1.5 External Environment This topic assesses the importance of external influences on business performance and decision- making. To survive and prosper businesses must understand and respond to external factors that are beyond their control

PEST Analysis Is often referred to as the shareholder concept. PEST is an acronym standing for Political, Economic, Social and Technological change. analytic framework for examining external environmental factors affecting business objectives and strategies. Is often referred to as the shareholder concept. the firm has a “legally binding duty” to make decisions that will increase shareholder value.

Common Political Factors that affect businesses…. changes in employment and consumer protection laws new environmental regulations, and health and safety requirements Businesses may be able to anticipate such changes or even lobby governments for favorable legislation. EXAMPLE: American’s Health Care System http://www.ibbusinessandmanagement.com/15-external-environment.html

Economic factors that affect businesses…. Economies experience periods of robust economic growth followed by economics downturns, recessions and even full- blown GREAT RECESSIONS. Amongst other things, there will be periods of high unemployment where skilled labour is abundant and inexpensive, but consumer spending is at low levels. WHY?? EXAMPLE: America’s Housing Market http://www.ibbusinessandmanagement.com/15-external- environment.html

Social factors that affect businesses…. Businesses tend to keep a close watch on demographic changes that occur.  An effective business will have targeted different market segments… teenagers, working women, wealthy retired pensioners, etc. …and will closely monitor changes within these demographics and adjusting objectives and strategies to suit to changes. EXAMPLE: Australia’s population growth/demographic changes http://www.ibbusinessandmanagement.com/15-external-environment.html EXAMPLE: Uber Delivery (also fits under Technological factors) http://www.webpronews.com/uber-announces-uberessentials-to-get-you-groceries-in-10- minutes-or-less-2014-12?utm_source=Business_sidebar

Question 1.5.1--Comment on how the demographic changes below may present both opportunities and threats to a business: Growing number of self-employed people. Increasing number of single parent families. Parent choosing to have fewer children and at a later stage in their lives. More people graduating with university degrees.

DO NOW: Please hand in last night’s Homework to Question 1. 5 DO NOW: Please hand in last night’s Homework to Question 1.5.1--Comment on how the demographic changes below may present both opportunities and threats to a business: Growing number of self-employed people. Increasing number of single parent families. Parent choosing to have fewer children and at a later stage in their lives. More people graduating Be ready with your notes—we need to continue/finish this chapter THIS WEEK. (Test on Monday)

Technological factors that affect businesses…. Successfully employing new technology before competitors do may give a firm a competitive advantage. Not managing to keep abreast of technological change has been the downfall of many firms. The phone makers Research in Motion (RIM) and Nokia are classic examples of this, as they were very slow to embrace larger displays and swipe technologies. Their share prices have plummeted while Apple's and Samsung's have sky- rocketed. EXAMPLE: Touch Glass Technology: http://www.ibbusinessandmanagement.com/15-external-environment.html EXAMPLE: Amazon Employs Robots http://www.webpronews.com/amazon-upgrades-fulfillment-centers-with-15000-robots-2014-12

PEST Analysis—Putting it all together: http://youtu.be/mCdcdf-b8AU?list=PLIbYlqm91o- qmpjI4c48SoHuKufS5lnF8

Question 1.5.2-Nintendo’s Wii games console and Apple’s Ipod are huge hits with customers. Nintendo’s games console appeals to new market segments such as women and the elderly. Demand is high in Asia, Europe, and the USA, helping Nintendo to outsell its two nearest rivals, the Xbox 360 and PlayStation 3. In April 2007, Apple announced the sale of its 100 millionth Ipod, making it the most successful music player in history. Some 300 million iPods were bought within the first ten years of its launch. Explain how the technological environment can present opportunities for hi-tech firms such as Nintendo and Apple.

G. D. P. (Gross Domestic Product) http://www. ibbusinessandmanagement Measures the overall market value of the goods and services produced by a country (one of the most common indicators for measuring health of a nation’s economy). C + G + I + NX = GDP C= Consumer Spending G = Government Spending I = Sum of Business’ Capital Spending NX = Nation’s Total Exports

Foreign Exchange Market (FX) There are many factors that contribute to a change in Exchange Rate: Monetary Policy Political Stability Interest Rates Imports and Exports