3.1.4 - Impact of External Influences Flashcards
Define an external influence?
• An external influence is any factor outside of the business that has an impact on normal trading.
Explain what PESTLE Analysis does?
• This is a business analysis tool that aims to look at
external factors and how they may have an impact
on the business
• This aids strategic and tactical decision making,
objective setting and helps a business to reach its
goals.
What are the 7 external influences of PESTLE Analysis?
• Political, Economic, Social, Technological, legal and
environmental
Define Political (PESTLE Analysis)?
• A business may be affected by politics in the UK or
even politics across the world, here are a few of the
largest impacts;
• A change in government
• Government laws; minimum wage
• Brexit and new trading blocs post-brexit
• Tax rates (e.g. increase in VAT here)
• Tariffs (when importing into the UK)
Define Economic (PESTLE Analysis)?
- A business should analyse how they may be affected by;
- An increase in interest rates
- An increase in inflation
- Unemployment rates video
- Recession
- The business cycle
Define Social (PESTLE Analysis)?
- A business should analyse how they may be affected by changes in social factors
- A change in demographics and its impact on products produced and markets
- Culture mix changes in the UK
- Social trends e.g. Vaping
Define Technological (PESTLE Analysis)?
• A business could examine the impact of new technologies on their operations, for example;
• Automation, new robotics and how it can improve
productivity
• Innovations in the industry
• Research and development in the industry
• New computer systems
• Trading online
Define Legal (PESTLE Analysis)?
• A business should assess how they may be impacted by changes in legislation for example;
• Health and safety at work act in terms of PPE and
regulations
• Data protection Act
• Sale of Goods Act
• Sex Discrimination Act
Define Environmental (PESTLE Analysis)?
- A business could analyse their environmental challenges that may face the business;
- Climate change, caused by farming
- Weather (e.g. in farming and tourism)
- Sustainable production and CSR
- Disappearance of wildlife
Define and explain Porter’s 5 Forces?
•In 1985 Porter argued that there were 5 forces (or factors) which determine the profitability of an industry.
- Bargaining power of suppliers
- Bargaining power of customers
- Threat of new entrants
- Threat of substitutes
- Rivalry among existing businesses
Explain the bargaining power of suppliers and customers (Porters 5 Forces)?
Bargaining power of suppliers;
• Limit power of suppliers by looking for new suppliers
• Backward vertical integration and merge or takeover the supplier
- Bargaining power of customers;
- Make it too expensive for a customer to switch
- Forward vertically integrate
Explain the Threat of new entrants and substitutes (Porter’s 5 Forces)?
- Threat of new entrants;
- Create barriers to entry to prevent new entrants
- Heavily advertise to build strong brands
- Threat of substitutes;
- Continuously invest in R&D and develop patents
- Buy up patents of rivals and shelve to prevent product production
Explain Rivalry amongst existing firms in the industry (Porter’s 5 Forces)?
In a very competitive market place there may be a great deal of rivalry, example might be UK supermarkets, retail clothing companies.
The intensity of this rivalry will have an impact on the business that is trying to trade, it may mean:
• Larger businesses trying to buy up rivals through horizontal integration
• Businesses continuously introducing new products to the market
• Businesses in the market having to heavily advertise to maintain market share
