3.1.4 Impact Of External Influences

Question 1

What is a PESTLE analysis?

Answer 1

Analysis of the external political, economic, social , technological , legal and environmental factors affecting a business

Question 2

What is political in PESTLE?

Answer 2

Some parts of the world are politically volatile and special attention has to be paid if businesses venture into politically unstable countries.

Examples :
- memeber joining of leaving the EU. Could disrupt financial markets and create a great deal of uncertainty
- pressure groups which aims to eliminate the harm done by smoking, can affect businesses.

Question 3

What is Economics in PESTLE?

Answer 3

The general state of the economy can have a huge impact on business activity.

Examples :
- financial crisis in 2008
- failing unemployment might help to increase demand for many businesses
- stable prices would create more certainty, which would encourage investment

Question 4

What is social in PESTLE?

Answer 4

Over time there are likely to be changes in the way society operates. Although social and cultural changes to tend to be gradual, they can still have an impact.
- population in many countries is ageing. Which could affect demand patterns and create new opportunities for some businesses.
- increasing migration might increase the size of the potential workforce, making recruitment easier. It might also provide a boost to demand.

Question 5

What is technological in PESTLE?

Answer 5

The rate of technological change seems to gather pace all the time. Business usually welcome technological developments because they often provide new product opportunities or help to improve efficiency.

Example :
- change in technology can shorten product life cycle.
- development in technology often mean that businesses can replace labour with capital.
- development in social media improves communication between businesses and customers.

Question 6

What is Legal in PESTLE ?

Answer 6

The government provides the legal framework in which businesses operate. However it also directs legislation at businesses to protect vulnerable groups that might otherwise get exploited.

Example:
- EU legislation can affect tax laws.

Question 7

What is Environmental in PESTLE?

Answer 7

People are increasingly protective of the environment, for instance because of the threats posed by global warming.

Example :
- people are more inclined to buy ‘green’ goods.
- new ways of generating power using renewable sources rather than burning hydrocarbons are providing new opportunities
- the trend towards recycling is gathering pace

Question 8

What is monopoly

Answer 8

A market dominated by a single business

Question 9

What is Oligopoly

Answer 9

A market dominated by a few large businesses

Question 10

The structure of markets ?

Answer 10

• competitive markets
• uncompetitive markets

Question 11

What is the impact on businesses of a changing competitive environment

Answer 11

• New entrants
• new products
• Consolidation

Question 12

What is Porter’s 5 forces?

Answer 12

•In 1985 Porter argued that there were 5 forces (or factors) which determine the profitability of an industry.
1. Bargaining power of suppliers
2. Bargaining power of customers
3. Threat of new entrants
4. Threat of substitutes
5. Rivalry among existing businesses

Question 13

Bargaining power of suppliers

Answer 13

• Limit power of suppliers by looking for new suppliers
• Backward vertical integration and merge or takeover the supplier

Question 14

Bargaining power of customers

Answer 14

• Make it too expensive for a customer to switch
• Forward vertically integrate

Question 15

Threat of new entrants

Answer 15

• Create barriers to entry to prevent new entrants
• Heavily advertise to build strong brands

Question 16

Threat of substitutes

Answer 16

• Continuously invest in R&D and develop patents
• Buy up patents of rivals and shelve to prevent product prod

Question 17

Rivalry amongst existing firms in the industry

Answer 17

This means :

• 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

Question 18

Foward vertical integration

Answer 18

Forward vertical integration involves acquiring a business further up (forward) in the supply chain – e.g. a vehicle manufacturer buys a car retail business. Another example might be Amazon or Netflix deciding to buy a chain of movie theatres (cinemas).

Question 19

Backward vertical intergration

Answer 19

Backward vertical integration involves acquiring a business operating earlier in the supply chain – e.g. a retailer buys a wholesaler, a brewer buys a hop farm. Another good example was Apple Inc. buying a chip supplier Dialog in 2018.

Question 20

Advantages of using a PESTLE analysis?

Answer 20

1. Identifying External Factors: PESTLE analysis helps in identifying the external factors that can affect an organization’s operations. These factors include political, economic, social, technological, legal, and environmental factors. By analyzing these factors, an organization can understand the opportunities and threats presented by its external environment.

2.Strategic Decision Making: PESTLE analysis helps in strategic decision making by providing a framework for assessing the impact of external factors on an organization’s performance. The insights obtained from this analysis can be used to identify potential risks and opportunities that can influence the organization’s strategic decisions.

3.Better Resource Allocation: PESTLE analysis can also help organizations allocate their resources effectively by understanding the external factors that can affect their operations. This can lead to better resource planning and allocation, which can help organizations achieve their goals and objectives more efficiently.

Question 21

Disadvantages of a PESTLE analysis?

Answer 21

1.Limited Analysis: PESTLE analysis provides a broad overview of the external environment, but it may not cover all the factors that can impact an organization. For example, it may not take into account internal factors such as organizational culture and structure, which can also have a significant impact on an organization’s performance.

2.Lack of Specificity: PESTLE analysis may provide general information about the external environment, but it may not be specific enough to provide actionable insights. This can make it difficult for organizations to use the analysis to develop specific strategies and tactics.

3.Time-Consuming: PESTLE analysis can be time-consuming, especially when organizations need to collect data and analyze each factor in-depth. This can be a significant disadvantage for organizations that need to make quick decisions or operate in fast-paced environments. Additionally, the accuracy of the analysis can be impacted by the availability and reliability of the data used.