3.1.4 Impact Of External Influences Flashcards
what is PESTLE analysis
examines the external factors that are likely to impact the activities and performance of a business
what are the benefits/uses of PESTLE analysis
- supports effective decision-making
- can help to deal with threats
what does PESTLE stand for
political
economic
social
technological
legal
environmental
explain how politics may be an external factor affecting a business
- this is how a business is affected by the actions of local and national governments
- e.g. leaving the EU
explain how the economy may be an external factor
- the extent to which economic factors impact a business
- exchange rates, inflation, interest rates etc.
explain how social factors may influence a business
- extent to which social and cultural change affects businesses
- changes in demographics (age etc.)
- levels of education
how can technology be an external influence on a business
- the extent to which technological innovation and changes impact a business
- may impact distribution, production efficiency etc.
- may impact quality
- may improve communication
explain legal external influences on businesses
- changes in laws and regulations and how they impact a business
- taxation, employment, health and safety etc.
how may environment be an external influence on a business
- attitudes and policies towards environmental protection
- changing infrastructure
- energy availability and costs
- consumer needs and wants
for your exam you must be able to explain the impact of the PESTLE factors on the business
-
what are the reasons for changes in the structure of markets
- businesses entering or leaving the market
- changes in legislation
- growth of the internet
- consumer tastes and preferences
- increased globalisation
what is the use of Porter’s 5 forces
- they help a business understand the level of competitiveness within a market
- identifies key pressures on an industry which need to be understood to make informed strategic decisions
list porter’s 5 forces
1 barriers to entry
2 buyer power
3 supplier power
4 threat of substitutes
5 industry rivalry
explain barriers to entry
- if the barriers to enrty are low, then competitors can easily enter the market
how can barriers to entry be raised
- patents and trademarks
- taking control of distribution channels
- predatory pricing
explain how buyer power influences an industry
- the amount of power buyers have to negotiate lower prices
- with fewer buyers and more sellers they will have more power
how can buyer power be used to benefit a business
- if a buyer (the business) increases the quantity of what they are buying from the seller they have more power to negotiate lower prices
- this helps businesses get better deals from suppliers and reduce costs
explain how supplier power influences an industry
- if there are lots of suppliers a business can shop around to get the lowest price
- if there are few suppliers or one supplier is superior then the business may have to pay higher prices
how can supplier power be improved
- the business (supplier) may want to tie buyers in for long term contracts to stop them shopping around
- the business (supplier) may protect their products with patents so they are the only supplier and can charge a premium price
how can the threat of substitutes influence an industry
- when buyers can easily swap to a substitute the business has little power
how can a business reduce the threat of substitutes
- differentiate to create brand loyalty
- businesses can identify a gap in the market where there aren’t any substitutes
- making it difficult to switch
how can rivalry within the industry influence the industry
- when rivalry is high with lots of competition selling similar products the business will have little power
what strategies can be used to reduce the influence of rivalry
- making it easy for customers to switch between goods
- big promotional campaigns
what is a disadvantage to Porter’s 5 forces and PESTLE analysis
- the competitive environment is dynamic and always changing
- however, these analysis techniques only give a snapshot for a particular point in time
- therefore the business would have to revisit this regularly to be effective
