3. The external & internal environment Flashcards
What does PESTLE stand for?
Political
Economic
Social
Technological
Legal
Environmental
What are political factors?
-the extent to which the government influences the economy
-government polices and tax
-imports and exports
-public spending
How does government polices influence business?
-some may encourage overseas investment and will offer them tax breaks
-others may have polices to make it harder to operate in other countries
How can taxation influence business?
-increase or decrease of rates
-tax paid on their profit
-VAT charged on services or products
How can imports and exports influence business?
-tariffs = form of tax
-often impose tariffs on imports to reduce it
How can public spending influence business?
-government decides how much of the money collected by tax should be allocated to various sectors
What is the macro economy?
-the economy as a whole and will have a direct impact on the way in which business operates
What are 7 economic factors?
- interest rates
- exchange rates
- disposable income
- business cycles
- inflation
- demand pull
- cost push
What are 3 political factors?
- tax
- government polices
- public spending
How do interest rates affect business?
high = save more, spend less
low = encourage borrowing, spend more
How do exchange rates affect business?
a fall = weak pound = anything sold and produced in UK and sold away will be cheaper for buyers
strong = might have to reduce prices
What is the business cycle?
-amount of goods and services that are produced doesn’t rise at a constant rate
What are the 4 elements of the business cycle?
- boom
- downturn
- recession
- recovery
- Boom
-economy is growing
-consumer demand is high
- Downturn
-inflation rises
-economy starts to slow
- recession
-economy starts to shrink
-unemployment rises
- recovery
-interest rates may be reduced to stimulate economy
How does inflation affect business?
-percentage rise in prices over time
What causes inflation?
- demand pull
- cost push
What is demand-pull inflation?
-demand for products increases and business can’t reach this demand
-drives prices up
-increase in government spending contributes to this
What is cost-push inflation?
-supply of goods decreases because of an increase in production costs
What are 9 social factors?
- income levels
- language and culture
- religion
- education
- family structure
- age
- occupations
- demographic changes
- trends
What are some positive impacts of technology on business?
-easier access to market
-computer aided design
-automated production lines
-better safety
-EPOS
-more choice for consumers via internet
What are some negative impacts of technology on business?
-products becoming obsolete more quickly
-more choice online = can switch supplier
-automated production = redundancy
How can technology impact the structure of business?
-global comms
-locate support departments overseas
-can see reduction in costs
What are the 6 major laws?
- health and safety
- employment
- discrimination
- national minimum wage
- consumer protection
- import/exports
How does the impacts of environmental change impact business?
-climate change, pollution and availability of renewable resources
-farming has to change methods
-spending on renewable energy options
How does sustainability affect business?
-motivated to act sustainably
-customer expectations
What is demand?
-the quantity of goods or services which consumers want and are willing to pay for it
What are normal goods?
income rises = demand rises
What are inferior goods?
income rises = demand decreases
What are necessity goods?
-type of normal good that consumers will buy regardless
What are substitute products?
-carry out the same purpose for the consumer
What are complement goods?
-goods that must be used together
Demand curve
-Quantity is always on x-axis
-Price is always on y-axis
-left to right
-increase in demand = shift to right
What is supply?
-the quantity of a good or service which suppliers are willing and able to produce in a given time period
Supply curve
-right to left
What are some factors that affect competition?
-product features
-number of sellers and buyers
-barriers to entry
-location
-availability of information
What is a monopoly?
-when one major supplier controls most of, if not the whole market
What are barriers to entry?
-the costs or other obstacles that prevent new competitors from easily entering the market
What are 4 types of barriers to entry?
- legal barriers
- set up costs
- brand loyalty
- expertise
What is a price mechanism?
-the way the market fins the equilibrium price through the forces of demand and supply
