U1- External Factors

Question 1

What are external factors?

Answer 1

Things which affect the success of the business, but things which the business cannot directly control

These will normally have a direct impact of the business and are known as the PESTEC factors

Question 2

What does PESTEC stand for?

Answer 2

Political
Economic
Social
Technological
Environmental and ethical
Competitive

Question 3

How can political factors impact on a business?

Answer 3

An increase in the minimum wage may mean that the business is paying more for its labour and so may have a smaller profit or will have to increase prices

Question 4

How can economic factors impact on a business?

Answer 4

A recession may force an organisation to downsize/ pay off staff

Question 5

How can social factors impact an organisation?

Answer 5

Change in tastes and fashions may mean demand for the products may fall or increase which impacts profitability

Question 6

How can technological factors impact on a business?

Answer 6

Improvements in technology may mean customers demand a better service from the business meaning it will have to upgrade its IT which will add to business costs

Question 7

How can environmental and ethical factors impact on a business?

Answer 7

Consumer expectations on this issue e.g. Sourcing of raw materials and fair pay, means all businesses should ensure their activities are seen as ethical to governments and consumers

Question 8

How can competitive factors impact on a business?

Answer 8

Competitors may introduce an improved product which reduces sales for the business meaning it must develop new products quickly

Question 9

What are 3 political factors which could impact on an organisation?

Answer 9

Legislation
Government policy
Government spending

Question 10

(Political) how can legislation impact a business?

Answer 10

Companies have to make sure they are operating within the law, for example adhering to the minimum wage act and health and safety at work

Question 11

(Political) how can government policy impact on an organisation?

Answer 11

Policy may mean the business has to change its actions e.g. Recycling and planning permission

Question 12

(Political) how can government spending impact on an organisation?

Answer 12

Grants and allowances could be impacted and taxation also for example tax relief

Question 13

Who implements government competition policy?

Answer 13

The competition and markets authority

Aims to prevent market domination through mergers and acquisitions in order to maintain customer choice and fair market prices

Question 14

Name the 6 economic factors which will impact on a business

Answer 14

Inflation
Employment 
Exchange rates
Boom/ recession 
International trade
Interest rates

Question 15

(Economic) how can inflation impact on a business?

Answer 15

Increase in the price of materials will mean higher production costs

It may have to increase prices and lose sales, or have to accept lower profits

Question 16

(Economic) how can employment impact on a business?

Answer 16

When unemployment is high the business will find recruitment easy, and can pay people less however there may be less demand for its products

The opposite is also true

Question 17

(Economic) how can exchange rates impact on a business?

Answer 17

If the business is trading internationally this will impact the price of the product to foreign customers

The higher the value of the £ the more expensive the product is to customers overseas

Question 18

(Economic) how can boom/ recession impact on a business?

Answer 18

During boom periods demand for products is high, unemployment is low and prices rise quicker

The opposite is true for recession

Question 19

(Economic) how can international trade impact on a business?

Answer 19

The EU has free movement of goods however outside the EU there are a number of trade agreements and changes in these make it difficult to carry on trading profitably

Question 20

(Economic) how can interest rates impact on a business?

Answer 20

Rising interest rates will increase costs to businesses and consumers

Finance demands will increase which could mean lower profits

Question 21

Why do businesses have to be aware of social factors?

Answer 21

If they don’t change with their customers then it can risk losing sales to competitors

Question 22

What are 4 social factors that the business has to be aware of?

Answer 22

Changing tastes
Changing fashion
New trends
Lifestyle choices

Question 23

What are some changes to social factors recently?

Answer 23

Consumers have begun to move away from the large monthly/ weekly shop

Consumers are more considerate about food miles, and organic produce

Supporting local businesses is more popular

Question 24

Why should a business invest in new technology?

Answer 24

To have a competitive edge over rivals

To steal a lead on the completion

Keep up with consumer expectations

Question 25

What are the factors within technology that can impact on a business?

Answer 25

Communications
Manufacturing
Product innovation

Question 26

Name 5 advantages of new technology to an organisation

Answer 26

Increased efficiency- fewer workers

Increased flexibility- can adapt to changes more easily

Better communication- increase in the volume and speed of information handling

Increased customer satisfaction- greater convenience

Enhanced reputation- seen as modern and up to date

Question 27

Name 5 disadvantages of new technology to an organisation

Answer 27

Cost of hardware and equipment

Installation costs

New furniture to house equipment

Losses in efficiency during training

Commercial espionage and hacking

Question 28

Name 4 environmental factors which can impact on an organisation

Answer 28

Natural resources
Pollution
Natural disasters
Weather

Question 29

How can weather impact a business?

Answer 29

Transport becomes more difficult
There is a loss of sales and profits
There are delays and closures

There is seasonal demand
Some businesses may have to close temporarily

Question 30

How can natural resources impact a business?

Answer 30

Lack of them can lead to increased prices for raw materials

A reduction in supply will reduce pollution but also lead to an increase in price for customers

Question 31

How can natural disasters impact a business?

Answer 31

The supply chain will be impacted meaning that there will be a loss of production, sales and profits

Question 32

How can pollution impact on an organisation?

Answer 32

If they are seen to be contributing to pollution then they will have bad publicity and loss of reputation

They could lose sales and custom

Question 33

What does business ethics involve? (Name 5 things)

Answer 33

Rejecting the use of child labour in the supply chain

Supporting local businesses

Paying suppliers on time

Focus on reducing food miles

Ensuring suppliers treatment and health and safety of employers is of a high standard

Question 34

How can a business gain competitive advantage? (Name 5 things)

Answer 34

Alter their price to attract new customers

Bring out new or improved versions of their product

Launch a new marketing campaign

Improve their range of services to customers

Introduce better customer support