1. 1.3 Understanding that businesses operate within an external environment
PESTLE Analysis

2. Learning outcomes Understanding the nature and purpose of business
What you need to know:
How the external environment can affect costs and demand.

3. The external environment: Starter
The external environment is the factors that can influence a business's activities and can determine its success or failure. Task: With a partner, try to list as many factors outside of the business’s control that may influence its activities and performance.
External factors ?

4. How the external environment can affect cost and demand
The external environment comprises those external forces that can influence a business's activities.
Factors influencing costs and demand include the effect of:
Market conditions and competition
Incomes
Interest rates
Demographic factors
Environmental issues and fair trade.

5. Market conditions and competition
Market conditions are the features of a market, such as the level of sales, sales growth, price levels, the number and strength of rivals, their market position and market share, etc.
Demand is the amount of a particular good or service that consumers or organisations want and are able to afford to purchase. It is a good determinant of how desirable a market is for firms.
Task: What are the ideal market conditions for success? Consider the following features and describe the best situation for a firm to grow and make high profits.
Sales figures and level of demand
Price levels
Level of competition including the number of competitors, size and market share
Barriers to entry – How difficult is it for new entrants to the market?
Consumer incomes
GDP and economic growth - Gross domestic product (GDP) is the total value of a country's total output of all goods and services over time.