(PAPER 2) 3.1.4 impact of external influences

Question 1

PESTLE analysis definition

Answer 1

an effective way to analyse key features of the external environment. its an extension of SWOT analysis as it looks at the opportunities and threats that a business is exposed to

Question 2

PESTLE acronym

Answer 2

Political
Economic
Social 
Technology
Legal 
Environmental

Question 3

POLITICAL

Answer 3

• competition policy
• industry regulation
• government spending and tax policies
• business policy and incentives

Question 4

ECONOMIC

Answer 4

• interest rates
• consumer spending and income
• exchange rates
• economic growth (GDP)

Question 5

SOCIAL

Answer 5

• demographic change
• impact of pressure groups
• consumer tastes and fashion
• changing lifestyles

Question 6

TECHNOLOGICAL

Answer 6

• disruptive technologies
• adoption of mobile technology
• new production processes
• big data and dynamic pricing

Question 7

LEGAL

Answer 7

• employment law
• minimum/living wage
• health and safety laws
• environmental legislation

Question 8

ENVIRONMENTAL

Answer 8

• sustainability
• recycling
• ethical sourcing (supply chain)
• pollution and carbon emissions

Question 9

the structure of the market:

competition definition

Answer 9

the rivalry that exists between businesses when trying to sell goods in a particular market

Question 10

the structure of the market:

competitive market definition

Answer 10

a large number of buyers and sellers and the products are close substitutes

Question 11

the structure of the market:

uncompetitive markets definition

Answer 11

dominated by a single producer (monopoly) or just a few large businesses (oligopoly)

Question 12

competitive market

Answer 12

• low barriers to entry
• little control over price
• lots of information e.g. price comparison sites, freedom of introduction
• difficult to exploit customers

Question 13

uncompetitive markets

Answer 13

• high barriers to entry
• high control over price
• less information
• easy to exploit customers

Question 14

the impact on businesses of a new changing environment

Answer 14

• new entrants: existing businesses will need to consider their position e.g. offering online services
• new products: existing businesses will need to make changes to their own products, lower their prices or invest in a marketing campaign
• consolidation: if competitors are buying up the competition, existing businesses may need to do the same or look to develop their products, diversify or cut their costs

Question 15

porters strategic matrix for competitive advantage definition

Answer 15

this matrix is a model that looks at strategies that can be adopted by a business to gain competitive advantage

Question 16

competitive advantage definition

Answer 16

an advantage over competitors gained by offering consumers greater value, either by the means of lower prices or by providing greater benefits and and services that justifies higher prices

Question 17

porters 5 forces that determine industry’s attractiveness and long-run industry profitability e.g. “the 5 forces”

Answer 17

• threat of entry of new competitors
• the threats of substitutes
• the bargaining power of buyers
• the bargaining power of supplies
• the degree of rivalry between existing competitors

Question 18

threat of new entrants

Answer 18

• rise level of competition- so reducing businesses attractiveness
• threat of new entrants depends on the barriers to entry

key barriers to entry:

• economies of scale
• capital/investment requirements
• access to the industries distribution channels
• retaliation from existing businesses

Question 19

threat of substitutes

Answer 19

• can lower industry’s attractiveness and profitability because they limit price levels

threat of substitute products depends on:

• buyers willingness to substitutes
• the relative price and performance of substitutes
• the cost of switching to substitutes

Question 20

bargaining power of suppliers

Answer 20

suppliers are the businesses that supply materials and other products into the industry- cost of items bought from suppliers e.g. raw materials- have significant impact on companies profitability- if suppliers have high bargaining power over a company, then in theory the companies industry is less attractive

bargaining power of suppliers will be high when:

• there are many buyers but only a few dominant suppliers
• there are few resources that they supply
• suppliers threaten to integrate forward into the industry

Question 21

Bargaining power of buyers

Answer 21

Buyers are the people or organisations that creare demand in an industry

The bargaining power of buyers is greater when

• there are a few dominant buyers and many sellers in the industry
• products are standardised
• buyers threaten to integrare backwards into the industry
• suppliers do not threaten to integrate forward into the buyer’s industry
• the size of the order is high

Question 22

Intensity of rivalry

Answer 22

The intensity of rivalry between competitors in an industry will depend on

• the structure of competition e.g. more rivalry when there are many equally sized competitors, rivalry is less when there is a market leader
• the structure of industry costs: industries with high fixed costs encourage competitors to to fill unused capacity by price cutting
• degree of differentiation: competitors who differentiate= less rivalry
• switching costs: by something form one place, another from the other, diff prices..
• strategic objectives: aggressive growth strategies= rivalry more intense
• exit barriers: when barriers to oeaving an industry are high= competitors exhibit greater rivalry

Question 23

When the collective strength of those 5 forces are favourable

Answer 23

A business will be able to maximise profitibility in an attractive industry

Question 24

When the collective strengths of the 5 forces are unfavourable

Answer 24

A business will make littel profit in an attractive industry