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 вЂ" how

fiercely other businesses compete with the products that another business makes.

The other factors that can affect the business are:

• Social вЂ" 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 вЂ" the way in which legislation in society affects the business. E.g.

changes in employment laws on working hours.

• Economic вЂ" 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 вЂ" 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 вЂ" how the rapid pace of change in production processes and

product innovation affect a business.

• Ethical вЂ" 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 all the time. It does depend on the type of product the business

produces, however a business needs to react or lose customers.

Some of the main reasons why markets change rapidly:

• Customers develop new needs and wants.

• New competitors enter a market.

• New technologies mean that new products can be made.

• A world or countrywide event happens e.g. Gulf War or foot and mouth

disease.

• Government introduces new legislation e.g. increases minimum wage.

Business and Competition

Though a business does not want competition from other businesses, inevitably most

will face a degree of competition.

The amount and type of competition depends on the market the business operates in:

• Many small rival businesses вЂ" e.g. a shopping mall or city centre arcade вЂ" close

rivalry.

• A few large rival firms вЂ" e.g. washing powder вЂ" Omo and Ariel or Coca-Cola and

Pepsi.

• A rapidly changing market вЂ" e.g. where the technology is being developed very

quickly вЂ" the mobile phone market.

A business could react