External Environments

Understanding the Impact of the External Environment

The external environment covers the range of factors which may affect a business but are outside the business' control. External environmental factors can affect a business’ costs and demands. Businesses must understand the external environment factors so that they can respond to changes:

Competition

Competition can affect a business’ costs and demands as the presence of competitors may reduce demand for a business' product or service.
The presence of a competitor can also increase business costs as a business may increase its spending on promotion and advertising or may invest in research and development to improve the products offered for sale.

Example of the impact of competition

For example, from 2012, Tesco experienced falling demand as competition from Aldi and Lidl rose in the food retail industry.
This competition increased Tesco’s costs as it increased its promotional activity and increases its investment in developing its new range of food items, known as Stockwell & Co, which replaced its Tesco Value range.

Market conditions

Market conditions can affect a business’ costs and demands. If a market is increasing in size, a business must ensure it competes against other competitors to secure its own share of the increasing market, and this increases costs.
For example, the market for online food shopping has increased in recent years and Morrisons has had to invest in its website and delivery network to maintain competitiveness otherwise the demand for Morrisons' services may fall.

Consumer income

Consumer income can affect a business’ costs and demands.
If consumer incomes are decreasing, demand for luxury items, like watches and cars may decrease as people make decisions to stop purchasing these products.
Businesses may also invest more heavily in promotional and advertising campaigns to try and increase demand, and this also increases business costs.

Example: The impact of consumer income

In the 2007-08 recession, consumer incomes fell. The demand for luxury goods and upmarket groceries fell during the time of the recession. This initially impacted food retailers like Waitrose. Many people shifted from supermarkets like Tesco and Asda to Aldi and Lidl too.
But, falling consumers incomes can benefit some businesses e.g Aldi.

The External Environment - Other Environmental Factors

External environment factors can affect a business’ costs and demands. Businesses must understand the external environment factors, so that it can respond to changes:

Interest rates

Interest rates can affect a business’ costs and demands as an increase in interest rates increases the cost of business’ borrowing whilst also reducing the amount spent by consumers as they make decisions to save instead of spend.
For example, an increase in the interest rate will affect a car manufacturer, such as Toyota, as consumers are less likely to take out loans to purchase new cars, which decreases demand.
If Toyota has any variable rate loans, then Toyota's business costs will rise too as they repay the loan.

Demographic changes

Demographic changes, such as an ageing population, can affect a business’ costs and demands. For example, as the UK’s population ages, there is an increase in the number of people in higher age brackets, and this increases demand for items such as holiday packages targeted at senior citizens and cruises.
As net migration continues to increase, demand for cultural shops such as Polish food stores continues to increase and this can reduce demand for groceries from existing retailers such as Asda.

Environmental and ethical factors

Environmental and ethical factors can affect a business’ costs and demands. As consumer awareness of environmental and ethical factors continues to develop, consumers are demanding products which are produced ethically and in an environmentally friendly way which increases business costs and can decrease demand if businesses fail to address changing needs.
For example, consumers are becoming increasingly aware of the issues caused by plastic production which has led cosmetics businesses to remove plastic beads from its products, which may increase costs or reduce demand.
There is also a focus on vegan foods and artificial meat businesses like Impossible Foods.

