2.2 External Factors- Understanding Business Flashcards
Political/ legal factors
Firms are affected by changes in taxation. Increases in direct taxation take spending power away from individual consumers but they do increase government spending power. They also can be affected by legalisation, laws exist to protect workers and consumers. They can limit how a business operates or the level of wages that are paid.
Economic factors
An economy boom, employment and earnings increase resulting in increased demand for goods and services, therefore opportunities for businesses growth.
In a recession, employment and earnings fall, leading to a fall in consumer spending on goods and services. They will have to then cut output or reduce prices in order to survive. Some businesses cannot compete and then fail.
Socio-cultural/ demographic factors
There are often demographic changes, it can be ageing population, or family sizes falling. Businesses may have to respond to changes by employing older workers, training and offering good salaries to attract younger workers, and improve goods/services for older people.
Lifestyle changes are things that business need to respond to, like the changing profile of women within the workforce, with more female employment.
Technological factors
Changes in technology create more opportunities but also put pressure on businesses to change. Email allows businesses to communicate with other branches and with customers more rapidly.
The internet has opened up new markets and enabled customers to find out more information before they make a product choice.
Environmental factors
Environmental concerns have led to changes in the law. Governments may set targets for recycling and penal people who damage the environment. There are stricter controls on waste disposal.
Competitive environment factors
Businesses come under pressure to change from competitors who may develop new products or services, who are able to sell their products for more competitive prices.
