External Business Enviroment
Introduction
A business does not function in a vacuum. It has to act and react to what happens
outside the factory and office walls. These factors that happen outside the business
are known as external factors or influences. These will affect the main internal
functions of the business and possibly the objectives of the business and its strategies.
Main Factors
The main factor that affects most business is the degree of competition – how
fiercely other businesses compete with the products that another business makes.
The other factors that can affect the business are:
• Social – how consumers, households and communities behave and their beliefs.
For instance, changes in attitude towards health, or a greater number of
pensioners in a population.
• Legal – the way in which legislation in society affects the business. E.g.
changes in employment laws on working hours.
• Economic – how the economy affects a business in terms of taxation,
government spending, general demand, interest rates, exchange rates and
European and global economic factors.
• Political – how changes in government policy might affect the business e.g. a
decision to subsidise building new houses in an area could be good for a local
brick works.
• Technological – how the rapid pace of change in production processes and
product innovation affect a business.
• Ethical – what is regarded as morally right or wrong for a business to do. For
instance should it trade with countries which have a poor record on human
rights.
Changing External Environment
Markets are changing...
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