3.1.4 Impact Of External Influences

Question 1

what is PESTLE analysis

Answer 1

examines the external factors that are likely to impact the activities and performance of a business

Question 2

what are the benefits/uses of PESTLE analysis

Answer 2

• supports effective decision-making
• can help to deal with threats

Question 3

what does PESTLE stand for

Answer 3

political
economic
social
technological
legal
environmental

Question 4

explain how politics may be an external factor affecting a business

Answer 4

• this is how a business is affected by the actions of local and national governments
• e.g. leaving the EU

Question 5

explain how the economy may be an external factor

Answer 5

• the extent to which economic factors impact a business
• exchange rates, inflation, interest rates etc.

Question 6

explain how social factors may influence a business

Answer 6

• extent to which social and cultural change affects businesses
• changes in demographics (age etc.)
• levels of education

Question 7

how can technology be an external influence on a business

Answer 7

• the extent to which technological innovation and changes impact a business
• may impact distribution, production efficiency etc.
• may impact quality
• may improve communication

Question 8

explain legal external influences on businesses

Answer 8

• changes in laws and regulations and how they impact a business
• taxation, employment, health and safety etc.

Question 9

how may environment be an external influence on a business

Answer 9

• attitudes and policies towards environmental protection
• changing infrastructure
• energy availability and costs
• consumer needs and wants

Question 10

for your exam you must be able to explain the impact of the PESTLE factors on the business

Answer 10

-

Question 11

what are the reasons for changes in the structure of markets

Answer 11

• businesses entering or leaving the market
• changes in legislation
• growth of the internet
• consumer tastes and preferences
• increased globalisation

Question 12

what is the use of Porter’s 5 forces

Answer 12

• 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

Question 13

list porter’s 5 forces

Answer 13

1 barriers to entry
2 buyer power
3 supplier power
4 threat of substitutes
5 industry rivalry

Question 14

explain barriers to entry

Answer 14

• if the barriers to enrty are low, then competitors can easily enter the market

Question 15

how can barriers to entry be raised

Answer 15

• patents and trademarks
• taking control of distribution channels
• predatory pricing

Question 16

explain how buyer power influences an industry

Answer 16

• the amount of power buyers have to negotiate lower prices
• with fewer buyers and more sellers they will have more power

Question 17

how can buyer power be used to benefit a business

Answer 17

• 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

Question 18

explain how supplier power influences an industry

Answer 18

• 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

Question 19

how can supplier power be improved

Answer 19

• 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

Question 20

how can the threat of substitutes influence an industry

Answer 20

• when buyers can easily swap to a substitute the business has little power

Question 21

how can a business reduce the threat of substitutes

Answer 21

• differentiate to create brand loyalty
• businesses can identify a gap in the market where there aren’t any substitutes
• making it difficult to switch

Question 22

how can rivalry within the industry influence the industry

Answer 22

• when rivalry is high with lots of competition selling similar products the business will have little power

Question 23

what strategies can be used to reduce the influence of rivalry

Answer 23

• making it easy for customers to switch between goods
• big promotional campaigns

Question 24

what is a disadvantage to Porter’s 5 forces and PESTLE analysis

Answer 24

• 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