HOW ARE SMALL BUSINESSES INFLUENCED

External Influences

LEARNING INTENTIONS AND SUCCESS CRITERIA

LEARNING INTENTIONS:

I understand how

EXTERNAL FACTORS can

influence a businesses

activities and success.

SUCCESS CRITERIA:• I can name the

PESTEC factors and give examples of them.

• I can show how PESTEC factors can have a positive and negative impact on a business.

THE EXTERNAL ENVIRONMENT

All businesses must react efficiently to changes in

its external environment – failure to do so could be

fatal for the future of the business, as we saw in

the Old McDonald’s Farm task.

The problem is that a business has little control

over the external factors and has to continually

react to them.

EXTERNAL FACTORS

External factors can be summarised into

categories as follows:

POLITICAL ECONOMIC SOCIAL TECHNOLOGICAL ENVIRONMENTAL COMPETITIVE

P E S T E C

POLITICAL FACTORSThe government can introduce laws which can affect every business in the UK. For example the government have set laws which ban advertising tobacco on television. Business must comply with laws or face heavy legalpenalties.

Local government can decide to give or not give things like planning permissionor grants to businesses – GIVE = POSITIVE IMPACT, NOT GIVE = NEGATIVE IMPACT.

The government can also affect businesses by changing the amount of Corporation Tax charged on business profits. They have also introduced a Minimum Wage which employers must pay – this will affect their costs and profits. However, sometimes taxes are increased (negative impact) and sometimes they are decreased (positive impact).

ECONOMIC FACTORS

If the economy is in recession and unemployment is high,

consumers will have less income, which will result in a

loss of sales for businesses. In order to survive and

encourage consumers to buy from them, businesses may

have to ‘slash’ prices and accept a cut in profits just to

survive.

On the other hand, if the economy is showing growth,

more people will have employment and more income to

spend, leading to increased sales and profits, which

businesses can take advantage of.

SOCIAL FACTORS

There have been changes in the structure of the UK. More people are living longer and so theelderly now make up a larger percentage of thetotal population. Business must take note of this and produce goods and services relevant to theneeds of the population.

They must also keep an eye on social trends and tastes and make sure that the goods and services they provide are in line with this.

TECHNOLOGICAL FACTORS

Businesses must keep up with changes in technology. Forexample they must get involved in e-commerce, ie, selling goods and services using the Internet. They must also usetechnology and robots in production lines to make quality products more cost effectively.

Failure to keep up with technology due to the high cost of continually buying new equipment could lead to a fall in sales and profits.

ENVIRONMENTAL FACTORSThere is now increasing pressure for businesses to be environmentally friendly, eg, bags for life and to minimise pollution.This brings extra costs to businesses. If they do not treat the environment with care they may be subject to bad media publicity frompressure groups eg Greenpeace.

Business can also be seriously disrupted with extreme weatherconditions like storms, floods and snow and need to have emergency plans in place to cope with this.

On the other hand, the discovery of new resources can create new markets to work in.

COMPETITIVE FACTORS

All businesses face competition from otherbusinesses both in the UK and from foreignbusinesses.

For example, when the National Lotterywas launched, Littlewoods Pools had tochange the way they advertised to competewith the Lottery.

IMPACT ON DECISION MAKING

All of these external influences are very important to decision makingand business activity as they can cause unavoidable problems that thebusiness will have to work hard to react to rather than simply prevent inthe first place. This is because they are NOT under the direct control of the business (like internal factors are).

In addition, it is worth noting that although all of the above external factors are important, the one which tends to have the most day-to-dayimpact is the COMPETITIVE factor. This is because competitorschange things more frequently than the other factors tend to and so businesses will find they are dealing directly with these issues more regularly.

TASKS

Now complete Worksheets 18-20 in

your jotters.