1.3.1

External Influences

Test yourself

The Impact of External Influences

External factors impact a business' objectives and strategies. PESTLE is a good acronym for remembering these external factors.

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Political

  • Political factors can affect how a business operates.
  • This includes:
    • Government regulation of industries.
    • The government's competition policies (price controls or anti-trust allowing mergers and acquisitions).
    • The government's fiscal policy (the relationship between government spending and tax policies).
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Economic

  • Economic factors can affect how a business operates.
  • This includes:
    • Interest rates - a rise in interest rates increases the cost of borrowing (cost of debt). This disincentivises investment and consumption.
    • Consumer spending - in a time of recession, consumer confidence may be low, so there will be little consumer spending.
    • Economic growth - in a time of growth, consumer confidence will be high.
    • Exchange rates - if exchange rates are lower, a business' exports can be internationally competitive.
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Social

  • Social factors can affect how a business operates.
  • This includes:
    • Urbanisation - people usually move to urban areas because there are more job opportunities.
    • Migration.
    • Social changes - e.g. the growth of e-commerce.
    • Demographic changes - e.g. the UK has an aging population.
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Technological

  • Technological factors can affect how a business operates.
  • This includes:
    • Mobiles.
    • Big data - this helps businesses gain insights into consumer behaviour.
    • Disruptive technologies - some businesses will have to adapt to new technologies. E.g. how are businesses responding to Netflix.
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Environmental

  • Environmental or ethical factors can affect how a business operates.
  • This includes:
    • The supply chain - ensuring the business does not exploit its workers.
    • Emissions - the business may need to focus on reducing its pollution.
    • Taxes - the business may be unethical by trying to lower how much tax it pays.

Jump to other topics

1Exploring Business

2Marketing Campaigns

3Business Finance

4International Business

5Principles of Management

6Business Decision Making

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