3.1.3 - Understanding that businesses operate within an external environment

Question 1

What is the external environment?

Answer 1

Anything outside of the businesses control that could affect operations.

Question 2

What are external factors?

Answer 2

1. Competition
2. Market conditions
3. Demographic factors
4. Incomes
5. Interest rates
6. Environmental issues and fair trade

Question 3

What is competition?

Answer 3

The number and strength of competing firms in an industry and the ease of entry for new competitors.

Question 4

What do the market conditions refer to?

Answer 4

The attractiveness (or otherwise) of the overall market in which a business operates.

Question 5

What are incomes?

Answer 5

The amount of spending power customers/potential customers have.

Question 6

What are interest rates?

Answer 6

The cost of borrowing money or the return earned from saving money.

Question 7

What are demographic factors?

Answer 7

The age, gender, social class, income levels and geographic location of customers.

Question 8

What are the major demographic changes in the UK?

Answer 8

1. Ageing population
2. Sustained high net immigration

Question 9

What are do environmental issues and fair trade refer to?

Answer 9

The concern for green issues and ethical issues involved with the business.

Question 10

What might a business try to do with their costs if there are lots of competitors in their industry?

Answer 10

1. A business may need to increase their costs in order to keep up with other competitors by focusing on innovation and developing new products.

Question 11

What does divorce of ownership and control mean?

Answer 11

Where the shareholders of a business do not get involved in the day-to-day decisions of the business.