External influences on business

1.7 External influences on business Types of external influences  Business competitors  Economic conditions  Environmental constraints All these influences can affect the way a business operates.

1.7 External influences on business Business competitors Competitors may:  Raise/lower their prices  Introduce more advanced goods/better service  Move into the area  Offer additional facilities, eg open later. If they gain customers, this increases their market share.

1.7 External influences on business Competitive features  The price of the product/service  The quality of the goods/service or the reputation of the business  The availability of the goods/service  Technological developments  Additional benefits/services Those chosen depend upon the product and the target customer market.

1.7 External influences on business Customer profiles Identify the key customer by:  Age  Gender  Income  Lifestyle  Place where they live

1.7 External influences on business Location of competitors May be:  Local  National  International Depends upon product/service and market eg Microsoft/Dixons/local taxi firm.

1.7 External influences on business Economic conditions  Interest rates  Price changes  Exchange rates The Government aims to keep these stable to help business planning.

1.7 External influences on business Interest rates The interest rate is the cost of borrowing money. Low interest rates:  Encourage customers to buy expensive goods  Mean lower repayments (for businesses and individuals)

1.7 External influences on business Price changes Price rises = inflation (measured by RPI)  Raw materials more expensive  So selling price increases (sales may fall)  People can’t afford goods so want wage rise  Business costs increase again  Selling price increases again...

1.7 External influences on business Exchange rates Strong pound  £1 = 2 euros  Good for British travelling abroad  Bad for business (exports expensive)  Good for consumers (foreign goods cheap) Weak pound  £1 = 1 euro  Good for foreign tourists  Good for business (exports cheaper)  Bad for consumers (foreign goods dearer) The exchange rate is the cost of foreign currency.

1.7 External influences on business The role of the Government  Sets economic targets which are good for Britain  Raises taxes to slow down spending  Lowers taxes to encourage spending The Bank of England’s monetary team:  Raises interest rates to slow down spending  Lowers interest rates to encourage spending

1.7 External influences on business Environmental constraints  Laws and regulations on the environment affect business activities  Many organisations have environmental policies  Key areas are reducing pollution and wastage

1.7 External influences on business Types of pollution  Air pollution – affects air quality  Noise pollution – unwanted noise which harms or irritates  Water pollution – through hazardous substances or pollutants

1.7 External influences on business Waste Reducing waste by:  Recycling and composting  Using less energy  Minimising wastage and deterioration Plus:  Disposing of waste and dealing with special/hazardous waste according to the law.

1.7 External influences on business Summary  External influences affect business activities  Some are unpredictable  External influences change regularly  Businesses must take action to cope  Best action will vary, depending upon the business