1.6 - External Environment Flashcards
What model is used to analyse the overview of the External Environment?
PESTLE
What does PESTLE stand for?
Political Economic Social Technological Legal Ethical/Environmental
Give 2 examples for each element of PESTLE
Political:
Competition Policy
Government Spending and Tax Policies
Economic:
Interest Rates
Exchange Rates
Social:
Demographic Change
Changing Lifestyles
Technological:
Disruptive Technologies
Adoption of Mobile Tech
Legal:
Employment Law
Minimum/Living Wage
Ethical/Environmental:
Sustainability
Tax Practices
What are the aspects of the External Environment?
Market Conditions Competition Household Names Interest Rates Demographic Factors Environmental Issues Fairtrade
What are the two key indicators of market conditions?
Economic Growth (GDP) Market Demand
What does Economic Growth do?
Measures the value of output (activity) in the Economy)
The value is used to assess changes in economic growth
What is Market Demand and what does it do?
How much of a good or service a consumer wants and is able to pay for
For a business, demand turns into revenues (sales)
Describe the Competition aspect in the external environment
Competitors with significant market share or faster growth than the market
Influence of disruptive technologies - increasing risk pf new competitors
Consolidation of a market that creates more powerful competitors
Spare or surplus capacity in the market/industry which reduces industry profits and makes price wars more likely
Investment in innovation and new product development by close competitors
What does Real Incomes measure?
Real Incomes measure the amount of disposable income available to consumers
What are the factors that impact Real Income?
Price Inflation Wage Growth Employment Levels Interest Rates Government Tax Policy
What is Real Income closely linked to and why?
Real Incomes are closely linked to market demand (market incomes) since they are an important factor that affects demand
What are the factors that affect demand with Real Incomes?
Real Disposable Income Employment and job security Household Wealth Expectations and Sentiment Market Interest Rates
What are Interest Rates?
An interest rate is the reward for saving and the cost of borrowing expressed as a percentage of the money saved or borrowed
What are the variety of different interest rates operating within the external environment?
Interest rates on savings in bank and other accounts
Borrowing interest rates
Mortgage interest rates (housing loans)
Credit card interest rates and pay day loans
Interest rates on government and corporate bonds
What could happen if interest rates start to rise?
Cost of servicing loans/debt is reduced - boosting spending power
Consumer confidence should increase leading to more spending
Effective disposable income rises - lower mortgage costs
Business investment should be boosted
Housing market effects - more demand and higher property prices
Exchange rates and exports - cheaper currency will increase exports
What is Demographic Factors?
Demography is concern with the size and composition of a population (Changes in population dynamics occur slowly but can be significant for businesses)
What are the two key demographic changes in the UK that impact on many businesses
Ageing Population
Continued high net immigration
Give Implication examples for the two key demographic factors
Ageing Population:
Greater demand for services to support older people (e.g healthcare)
Increasing disposable incomes of older people reflected in higher demand for goods and services (e.g holidays)
Continued high net immigration:
Higher costs of (but greater demand for) public services (e.g education, health, housing)
Increase in size of labour force - potentially keeping wage rates low
Describe the Environmental Issues aspect
Concern for the impact of business on the environment is now a significant issue that goes well beyond the potential reputational damage from issues such as pollution and noise
What are the key environmental issues that need to be addressed?
Use of raw materials, water and other resources (inputs)
Energy use and its impact on climate change
Waste and pollution produced by the business
The impact the business has on employees and the local, wider and international community
What does addressing environmental issues lead to?
Addressing environmental issues can also be a source of opportunity for many businesses
Give examples of what addressing environmental issues results in
Lower raw material costs and waste disposal charges
Longer life of assets that are recycled or repaired
Trading opportunities with organisations that will only use environmentally-friendly suppliers
Improved customer goodwill
Define External Environment
Features of the business environment that are outside of the control of a business
What is Economic Growth?
Increase in the amount of products and services produced in a country over time
What is Economic Growth measured using
GDP (Gross Domestic Product)
What does it mean if the GDP increases?
More wealth
What does it mean if the GDP decreases
Less wealth
What are Disruptive Technologies?
Innovation that creates a new market and disrupts an existing one
What are Disposable Incomes?
The amount of money a household has to spend after tax have been deducted
