U1- External Factors Flashcards
What are external factors?
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
What does PESTEC stand for?
Political Economic Social Technological Environmental and ethical Competitive
How can political factors impact on a business?
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
How can economic factors impact on a business?
A recession may force an organisation to downsize/ pay off staff
How can social factors impact an organisation?
Change in tastes and fashions may mean demand for the products may fall or increase which impacts profitability
How can technological factors impact on a business?
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
How can environmental and ethical factors impact on a business?
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
How can competitive factors impact on a business?
Competitors may introduce an improved product which reduces sales for the business meaning it must develop new products quickly
What are 3 political factors which could impact on an organisation?
Legislation
Government policy
Government spending
(Political) how can legislation impact a business?
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
(Political) how can government policy impact on an organisation?
Policy may mean the business has to change its actions e.g. Recycling and planning permission
(Political) how can government spending impact on an organisation?
Grants and allowances could be impacted and taxation also for example tax relief
Who implements government competition policy?
The competition and markets authority
Aims to prevent market domination through mergers and acquisitions in order to maintain customer choice and fair market prices
Name the 6 economic factors which will impact on a business
Inflation Employment Exchange rates Boom/ recession International trade Interest rates
(Economic) how can inflation impact on a business?
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
(Economic) how can employment impact on a business?
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
(Economic) how can exchange rates impact on a business?
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
(Economic) how can boom/ recession impact on a business?
During boom periods demand for products is high, unemployment is low and prices rise quicker
The opposite is true for recession
(Economic) how can international trade impact on a business?
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
(Economic) how can interest rates impact on a business?
Rising interest rates will increase costs to businesses and consumers
Finance demands will increase which could mean lower profits
Why do businesses have to be aware of social factors?
If they don’t change with their customers then it can risk losing sales to competitors
What are 4 social factors that the business has to be aware of?
Changing tastes
Changing fashion
New trends
Lifestyle choices
What are some changes to social factors recently?
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
Why should a business invest in new technology?
To have a competitive edge over rivals
To steal a lead on the completion
Keep up with consumer expectations
What are the factors within technology that can impact on a business?
Communications
Manufacturing
Product innovation
Name 5 advantages of new technology to an organisation
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
Name 5 disadvantages of new technology to an organisation
Cost of hardware and equipment
Installation costs
New furniture to house equipment
Losses in efficiency during training
Commercial espionage and hacking
Name 4 environmental factors which can impact on an organisation
Natural resources
Pollution
Natural disasters
Weather
How can weather impact a business?
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
How can natural resources impact a business?
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
How can natural disasters impact a business?
The supply chain will be impacted meaning that there will be a loss of production, sales and profits
How can pollution impact on an organisation?
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
What does business ethics involve? (Name 5 things)
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
How can a business gain competitive advantage? (Name 5 things)
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
