Foundation Apprenticeship in Business Skills Understanding Business External

Foundation Apprenticeship in Business Skills Understanding Business – External Factors

Today we will… • Explain how EXTERNAL FACTORS can impact on an organisation

Business Environment The Internal Environment is within the business, whereas the External Environment is outside the business

PESTLE Analyis https: //www. youtube. com/watch? v=b. Yn 4 Cy L 3 r 5 w

External Environmental Analysis • Important for a business to recognise the impact of external factors on their own organisation and be proactive rather than reactive. • Organisations must continuously scan the external environment to ensure that they keep up to date with any changes which could impact on the organisation.

Business Environment Factors of the External Environment P E Political Factors S T E C Social Factors Economic Factors Technology Factors Environmental Factors Competitive Factors

Political factors arise from decisions and actions made by the government, either at a local or national level. This can be simply through changing laws and legislation. There can also be alterations to a government’s fiscal policy which impacts upon spending in an economy through changing tax rates and levels of public spending. Health and Safety § § Employment Government legislation Taxation Government Decision Making European Union Decision Making Smoking and Drinking Minimum Wage

Political According to the British Beer & Pub Association, 39 pubs a week are now closing (2018), which is down from the rate of 52 a week in the first six months of last year. Why? Recession, smoking ban and now the impact of COVID 19 Source: The Independent 2010

Political Microsoft was found guilty by the European Competition Commission in 2004, which resulted in a € 497 million euro fine. Microsoft were forced to unbundle it’s Media Player software from Windows to allow other software makers to produce rival products. Microsoft dragged its feet and the Commission later imposed a daily € 1. 5 million fine on the company, adding up to € 280. 5 million. Source: www. forbes. com

External Business Environment E Economic factors arise from the state of the economy. An economy is the state of a country or region in terms of the production and consumption of products and the supply of money. • Inflation rates • Exchange rates • Interest rates (on bank loans, credit, etc) • Recession impact (loss of businesses)

Economic When the UK economy is doing well businesses produce more products which creates more jobs and leads to more people having money to spend! However, the economy s cycles between good and bad times. The global recession that hit in 2008 when unemployment was high and businesses were going bust had a significant impact on the economy This cycle of economic activity is known as the economic cycle and is illustrated below.

Exchange Rates • An exchange rate determines the amount of one currency that can be bought using another currency. • For example if the exchange rate of £ Sterling to the € Euro is 1. 18 it means for every £ 1 exchanged € 1. 18 is given. • The exchange rate of the £ against foreign currencies changes on a daily basis. • A high value or ‘strong’ pound is caused by a high demand for the currency. • If UK products are selling well abroad (known as exports) the pound will be in demand the price will rise. • The Bank of England can affect this too through interest rates, as high interest rates will attract savings from abroad and the price of the £ will rise. • Of course the opposite is also true, a high demand for imports (goods purchased from abroad), low demand of exports and low interest rates will cause the demand for the £ to fall and therefore the price of the £ to fall.

Economic - Interest Rates • Interest rate is the amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest rates are typically noted on an annual basis, known as the annual percentage rate (APR).

Economic – Interest Rates • Interest rates determine the percentage that is added to borrowings or savings. • All financial institutions such as banks and building societies set their own interest rates; • however the government bank, the Bank of England, sets the base rate of interest. This is the minimum rate of interest that banks and building societies must apply to loans and savings. • The government (through the BOE) can either increase interest rates to curb spending to reduce inflation or decrease rates to encourage spending and avoid a recession.

Social Factors Social factors concern the ways in which society adapts and changes and the need for businesses to adapt in the same way. More women in work. Therefore supermarkets sell more ready meals, stay open longer and there is an increase in online shopping.

Social Factors More environmental awareness. