Impact Of External Influences Flashcards
What does PESTLE stand for?
Political Economic Social Technological Legal Environmental
What are some examples of political factors?
1) Members leaving or joining the EU.
2) National security which can restrict the movement of goods, people and capital.
3) Pressure groups which aim to eliminate any society problems.
What are some examples of economic factors?
1) Unemployment.
2) A stronger exchange rate.
3) Lower interest rates.
4) Economic recessions.
What are some factors of social factors?
1) Increasing the quality of Human Resources.
2) Population.
3) Immigration.
What are some examples of technological factors?
1) Technology changes that shorten product life cycles.
2) Technological developments that replace labour with capital and lower unit costs.
3) Social media which allows businesses to communicate better with customers.
What are some examples of legal factors?
1) EU legislation that affects tax laws.
2) Banning dangerous advertising e.g alcohol advertising.
What are some examples of environmental factors?
1) People becoming more inclined to buy ‘green’ goods.
2) Generating power in renewable resources.
What are Porter’s 5 forces?
1) Bargaining power of suppliers.
2) Bargaining power of buyers.
3) Threat of new market entrants.
4) Substitutes.
5) Rivalries among existing firms.
Bargaining power of suppliers?
Suppliers want to maximise profits they make from their customers. The more power a supplier has over its customers, the higher the prices it can charge. But if you limit the power of a supplier, the business’ competitive position will improve.
Bargaining power of buyers?
Just like how suppliers want to charge maximum prices to customers, buyers want to obtain supplies for the lowest price. If the buyers have considerable market power, then they’ll be able to beat down prices offered by suppliers.
Threat of new entrants?
Existing businesses are constantly under threat that if their profits rise too much, new suppliers get attracted into the market and will undercut their prices. Businesses can stop this by erecting barriers to entry to the industry. For example they could apply for patents to protect their own property and help strong brands attract customer loyalty and make the customers less price sensitive.
Substitutes?
The more substitutes there are for a particular product, the more competitive pressure there is on the business to make the product. A business with little to no substitutes is likely to be able to charge high prices with high profits. A business can also reduce the number of substitutes by Research and Development (R&D).
Rivalry among existing firms?
The degree of rivalry between firms in an industry will determine prices and profits for any single firm. If the rivalry is fierce, businesses can reduce that rivalry by forming cartels or engaging in a range of anti-competitive practices. But in the UK and EU, this is illegal. Competition law may intervene to prevent this happening but most horizontal mergers are allowed to proceed.
