External influences
on business
.
17
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
The exchange rate is the cost of foreign currency.
Strong pound
Weak pound


£1 = 2 euros


£1 = 1 euro

Bad for business
(exports expensive)

Good for business
(exports cheaper)

Good for consumers
(foreign goods cheap)

Bad for consumers
(foreign goods dearer)
Good for British
travelling abroad
Good for foreign
tourists
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
1.7 External influences on business