Impact of external influences

Question 1

Define the term external influence.

Answer 1

An external influence is any factor outside of the business that has an impact on normal trading

Question 2

What is PESTLE analysis?

Answer 2

This is a business analysis tool that aims to look at external factors and how they may have an impact on the business
This aids strategic and tactical decision making, objective setting and helps a business to reach its goals.

Political, Economic, Social, Technological, legal and environmental

Question 3

Explain the ‘political’ in PESTLE analysis.

Answer 3

A business may be affected by politics in the UK or even politics across the world, here are a few of the largest impacts;

• A change in government,
• Government laws; minimum wage
• Brexit and new trading blocs post-Brexit
• Tax rates (e.g. increase in VAT)
• Tariffs (when importing into the UK)

Question 4

Explain the ‘economic’ in PESTLE analysis.

Answer 4

A business should analyse how they may be affected by

• An increase in interest rates
• An increase in inflation
• Unemployment rates
• Recession
• The business cycle

Question 5

Explain the ‘social’ in PESTLE analysis.

Answer 5

A business should analyse how they may be affected by changes in social factors

• A change in demographics and its impact on products produced and markets,
• Culture mix changes in the UK
• Social trends e.g. Vaping-

Question 6

Explain the ‘technological’ in PESTLE analysis.

Answer 6

A business could examine the impact of new technologies on their operations, for example;

• Automation, new robotics and how it can improve productivity
• Innovations in the industry
• Research and development in the industry
• New computer systems
• Trading online

Question 7

Explain the ‘legal’ in PESTLE analysis.

Answer 7

A business should assess how they may be impacted by changes in legislation for example;

• Health and safety at work act in terms of PPE and regulations
• Data protection Act
• Sale of Goods Act
• Sex Discrimination Act

Question 8

Explain the ‘environmental’ in PESTLE analysis.

Answer 8

A business could analyse their environmental challenges that may face the business;

• Climate change
• Weather (e.g. in farming and tourism)
• Sustainable production and CSR
• Disappearance of wildlife

Question 9

What are Porter’s 5 forces?

Answer 9

Porter argued that there were 5 forces (or factors) which determine the profitability of an industry.

Bargaining power of suppliers
Bargaining power of customers
Threat of new entrants
Threat of substitutes
Rivalry among existing businesses

Question 10

Explain bargaining power of suppliers and customers as part of Porter’s 5 forces.

Answer 10

Bargaining power of suppliers;

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

Bargaining power of customers;

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

Question 11

Explain threats of new entrants and substitutes as part of Porter’s 5 forces.

Answer 11

Threat of new entrants;

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

Threat of substitutes;

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

Question 12

Explain rivalry amongst existing firms in the industry as one of Porter’s 5 forces.

Answer 12

In a very competitive market place there may be a great deal of rivalry, e.g. retail clothing companies.

The intensity of this rivalry will have an impact on the business that is trying to trade, it may mean:

• 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