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3.1.4 Impact of external influences

A) PESTLE:

PESTLE analysis – Looks at external factors and how they might impact on a business.

Political:

  • Competition policy
  • Industry regulation
  • Government spending
  • Tax policies
  • Business policies
  • Incentives

Economic:

  • Interest rates
  • Consumer spending
  • Income
  • Exchange rates
  • Economic growth

Social:

  • Demographic change
  • Pressure groups
  • Consumer tastes and fashions
  • Changing lifestyle

Technological:

  • Disruptive technologies
  • New production processes
  • Automation
  • Research and development activity

Legal:

  • Environmental laws
  • Minimum/living wage
  • Health and safety laws
  • Marketing restrictions
  • Upcoming changes to laws

 

Employment laws:

  • Environmental regulation
  • Eco wise customer
  • Wastage
  • Recycling
  • Sustainability
  • Ethical sourcing
  • Pollution and carbon emissions

 

B) The changing competitive environment

The external factors of PESTLE can change rapidly due to the dynamic nature of external factors. For example, the business cycle can go from a boom all the way down to a recession in less than a year. This will have a massive impact on businesses and by doing a PESTLE analysis it helps them to be aware of this and is a good starting point to making contingency plans.

 

C) Porter’s Five Forces

Porters five forces – This is a tool used by businesses in order to access the nature of the competition in the current market.

porters 5 forces

Five forces:

  • Existing competition – If there are intense amounts of competition in the current market then it is likely to result in price was, investment in innovation and new products and intensive promotion. This is likely to reduce the amount of profit that there is to be made in the market.
  • Bargaining power of suppliers – If there are few suppliers in a market or a monopsony then suppliers will have large amounts of bargaining power. As a result of this, they’re likely to sell to businesses at a higher price in order to increase the profits that they make. This is likely to result in an increase in businesses supply costs and therefore a reduction in the overall profit that they make.
  • Bargaining power of customers – Powerful customers are able to drive prices down or increase quality whilst the price stays the same. This can be shown by the supermarket industry where pressure is exerted on suppliers. The smaller the number of customers, the greater their power over businesses. Furthermore, if there are a number of firms supplying the product then customers are likely to have greater bargaining power as they have the choice of businesses which they want to shop from.
  • Threat of new entrants – If there is a big threat of new entrants into the market then businesses market share are likely to reduce and competition will increase. If barriers to entry of a market are high then the threat of new entrants will be low.
  • Threat from substitutes – This is something that addresses the same need as the business’s product. If there is a threat of substitutes then it will limit the price that the business can charge for the product. However, this is dependent on customer loyalty.
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