider access (e.g., word processing, databases, CAD, CAM, Internet).

Opportunities of Applying Technology

  • New products, reduced costs, better communication, more information.

Limitations of Applying Technology

  • Costs, labor relations, reliability, data protection, management, competition.

IT and Business Decision Making

  • Benefits: Quick data access and processing, accelerated communication.

  • Limitations: Information overload, potential abuse of power.

Introducing Technology Effectively

  • Analyse use, involve employees, evaluate systems, plan introduction, monitor effectiveness.

Influences of Competitors and Suppliers

  • More competitors reduce market power; fewer suppliers reduce customer influence.

International Influences

  • Growth of world trade impacts economic development.

  • Free Trade: No trade barriers.

  • Trade Barriers: Tariffs, quotas, export restraints, protectionism.

Benefits of Free Trade

  • Wider choice, increased industrialization, competition, specialization.

Drawbacks of Free Trade

  • Loss of jobs, decline in strategic industries, struggle for new companies.

International Trade and Globalization

  • Factors driving globalization: WTO, free-trade blocs (e.g. NAFTA/USMCA, ASEAN, EU).

Role of Technology in International Trade

  • Blockchain, AI/Machine Learning, New Digital Platforms, Mobile Payments

Multinational Businesses

  • Headquarters in one country, operations in others.

Benefits of Becoming a Multinational Businesses

  • Lower production costs, access to main markets, access to natural resources, avoid import restrictions.

Problems of Becoming a Multinational Businesses

  • Coordination difficulties, poor communication, varying skill levels.

Impact of Multinationals on Host Countries

  • Benefits: Foreign currency, employment, training, improved local firms, increased tax