External Influences

Business: BTEC Level 3 National Extended Diploma, topic 1.3.1

The Impact of External Influences

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

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).

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.

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.

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.