3.1.4 Impact of external influences

• What does PESTLE look at?

  • PESTLE analysis examines the external factors that are likely to impact the activities and outcomes of a business
• What does Pestle stand for?

  • Political
  • Economical
  • Social
  • Technological
  • Legalistic
  • Ethical/environmental
• How can managers use PESTLE?

  • To understand potential threats to businesses performance & identify future difficulties so action can be taken to help avoid and eliminate their effects.
• • PESTLE analysis support effective decision-making by senior managers - better understand the complex context  which the business operates IN.
• What are Political Factors?

  • The extent to which local and national government is expected to influence the business including
  • Government stability and relationships with key trading partners
  • Tax regulations
  • Trade restrictions
  • Political Ideology and attitude to Business
  • Fiscal policy
  • National security status
  • Investment in public services
• What are Economic factors?

  • The extent to which economic indicators are expected to directly impact business performance including
  • Inflation
  • Exchange rates
  • Cost of living
  • The stage of the Business Cycle and GDP growth
  • Unemployment levels
• What are social factors?

  • The extent to which personal attitudes and values, culture and demographic change are expected to affect the business including
  • Social mobility
  • Education
  • Ethics & Religion
  • Migration
  • Health profile
  • Population growth and demographic structure
• What are technology factors?

  • The extent to which technological change and innovation are expected to impact the business including 
  • Research & development
  • Production and distribution processes and efficiency
  • Quality and new materials
  • Intellectual property
  • Online presence
  • The technology used in communication
• What are legalistic characters?

  • The extent to which changes in law and regulations are expected to impact the business including 
  • Taxation
  • Employment
  • Advertising
  • Health & Safety
  • Compliance and ‘red tape’ created by regulatory bodies such as the Health and Safety Executive
• What are Environmental factors?

  • The extent to which changes in attitudes and government policy towards environmental protection as well as the impact of global warming expected to impact the business including 
  • Changing infrastructure - for example in favour of green transportation networks
  • Energy availability & cost
  • Disposal of materials
  • Changes in climate and weather patterns
  • Air quality
• Changes in environment

  
• New businesses may enter the market and existing businesses may leave or integrate with others
• The legislation (laws) may change likely leading to fewer barriers to entry for new businesses
• The growth of the Internet has increased the number of competitors businesses face in the majority of markets
• Consumer tastes and preferences change rapidly = short product life cycles & requirement for businesses to innovate to compete.
• Globalisation has increased competition with rivals from around the world
• • Porter’s Five Forces identify the key pressures on an industry that impact the ability of a business to compete with rivals
• • Porter argued that once business fully understands pressures in their context, they can take strategic decisions to achieve and sustain a  competitive advantage
  • This will then increase their chances of success
• 5 Forces

  A) new

  B) entry

  C) buyer

  D) supplier

  E) substitution

  
• Industry Rivalry

  • many competitors selling similar products = business will have little power.
  • Many rivals are trying to get a more significant share of the market
  • Customers have a lot of choices and can shop around
  • When a business offers products in an industry with little or no competition, it has more power, can use premium pricing and dominates the market 
• Threat of new entrants

  • New competitors can enter an industry quickly, without investing a lot of money =  barriers to entry is low & threat of new entrants is high.
  • Market is likely to contain large number of rival businesses
  • Individual businesses, likely to have little power
  • Where barriers to entry are too high for new businesses to gain a foothold and compete in the market the threat of new entrants is low 
• Buyer Power

  • When business sells to small number of customers, those customers have significant power to negotiate lower prices 
  • Business has few options when it comes to customers
  • It will have to price and sell products according to customer demands
  • Where a business has a high number of customers, those customers have less power
  • It is likely to be able to charge a high price for a product that is relatively inexpensive to produce
• Supplier Power

  • Where business has lot of choices over suppliers from which it buys components.
  • Likely to be able to shop around for lower price 
  • Where supplier has significant power over business as result of offering a specialised component or where there is a small number of suppliers in the market
  • Business has little choice over source of its suppliers.
  • It is likely to have to pay high prices for its components and accept suppliers’ terms and conditions
• Threat of substitution

  • Where customers can easily swap businesses products for those of a rival, the business has little power
  • The business is likely to have to compete on price or invest heavily in developing USP
  • Where substitution is unlikely a business has significant market power
  • It is likely to be able to charge a high price for its products and may be less inclined to innovate