understanding that business operate within an external environment

Question 1

what is the external environment?

Answer 1

comprises of external forces that can impact other businesses activities

Question 2

what are the components of external forces?

Answer 2

1. incomes:
   -a major influence on the demand for a businesses products is the level of incomes earned by its customers
   - consumers incomes are determined by the gross domestic product in a nation
   -a rise in gdp is likely to result in a rise in demand for a businesses goods and services
2. interest rates = the reward for saving and cost of borrowing
   -set by bank of england
   - interest rates particularly important in the UK because we are a nation of homeowners and as a result, disposable incomes are determined by the size of our mortgage payments
3. demographics:
   -demography= the study of human populations
   -it includes: the size age gender ethnic background etc
   -the uk population has changed in recent years in the following ways:
   growing more quickly and rapidly than any other country in europe
   positive net migration
   population is ageing
   about 9 million in the UK are over 70
4. environmental issues and fair trade
   - in recent years the media and the government as well as society have taken a much greater interest on the environmental impact of businesses
   - they contribute to damage the environment in the following ways:
   emission of harmful gases through production
   pollution
   destruction of the natural environment
   - to counteract this damage, the uk gov are committed to a net zero policy and in addition, have brought in laws such as the environment protection act 1995 to reduce damage
5. market conditions and competitors
   - market conditions are the factors that can impact on the success of failure of a business e.g the state of the economy, peoples incomes, consumer tastes and level of competition
   -competition:
   oligopoly = a few businesses dominate the market, the level of competition can vary in different markets
   monopoly = a business has 25% or more market share
   mass market competition = many businesses operate in the market

Question 3

what are the implications of the external environment for uk businesses?

Answer 3

• increasing population = increasing demand for goods and services
• new target markets to exploit ( older generation)
  -different cultural backgrounds
  -increased labour market
  -migrants often work in low skilled jobs for lower wages