External factors

• Political factors

  • Legislation and regulations will ensure that a business needs to comply with the laws.
  • The political decision to leave the European Union will impact many UK businesses.
  • Governments can raise or lower corporation tax, which will affect profits.
  • Governments can affect businesses by increasing value-added tax on products or business rates. Government can introduce new laws like the National Minimum Wage, which impacts on profits and employment rights.
• Economic factors

  Factors such as inflation, recession/boom periods, along with changes to interest rates can affect organisations in a number of ways, for example:

  • In a recession consumers will not be spending as much on goods and services.
  • Interest rate increases make it more expensive to borrow money.
  • Interest rate falls make it more attractive to borrow to invest.
  • A weak pound makes raw material imports from suppliers overseas more costly.
  • During a period of inflation increased costs may be passed on to the customers, resulting in higher prices.
• Social factor and services that are ethically produced and marketed.
• Social factors


  Things that influence the habits and spending of customers
• Examples of social factors


  • Demographics
  • Lifestyles
  • Changes in fashion
  • Trends
• Demographic change


  Changes in population such as birth rate, life expectancy and levels of immigration
• Ageing population


  Greater demand for goods and services in health care
• Lifestyle changes


  Consumers becoming more health-conscious
• Lifestyle changes


  • Healthy foods
  • Health/sports apps
• Ethical considerations


  Increased social pressure on businesses to reduce waste, ensure they are eco-friendly, pay fair wages and provide goods and services that are ethically produced and marketed
• Technological factors


  • Changing nature of technology
  • Research and development
  • Automation
  • E-commerce
• Research and development


  The steps businesses take in the innovation of new products, systems and services
• New technologies used by businesses


  • 3D printers
  • Smart phones
  • Apps
• 1. commerce


  • Widens the number of customers
  • Lowers the costs of production
  • Enables customers to buy online
• Automation


  • Enables machines to do work that was previously done by people
  • Reducing unit costs of production
  • Making the business more profitable
• Environmental factors


  • Climate change
  • Weather
  • Eco-friendly objectives
  • Recycling
  • Pollution
• Ethical considerations


  Increased social pressure on businesses to reduce waste; ensure they are eco-friendly; reduce their carbon footprint; pay fair wages and provide goods and services that are ethically produced and marketed
• Bad weather


  Loss in sales if organisation is affected by flooding
• Poor weather in spring and summer


  Agricultural produce can be affected
• Bad weather such as snow


  Deliveries can be disrupted
• Hot summer


  Rise in sales of soft drinks and sun tan lotion
• Imitators


  Rival organisations that try to undercut a successful product by quickly producing cheaper alternative versions, which will affect the sales of the existing company
• Price wars


  When companies compete for customers by dropping their prices below the rate of their competitors, meaning customers get the goods and services at lower prices
• Loss leaders


  Goods or services advertised and sold at below cost price, used by large supermarkets to attract customers on the assumption that they will go on to buy other products at full price
• Product differentiation


  Businesses making products that stand out from the competition in terms of price, quality or service
• Methods of creating product differentiation

  • (not provided)
• Competitive factors include imitators, price wars, loss leaders, and product differentiation
• Legislation and regulations


  Laws and rules that businesses must follow to comply and avoid legal penalties and maintain a positive reputation.
• Leaving the European Union (EU)


  Can have significant impacts on UK businesses due to new barriers to trade and investment with EU countries.
• Corporation tax


  A tax on the profits of businesses. Governments can choose to raise or lower this tax, which can have a direct impact on a business's profits.
• Value-added tax (VAT)


  A tax on the sale of goods and services. Governments can increase or decrease this tax, which can affect the prices of products and services for consumers.
• Business rates


  Taxes on non-residential properties, such as offices and shops. Governments can increase or decrease these rates, which can affect the costs of doing business for businesses that own or rent these properties.
• New laws


  Can impact businesses by affecting employment costs and potentially profits, as well as employment rights such as those related to working hours, leave, and benefits.