U1- External Factors Flashcards

1
Q

What are external factors?

A

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

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2
Q

What does PESTEC stand for?

A
Political
Economic
Social
Technological
Environmental and ethical
Competitive
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3
Q

How can political factors impact on a business?

A

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

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4
Q

How can economic factors impact on a business?

A

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

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5
Q

How can social factors impact an organisation?

A

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

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6
Q

How can technological factors impact on a business?

A

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

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7
Q

How can environmental and ethical factors impact on a business?

A

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

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8
Q

How can competitive factors impact on a business?

A

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

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9
Q

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

A

Legislation
Government policy
Government spending

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10
Q

(Political) how can legislation impact a business?

A

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

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11
Q

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

A

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

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12
Q

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

A

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

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13
Q

Who implements government competition policy?

A

The competition and markets authority

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

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14
Q

Name the 6 economic factors which will impact on a business

A
Inflation
Employment 
Exchange rates
Boom/ recession 
International trade
Interest rates
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15
Q

(Economic) how can inflation impact on a business?

A

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

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16
Q

(Economic) how can employment impact on a business?

A

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

17
Q

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

A

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

18
Q

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

A

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

The opposite is true for recession

19
Q

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

A

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

20
Q

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

A

Rising interest rates will increase costs to businesses and consumers

Finance demands will increase which could mean lower profits

21
Q

Why do businesses have to be aware of social factors?

A

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

22
Q

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

A

Changing tastes
Changing fashion
New trends
Lifestyle choices

23
Q

What are some changes to social factors recently?

A

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

24
Q

Why should a business invest in new technology?

A

To have a competitive edge over rivals

To steal a lead on the completion

Keep up with consumer expectations

25
What are the factors within technology that can impact on a business?
Communications Manufacturing Product innovation
26
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
27
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
28
Name 4 environmental factors which can impact on an organisation
Natural resources Pollution Natural disasters Weather
29
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
30
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
31
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
32
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
33
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
34
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