Unit 1 - External Factors (PESTEC)

Question 1

What is PESTEC and what does it stand for?

Answer 1

PESTEC - External factors affecting a business

P-Political
E-Economic
S-Social
T-Technological
E-Environmental
C-Competitive

Question 2

How do laws affect a business

Answer 2

Laws may force businesses to increase wages paid (Minimum Wage Act), and spend money installing equipment (Health and Safety at Work Act, Equality Act 2010)

Question 3

How does tax affects businesses?

Answer 3

Increase in tax
= decrease in disposable income.
=customers spend less on wants
=less profits
=less profits for owners/shareholders
=less money to fund development

Question 4

What are the factors of production i.e what does C.E.L.L stand for?
Name 3 examples for each letter

Answer 4

CELL:

Capital - Machinery, Equipment, finances

Enterprise - Idea and goal of the business, all the factors work together to do this.

Land - Natural resources, land, venues

Labour - Employees, workers, managers

Question 5

Name some Technological external factors:

Answer 5

Research and development
ICT
Automation
E-commerce

Question 6

How does high interest rate affect businesses?

Answer 6

High interest rates mean businesses receive higher interest on their savings
BUT
are less able to take loans to grow their business.
Also:
customers are less able to borrow money to buy business goods/services when interest rates are High

Question 7

How does low interest rate affect businesses?

Answer 7

Low interest rates allow a business to borrow & take loans more freely
AND
Customers may borrow more to buy business goods.
BUT
Businesses receive less interest for the money saved

Question 8

Name some Social external factors:

Answer 8

Tastes and Trends
Culture
Demographics

Question 9

Name some Environmental external factors:

Answer 9

Weather - (Growth of crops, Extraction, Distribution)
Protest groups

Question 10

How can competition affect a business?

Answer 10

Changes in any of the 4Ps (product, price, place, promotion) by a competitor can reduce customer loyalty or purchases

Solution: bench-marking, trying to exceed their standards

Question 11

How can businesses overcome the affects of laws

Answer 11

Following the law:
- Avoids fines
- Improves reputation
- Attracts new employees and customers
- Creates easier access to grants

Question 12

What is disposable income?

Answer 12

Money left over after tax

Question 13

What is VAT?

Answer 13

Value Added Tax - Tax on supply or importation of goods/services, paid by the final consumer of the good/service

Question 14

Name some political factors affecting a business

Answer 14

Laws (minimum wage, Equality, Health & Safety) and Taxes

Question 15

What factors affect Exchange rate?

Answer 15

The Economy
Government decisions
Industry

Question 16

What is interest rate?

Answer 16

-Percentage added to loans when repaid
Percentage added to money when it is saved

Question 17

What is exchange rate?

Answer 17

Cost of buying a foreign currency
£1=$1.26 means that a business must sell $1260 worth of goods to make £1000,

Question 18

How does exchange rate affect business?

Answer 18

When exchange rate is high, it’s worse to sell abroad (export) and better to buy from abroad (import)

When exchange rate is low, it is better to export and worse to import.

Question 19

How does exchange rate affect business? Pt 2

Answer 19

Buying $1260 of goods (Higher Exchange rate) for £1000 is BETTER than buying $1110 of goods for £1000 (lower exchange rate)
BUT
Selling $1260 worth of goods to get £1000 (higher exchange rate) is WORSE than selling $1110 to get £1000 (lower exchange rate)

Question 20

What is unemployment?

Answer 20

Number of citizens not working or employed

Question 21

How does high unemployment affect a business?

Answer 21

High unemployment:
-More choice during selection
-Can pay lower wages = higher profits
-More job competition

Question 22

How does low unemployment affect a business

Answer 22

Low unemployment:
-Less applicant choice
-Have to pay higher wages = lower profits
-Less job competition

Question 23

Name 4 effects of stock being Out Of Trend:

Answer 23

Answers include…
-Wasted Stock
-Have to lower prices
-Product enters decline phase of product cycle
-New product or service needed
-Increased cost of running business
-Lower profits

Question 24

Name 3 effects of stock being In Trend:

Answer 24

-Higher Demand
-Higher Prices
-Higher Profit
-Higher inflation (negative)

Question 25

How can culture affect businesses?

Answer 25

-Country traditions e.g. Robbie burns day
-Religious beliefs e.g. Christmas, Diwali

Question 26

How can businesses adapt to cultural factors?

Answer 26

Businesses can benefit by adapting their product portfolio & services to fit, meaning they can CHARGE HIGHER PRICES and INCREASE PROFITS

Question 27

What are Demographics?

Answer 27

The way to categorise different groups in a geographical area.
Demographics help to identify appropriate 4Ps for operation.

Question 28

What are the Demographic groups?

Answer 28

Gender
Age
Race/ethnicity
Religion
Income & Wealth
Health/disability
Employment Status
Height and Weight

Question 29

How can Research and Development (R&D) affect a business?

Answer 29

R&D can produce new tech that reduces wants for existing products & services.
e.g. CD/DVD replace by YouTube or Netflix

Question 30

How can E-commerce help businesses

Answer 30

Provide a wider range of customers.

Question 31

How can protest groups affect a business?

Answer 31

-Stop production
-Block applications
-Lower public opinion

Question 32

What can businesses do to counter negative protest group activities?

Answer 32

-Compromise
-Involve the community in decisions
-Sponsor local rugby/football team

Question 33

How can weather affect a business?

Answer 33

-Cold, rain & snow can spoil crop growth
- Issues of transport
-Outdoor stalls may not operate
-Certain products not wanted e.g. no sunscreen in cold weather