External Factors
Business: Edexcel IGCSE, topic 1.7.1
Businesses Face Constantly Changing Environments
Every business is affected by the external environment that it operates in. The business environment is characterised by:
Technological advancements
- Advances in technology can affect every aspect of a business. If there is a technological advancement in the capital used by a company, they may be able to produce the same products and services at a lower cost per unit.
- In the industrial revolution (1780 - 1850), advances in technology reduced the cost of cotton cloth (used in your clothes) by 85%.
The economy
- The economic situation describes how well the country and world’s overall economy is performing.
- For example, in 2008 there was a financial crash which led an increase in unemployment in the UK and other countries. Because of this, the customers of most businesses began to spend less money. Customers had less money to spend on luxury products like Gucci handbags or expensive holidays.
Legislation
- Some industries are heavily impacted by laws (also known as pieces of legislation).
- When legislation (the law) changes, businesses can be forced to change their practices.
- For example, the UK government changed a law and forced cigarette companies to sell their products in plain packaging.
Environmental expectations
- In today’s business environment, businesses have to change the way they operate to meet environmental expectations.
- For example, in 2018, the supermarket Iceland promised not to use plastic packaging in their supermarkets by 2023.
- Automotive (car and lorry) companies may be pressured to make electric vehicles instead of those that use petrol (or diesel) fuel.
Test yourself on External Factors
What is the business environment characterised by?
The supermarket Iceland promised not to use plastic packaging in their supermarkets by 2023. What has this business been influenced by?