Download 3. External influences

HOW ARE SMALL
BUSINESSES INFLUENCED
External Influences
LEARNING INTENTIONS AND
SUCCESS CRITERIA
LEARNING INTENTIONS:
I understand how
EXTERNAL FACTORS can
influence a businesses
activities and success.
SUCCESS CRITERIA:
• I can name the
PESTEC factors and
give examples of
them.
• I can show how
PESTEC factors can
have a positive and
negative impact on a
business.
THE EXTERNAL ENVIRONMENT
All businesses must react efficiently to changes in
its external environment – failure to do so could be
fatal for the future of the business, as we saw in
the Old McDonald’s Farm task.
The problem is that a business has little control
over the external factors and has to continually
react to them.
EXTERNAL FACTORS
External factors can be summarised into
categories as follows:
P
E
S
POLITICAL
ECONOMIC
SOCIAL
T
TECHNOLOGICAL
E
ENVIRONMENTAL
C
COMPETITIVE
POLITICAL FACTORS
The government can introduce laws which can affect every business
in the UK. For example the government have set laws which ban advertising
tobacco on television. Business must comply with laws or face heavy legal
penalties.
Local government can decide to give or not give things like planning permission
or grants to businesses –
GIVE = POSITIVE IMPACT, NOT GIVE = NEGATIVE IMPACT.
The government can also affect businesses by changing the amount of
Corporation Tax charged on business profits. They have also introduced a
Minimum Wage which employers must pay – this will affect their costs and
profits. However, sometimes taxes are increased (negative impact) and
sometimes they are decreased (positive impact).
ECONOMIC FACTORS
If the economy is in recession and unemployment is high,
consumers will have less income, which will result in a
loss of sales for businesses. In order to survive and
encourage consumers to buy from them, businesses may
have to ‘slash’ prices and accept a cut in profits just to
survive.
On the other hand, if the economy is showing growth,
more people will have employment and more income to
spend, leading to increased sales and profits, which
businesses can take advantage of.
SOCIAL FACTORS
There have been changes in the structure of the
UK. More people are living longer and so the
elderly now make up a larger percentage of the
total population. Business must take note of this
and produce goods and services relevant to the
needs of the population.
They must also keep an eye on social trends and
tastes and make sure that the goods and services
they provide are in line with this.
TECHNOLOGICAL FACTORS
Businesses must keep up with changes in technology. For
example they must get involved in e-commerce, ie, selling
goods and services using the Internet. They must also use
technology and robots in production lines to make quality
products more cost effectively.
Failure to keep up with technology due to the high cost of
continually buying new equipment could lead to a fall in
sales and profits.
ENVIRONMENTAL FACTORS
There is now increasing pressure for businesses to be
environmentally friendly, eg, bags for life and to minimise pollution.
This brings extra costs to businesses. If they do not treat the
environment with care they may be subject to bad media publicity from
pressure groups eg Greenpeace.
Business can also be seriously disrupted with extreme weather
conditions like storms, floods and snow and need to have emergency
plans in place to cope with this.
On the other hand, the discovery of new resources can create new
markets to work in.
COMPETITIVE FACTORS
All businesses face competition from other
businesses both in the UK and from foreign
businesses.
For example, when the National Lottery
was launched, Littlewoods Pools had to
change the way they advertised to compete
with the Lottery.
IMPACT ON DECISION MAKING
All of these external influences are very important to decision making
and business activity as they can cause unavoidable problems that the
business will have to work hard to react to rather than simply prevent in
the first place. This is because they are NOT under the direct control of
the business (like internal factors are).
In addition, it is worth noting that although all of the above external
factors are important, the one which tends to have the most day-to-day
impact is the COMPETITIVE factor. This is because competitors
change things more frequently than the other factors tend to and so
businesses will find they are dealing directly with these issues more
regularly.
TASKS
Now complete Worksheets 18-20 in
your jotters.