External environment

• External environments 


  Aspects out of the control of the business

  • Competition
  • Market conditions
  • economic factors (i.e. incomes and interest rates)
  • Social and environmental issues
  • demographic factors
• How does competition affect costs and demand?


  • Discount retailers selling products cheaper
  • Better advances in technology
  • Having more innovative products
• How does market conditions affect costs and demand?


  market conditions- characteristics of a particular market, including its size, growth rate, barriers to entry, seasonal factors and amount and intensity of competition

  For example, a market with high market growth and low intensity of competitiveness is likely to present greater opportunities for higher demand
• How does economic factors affect costs and demand? 


  • Rising interest rates - customers have less disposable income, for businesses - higher costs
  • Recession, falling income decreases demand (more for luxury items instead of necessities)
• How does demographic factors affect costs and demand?


  Demography - study of human populations based on age, gender, income, occupation, as well as birth and death rates, level of public health and immigration

  • Ageing population - Workers now are working longer before they receive the state pension, businesses can recruit older workers
• How does environmental issues and fair trade affect costs and demand?


  • Reputation - social media brings light to businesses who exploit people from less developed countries and those who contribute to a mass scale of pollution
  • Concerns about the environment - global warming has become a huge issue recently, carbon emissions being the main contributing factor
  • Sustainable developments - certain resources are running out and need to be conserved
  • Fair trade - Better working conditions and wages to farmers and workers (higher costs for a business)
• PESTEL analysis 


  Key external factors (use as a guidance to strategic decision making, identifying threats and weaknesses)

  • Political
  • Economic
  • Social
  • Technological
  • Legal
  • Environmental
• Political


  • Government type and policy
  • Fundings, grants and initiatives
• Economic 


  • Inflation and interest rates
  • Labour and energy costs
• Social 


  • Population, education, media
  • Lifestyle, fashion, culture
• Technological 


  • Emerging technologies, web
  • Information and communication
• Legal


  • Regulations and standards
  • Employment law
• Environmental 


  • Weather, green and ethical issues
  • Pollution, waste, recycling