External environment

• PESTLE analysis


  P - political e.g policies and regulation

  E - economic e.g interest and exchange rates, and consumer spending

  S - social e.g changing lifestyles and consumer tastes

  T - technological e.g adoption of mobile tech and production processes

  L - legal e.g heal/employment laws and minimum wage

  E - ethical/environmental e.g sustainability and ethical sourcing
• Market conditions


  the attractiveness of the overall market in which a business operates

  • tends to affect all businesses
• indicators of market conditions


  • economic growth
  • market demand
• Market demand


  how much of a good/service a consumer wants and is able to pay for

  • for a business, demand turns into revenue
  • the size and growth rate of a market is an indicator of market conditions
  • a fast growing market will encourage new entrants
  • a slow growing/declining markets makes market conditions tougher where competitors fight for their share of weak demand
• Economic growth


  measure of the value of activity in the economy

  • value is used to assess changes in economic growth
  • level of demand in influenced by rate of economic growth
  • economies vary in terms of their 'normal' long-term growth rate
  • GDP growth varies depending on the state of the economic cycle
• Real Incomes


  measures the amount of disposable income available to consumers which are impacted by

  • inflation
  • wage growth
  • employment levels
  • interest rates
  • govt tax policy
• factors that affect demand


  • real disposable income
  • employment and job security
  • house prices
  • interest rates
• interest rates


  rewards for saving and cost of borrowing expressed as a percentage of the money saved or borrowed
• different interest rates


  • interest rates on saving in bank and other accounts
  • borrowing interest rates
  • mortgage interest rates
  • credit card interest rates
• policy interest rates help regulate the economy and meet economic policy objectives
• what happens if policy interest rates increase?


  • housing market has more demand and property prices increase
  • exchange rate - cheaper currency will increase exports
  • consumer confidence should increase, leading to more spending
• Demographic factors


  demography is concerned with the size and composition of a population e.g

  • ageing population
  • immigration
• ageing population


  • greater demand for services for old people e.g healthcare
  • increasing disposable incomes of older people reflected in higher demand for goods and services
• immigration


  • higher costs and higher demand for public services
  • increase in size of labour force
• environmental issues


  • use of raw materials and water
  • energy use
  • waste and pollution
• addressing environmental issues 


  may result in

  • lower raw material costs and waste disposal charges
  • improved customer goodwill
  • trading opportunities with organisations that only use environmentally-friendly suppliers
• external environment


  features of the business environment that are out of a business' control