External Environment 3.1.3

Question 1

wtf is pestle

Answer 1

Analysis of the external environment of a business
P- political
e - ECONOMIC
s-SOCIAL
t-TECHNOLOGICAL
l-LEGAL
e-ETHICAL / ENVIRONMENTAL

Question 2

Some Specific Features of the External Environment

Answer 2

Market Conditions
Competition
Household Incomes
Interest Rates
Demographic Factors
Environmental Issues
Fairtrade

Question 3

GDP is the …

Answer 3

Measure of the value of output (activity) in the economy
Value used to assess changes in economic growth

Question 4

Demand is …

Answer 4

How much of a good or service a consumer wants – and is able to pay for
For a business, demand turns into revenues (sales)

Question 5

index numbers r …

Answer 5

An index number is a figure reflecting price or quantity compared with a base value.
if a base product costs £7 the index is 100 if the price raises 5% the index is 105.

Question 6

Key Issues Which Make the External Environment Tougher

Answer 6

Competitors with significant market share or faster growth than the market
Influence of disruptive technologies – increasing risk of new competitors
Consolidation of a market which creates more powerful competitors (e.g. takeovers)
Spare or surplus capacity in the market / industry which reduces industry profits and makes price wars more likely
Investment in innovation & new product development by close competitors

Question 7

What are Real Incomes?

Answer 7

Real incomes measure the amount of disposable income available to consumers (e.g. households & individuals)

Question 8

Key Factors That Affect Real Incomes

Answer 8

Real Incomes
Price Inflation
Wage Growth
Employment Levels
Interest Rates
Govt. Tax Policy

Question 9

Factors that Affect Consumer Spending (Demand)

Answer 9

Real Disposable Income
How much households have available to spend

Employment and Job Security
When the jobs market is improving, consumer confidence and incomes will improve

Household Wealth
(e.g. house prices & share prices) – a rise in wealth can increase consumer demand

Expectations and Sentiment
Economic uncertainty causes spending to fall, weakening demand

Market Interest Rates
Interest rates affect both the incentive to save and the cost of borrowing

Question 10

Demographic Factors

Answer 10

Demography is concerned with the size and composition of a population. Changes in population dynamics occur slowly but can be significant for businesses

Question 11

Some Key Business Implications of UK’s Changing Population

Answer 11

Ageing population- greater demand for services to support older people (e.g. healthcare)
Increasing disposable incomes of older people reflected in higher demand for goods and services (e.g. holidays)
Continued high net immigration- Higher costs of (but greater demand for) public services (e.g. education, health, housing)
Increase in size of labour force – potentially keeping wage rates low

Question 12

Key Environmental Issues for Business

Answer 12

Sustainability
A “green” supply chain
Minimising packaging
Promoting environmental policies
Complying with environmental laws
Carbon emissions
Waste disposal

Question 13

Some Business Benefits of Environmental Friendly Actions

Answer 13

Lower raw material costs & waste disposal charges
Longer life of assets that are recycled or repaired
Trading opportunities with organisations that will only use environmentally-friendly suppliers
Improved customer goodwill

Question 14

What Businesses Need to Look At (environmentally)

Answer 14

Use of raw materials, water and other resources (inputs)
Energy use and its impact on climate change
Waste and pollution produced by the business
The impact the business has on employees and the local, wider and international community e.g. Fair Trade