N5S3 - External Factors

Question 1

Name the 6 External factors that can affect a business

Answer 1

• political
• economic
• social
• technological
• environmental
• competitive

(REMEMBER PESTEC!!)

Question 2

Explain how external political factors could affect a business

Answer 2

Involves decisions and laws the government make:

Tax: Government can raise or lower corporation tax or VAT on products

Laws: National Minimum Wage which impacts profits and employee rights, Health and Safety legislation so the business would have to pay for training

Political stability: the impact could be negative (loss of trade with EU customers), or positive (less restrictions)

Planning permission: If businesses want to expand, they need to be granted planning permission by the government.

(THIS IS BASED ON HOW A BUSINESS WILL ADAPT/REACT)

Question 3

Explain how external Economic factors could affect a business

Answer 3

Recession:

• when the amount of money being spent on goods and services gets low and the products being sold decreases.
• leads to unemployment.

Unemployment:

• unemployment is high = businesses have more workers to choose from
• can keep wages down

Interest rates:

• amount charged by the bank to borrow money.
• When they are high businesses borrow less.

Exchange rates:

• the price of one currency expressed in terms of another currency
• Strong Pound Imports Cheap Exports Dear (SPICED)

(THIS IS BASED ON HOW A BUSINESS WILL ADAPT/REACT)

Question 4

Explain how external Social factors could affect a business

Answer 4

Social influences are concerned with changing opinions, values and beliefs. These affect habits and spending of customers:

Demographics- birth rate, immigration, ‘ageing population’
Lifestyles- health conscious, veganism, electronics, tastes and trends

(THIS IS BASED ON HOW A BUSINESS WILL ADAPT/REACT)

Question 5

Explain how external Technological factors could affect a business

Answer 5

The way NEW DEVELOPMENTS in practices and equipment affect a business

ICT: Makes processes and equipment more efficient

Research and Development: Using 3D printers, smartphones and apps to innovate new products
Automation: Machines replacing people e.g. self service machines, drones

E-commerce: Sell 24/7 worldwide

(THIS IS BASED ON HOW A BUSINESS WILL ADAPT/REACT)

Question 6

Explain how external Environmental factors could affect a business

Answer 6

Climate change:

• reducing the business’s carbon footprint

Weather:

• seasonal changes can impact sales
• Bad weather or Natural disaster can cause disruption to supplies and production

Increasing use of
recycling:
* this will attract ‘Green Customers’

Decrease in Pollution: e.g. noise, traffic can improve a businesses reputation

(THIS IS BASED ON HOW A BUSINESS WILL ADAPT/REACT)

Question 7

Explain how external Competitive factors could affect a business

Answer 7

A competitor is another business who offers the same or similar products or services. A competitor may:

• Sell at a lower price
• Locate near your business
• Offer better quality/USP

The business may respond by

• Lowering prices
• Opening for longer hours
• Running a promotion
• Move to a new location

(THIS IS BASED ON HOW A BUSINESS WILL ADAPT/REACT)