1Business Organisation & Environment

1.1Introduction to Business Management

1.1.1Why Businesses Exist & Sectors

1.2Types of Organisation

1.2.1Sole Traders

1.2.2Limited Liability

1.2.3Non-Profit

1.2.4Franchising

1.2.5End of Topic Test - Franchising

1.3Organisational Objectives

1.3.1External Environments

1.3.2Business Mission & Corporate Objective

1.3.3Mission, Corporate Objectives & Strategy

1.3.4SWOT Analysis

1.3.5End of Topic Test - SWOT Analysis

1.4Stakeholders

1.4.1Stakeholders

1.5External Environment

1.5.1Social & Technological Environment

1.5.2Lifestyle & Technological Environment

1.5.3Corporate Social Responsibility

1.5.4Economic Environment

1.5.5Political & Legal Change

1.6Growth & Evolution

1.6.1Growth & Retrenchment

1.6.2Challenges of Growth

1.6.3Growth Models

1.6.4End of Topic Test - Diseconomies of Scale

1.6.5Internationalisation

1.6.6Sourcing Resources & Entering Markets

1.6.7End of Topic Test - Internationalisation

1.6.8Managing Internationalisation

1.6.9Impact of Internationalisation

1.7HL Only: Organisational Planning Tools

1.7.1Organisational Planning Tools

2Human Resource Management

2.1Functions & Evolution of Human Resource Management

2.1.1Setting Human Resource Objectives

2.1.2Human Resource Management

2.1.3Labour Turnover & Retention

2.1.4Labour Productivity

2.2Organisational Structure

2.2.1Organisational Structures

2.3Leadership & Management

2.3.1Managers

2.3.2Management Theories

2.3.3End of Topic Test - Management

2.4Motivation

2.4.1Motivating & Engaging Employees

2.4.2Taylor's Theory

2.4.3Maslow's Theory

2.4.4Herzberg's Theory

2.4.5Different Incentives

2.4.6Evaluating Incentives

2.5Organisational (Corporate) Culture

2.5.1Managing Organisational Culture

2.5.2Organisational Structures

2.6HL Only: Industrial/Employee Relations

2.6.1Improving Employer-Employee Relations

2.6.2Case Study - The Winter of Discontent

3Finance & Accounts

3.1Sources of Finance

3.1.1Internal Sources of Finance

3.1.2External Sources of Finance

3.1.3Factors for Financing

3.1.4End of Topic Test - Debt

3.2Costs & Revenues

3.2.1Costs & Revenues

3.3Break-Even Analysis

3.3.1Profit

3.3.2Break-Even Analysis

3.4Profitability & Liquidity Ratio Analysis

3.4.1Profitability Analysis

3.5Cash Flow

3.5.1Cash Flow

3.5.2Solutions to Cash Flow Problems

3.5.3Improving Cash Flow & Profits

3.6HL Only: Investment Appraisal

3.6.1Investment Appraisal

3.7HL Only: Budgets

3.7.1Cash-Flow & Budgets

4Marketing

4.1The Role of Marketing

4.1.1Setting Marketing Objectives

4.1.2Market Calculations

4.2Marketing Planning

4.2.1Marketing Mix

4.2.2Segmentation

4.2.3Niche & Mass Markets

4.3Market Research

4.3.1Market Research

4.3.2Market Mapping

4.3.3Methods of Market Research

4.4The 4 Ps

4.4.1Product Decisions

4.4.2Pricing Decisions & Price Skimming

4.4.3Pricing Decisions & Price Penetration

4.4.4End of Topic Test - Pricing & Competition

4.4.5Promotional Decisions

4.4.6Promotional Decisions 2

4.4.7Promotional Decisions 3

4.4.8Digital Marketing

4.4.9Evaluating Digital Marketing

4.4.10Case Study - The Marketing Mix & Promotion

4.4.11Place & Distribution

4.5HL Only: The Extended Marketing Mix

4.5.1The Extended Marketing Mix

4.6HL Only: International Marketing

4.6.1International Marketing

4.7E-Commerce

4.7.1E-Commerce

5Operations Management

5.1The Role of Operations Management

5.1.1Setting Operational Objectives

5.2Production Methods

5.2.1Production Processes Overview

5.2.2Production Processes

5.2.3Production Efficiency

5.2.4Technology & Production

5.3HL Only: Lean Prodution & Quality Management

5.3.1Importance of Quality

5.3.2Measuring & Identifying Quality

5.3.3Total Quality Management

5.3.4Evaluating Total Quality Management

5.3.5Case Study - Toyota Production System

5.4HL Only: Production Planning

5.4.1Capacity

5.4.2Productivity & Efficiency

5.4.3Technology & Efficiency

5.4.4Improving the Supply Chain

5.4.5Inventory

5.4.6Outsourcing

5.5HL Only: Research & Development

5.5.1Organisational Planning Tools

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