Download Unit 1.10 - External Environment

BUSINESS AND
MANAGEMENT
MODULE 1
BUSINESS
ORGANIZATIONS &
ENVIRONMENT
The External Environment
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In the pursuit of achieving aims and objectives,
business face challenges from both within and
outside of their organization
Understanding these factors can facilitate
effective decision making
…the reasonable man adapts himself to the
world; the unreasonable one persists in trying to
adapt the world to himself.

George Bernard Shaw
Factors of an External Environment
 Those
issues which either restrict or
aid the performance of a business,
but are beyond its control
 These factors can be classified under
the PEST analysis
– Political
– Economic
– Social
– Technological
Political Threats
 Intervention
such as taxation and
interest rate policies
 Government legislation define the
boundaries within which a business
can operate
– Employment law
– Consumer protection rights
– Trademark legislation
Economic Threats
 The
state of the economy in which a
business operates is determined by
four key variables
– Inflation
– Unemployment
– Economic growth
– International trade (trade surplus)
 Consumer
and investor confidence
 Actions of rival firms
Social Threats
 Social,
cultural and demographic
change
 Multiculturalism has lead to an
increase in cultural exports (food,
clothes, music etc)
 Pressure on businesses to be
environmentally friendly
Technological Threats
 Efficiency
of business is greatly
improving (computers etc)
 Efficient technological growth
however can be overshadowed by
the high cost of maintaining
technology
– Airbus A380 is a prime example of
technological inefficiency
PEST or STEP
External factors can harm business (hence
the name PEST)
 However external factors can provide
opportunities
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– Lower taxes or interest rates
Therefore STEP might appropriate
 Variations can include PESTLE, where the
L and E are Legal and Environmental
 Also, STEEPLE, where the third E stands
for Ethical
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Mini Case
Case: Rivington Foods
Source: Jones, Hall, Raffo, Business
Studies 3rd Edition, Unit 5, page 40.
The SWOT ANALYSIS
This involves looking at the internal strengths and
weaknesses of a business and the opportunities and
threats.
STRENGTHS: These are things that the business and its
staff do which:
 They are effective at.
 They are well known for.
 Make money
 Generate business and reputation
 Lead to confidence in the market.
 Cause customers to come back for repeat business.
 Cause other businesses to try to learn from them.
The SWOT ANALYSIS
WEAKNESSES: These are the things that the business
does badly, that it is ineffective at or that it has a
poor reputation for
 factors that cause losses, hardships, disputes,
grievances and complaints for a business.
OPPORTUNITIES: These are the directions that the
business could profitably take in the future because
of its strengths or because of the elimination of its
weaknesses.
THREATS: Threats to a business arise from the
activities of competitors and from failing to take
opportunities or to build on successes.
 complacency, a lack of rigor, and from falling profits.
SWOT Analysis of A Soft Drink Manufacturer
STRENGTHS
• Current Products are market leaders in
some countries in terms of sales and
market share.
•Brand loyalty to product and to
corporate identity.
•Effective promotion
•Excellent Distribution Network
•Constant R&D leading to new ideas.
WEAKNESSES
OPPORTUNITIES
•Expansion into new geographical areas.
•Development of global brand and
marketing.
•Possible growing demand for soft
beverages.
•Legislation on drinks driving may
encourage growth of soft drinks sale.
•Expansion into new markets.
THREATS
•Growing competition from supermarket
own brands.
•Increasing competition from
competitors bringing out new products.
•Competition from alcoholic beverages
and non-alcoholic beverages.
•Legislation on ingredients could force
changes in production.
•Age of life cycle of certain products.
•Restricted product range could cause
problems if sales suddenly fall.
SWOT Analysis for McDonald’s
Restaurant
STRENGTHS
WEAKNESSES
OPPORTUNITIES
THREATS