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1.3 Understanding that businesses
operate within an external
environment
PESTLE Analysis
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Learning outcomes
Understanding the nature and purpose of business
What you need to know:
• How the external environment can affect costs
and demand.
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The external environment: Starter
The external environment is
the factors that can influence a
business's activities and can
determine its success or
failure.
Task: With a partner, try to list
as many factors outside of the
business’s control that may
influence its activities and
performance.
?
?
?
External
factors
?
?
?
?
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How the external environment can
affect cost and demand
The external environment comprises those external
forces that can influence a business's activities.
Factors influencing costs and demand include the effect
of:
• Market conditions and competition
• Incomes
• Interest rates
• Demographic factors
• Environmental issues and fair trade.
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Market conditions and competition
•
•
Market conditions are the features of a market, such as the level of sales, sales
growth, price levels, the number and strength of rivals, their market position and
market share, etc.
Demand is the amount of a particular good or service that consumers or organisations
want and are able to afford to purchase. It is a good determinant of how desirable a
market is for firms.
Task: What are the ideal market conditions for success? Consider the following features
and describe the best situation for a firm to grow and make high profits.
• Sales figures and level of demand
• Price levels
• Level of competition including the number of competitors, size and market share
• Barriers to entry – How difficult is it for new entrants to the market?
• Consumer incomes
• GDP and economic growth - Gross domestic product (GDP) is the total value of a
country's total output of all goods and services over time.
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