Unit 1 - External Factors (PESTEC) Flashcards
What is PESTEC and what does it stand for?
PESTEC - External factors affecting a business
P-Political
E-Economic
S-Social
T-Technological
E-Environmental
C-Competitive
How do laws affect a business
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)
How does tax affects businesses?
Increase in tax
= decrease in disposable income.
=customers spend less on wants
=less profits
=less profits for owners/shareholders
=less money to fund development
What are the factors of production i.e what does C.E.L.L stand for?
Name 3 examples for each letter
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
Name some Technological external factors:
Research and development
ICT
Automation
E-commerce
How does high interest rate affect businesses?
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
How does low interest rate affect businesses?
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
Name some Social external factors:
Tastes and Trends
Culture
Demographics
Name some Environmental external factors:
Weather - (Growth of crops, Extraction, Distribution)
Protest groups
How can competition affect a business?
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
How can businesses overcome the affects of laws
Following the law:
- Avoids fines
- Improves reputation
- Attracts new employees and customers
- Creates easier access to grants
What is disposable income?
Money left over after tax
What is VAT?
Value Added Tax - Tax on supply or importation of goods/services, paid by the final consumer of the good/service
Name some political factors affecting a business
Laws (minimum wage, Equality, Health & Safety) and Taxes
What factors affect Exchange rate?
The Economy
Government decisions
Industry
What is interest rate?
-Percentage added to loans when repaid
Percentage added to money when it is saved
What is exchange rate?
Cost of buying a foreign currency
£1=$1.26 means that a business must sell $1260 worth of goods to make £1000,
How does exchange rate affect business?
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.
How does exchange rate affect business? Pt 2
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)
What is unemployment?
Number of citizens not working or employed
How does high unemployment affect a business?
High unemployment:
-More choice during selection
-Can pay lower wages = higher profits
-More job competition
How does low unemployment affect a business
Low unemployment:
-Less applicant choice
-Have to pay higher wages = lower profits
-Less job competition
Name 4 effects of stock being Out Of Trend:
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
Name 3 effects of stock being In Trend:
-Higher Demand
-Higher Prices
-Higher Profit
-Higher inflation (negative)
How can culture affect businesses?
-Country traditions e.g. Robbie burns day
-Religious beliefs e.g. Christmas, Diwali
How can businesses adapt to cultural factors?
Businesses can benefit by adapting their product portfolio & services to fit, meaning they can CHARGE HIGHER PRICES and INCREASE PROFITS
What are Demographics?
The way to categorise different groups in a geographical area.
Demographics help to identify appropriate 4Ps for operation.
What are the Demographic groups?
Gender
Age
Race/ethnicity
Religion
Income & Wealth
Health/disability
Employment Status
Height and Weight
How can Research and Development (R&D) affect a business?
R&D can produce new tech that reduces wants for existing products & services.
e.g. CD/DVD replace by YouTube or Netflix
How can E-commerce help businesses
Provide a wider range of customers.
How can protest groups affect a business?
-Stop production
-Block applications
-Lower public opinion
What can businesses do to counter negative protest group activities?
-Compromise
-Involve the community in decisions
-Sponsor local rugby/football team
How can weather affect a business?
-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
