3.1.3 Flashcards
impact of economic climate and the external environment
what is the external environment?
anything outside of the business that may have an impact on the way that it operates
what are examples of external environment?
- customers
- investors
- local community
- political changes
what does PESTLE stand for?
Political
Economical
Social
Technological
Legal
Environmental
what is the political factor impacting costs in PESTLE?
any impact that government decisions make on businesses:
- corporation tax > can be raised or lowered
- VAT > can be raised or lowered
high rates of taxation mean more money for the government to spend on public services but lower profits for businesses
what is the political factor impacting demand in a business?
as the UK government wants to protect UK businesses, they will impose tariffs and quotes to deter companies from exporting to the UK
- as it raises prices for the UK customers, they are less likely to demand foreign goods
what is the economic factor impacting cost in a business?
if UK economy growth is increasing, consumer confidence grows and they begin to spend, as a result businesses will be able to employ more staff unless a recession or economic downturn
what is the economic factor impacting demand in a business?
-GDP
- inflation
- interest rates
- exchange rates
- if consumer incomes increase they will demand less inferior goods and more luxury goods + necessities
what is the social factor impacting costs in a business?
due to an increase in migrant workers in the UK, producers have a large supply of workers prepared for minimum wage meaning costs are lower
what is a social factor impacting demand in a business?
refers to fads, trends, fashion and tastes which change over time
- demand can change depending on what influential people wear or use on social media
what is a technology factor impacting costs in a business?
- automation
- e-commerce and m-commerce
- robotics
- research and development (R&D)
- new product development (NPD)
what is a technological factor impacting demand in a business?
demand for internet service and mobile communications has grown in response to technological change
what are legal factors impacting costs in a business?
- consumer laws
- employment laws
- environmental laws
each time a new law is brought out, businesses must ensure that it complies or it could face fines and increase costs
what are legal factors that impact demand in a business?
if a business makes goods which do not comply with the consumer rights act of 2015 then customers will complain and the reputation of the business may be impacting leading to a decrease in demand for goods
what are environmental factors impacting costs in a business?
- being eco-friendly is expensive for a business
- sustainable materials cost more to grow and are expensive to find
- more expensive products mean less demand so no economies of scale and prices remain high
what are environmental factors impacting demand?
if consumers are worried about how environmentally friendly a business is, demand will decrease for that business
what factors influence cost and demand?
- demographic factors
- incomes
- market conditions
- interest rates
- competition
- environmental issues and fair trade
how does income influence costs and demand?
- if incomes rise, then wages might have risen meaning the costs of a business will have risen
- if the government lowers tax there will be lower costs and higher demand for goods
how do market conditions influence cost and demand?
if there are a lot of competitors in a market, then a business may try to compete on price and try to drive costs down as low as
what does market conditions mean?
the type of market which a business is going into
how do interest rates influence cost and demand?
if interest rates go up, then the business selling the goods will also be impacted as the cost of repaying any business loans will increase
how does competition influence costs and demand?
as there are many competitors, demand is high and they try to keep costs low or customers will switch to alternative brands or suppliers
how do environmental issues influence cost and demand?
if businesses are more eco-friendly they tend to have higher costs, but they can experience higher demand as customers perception is improved
how can businesses be more eco-friendly?
- conserving water
- reduce single use plastic packaging
- recycling
- using solar power or green energy
- going paperless (cloud)
how does fair trade influence cost and demand?
fair trade requires companies to pay prices no lower than the market price, to protect the weakest and poorest farmers in developing countries
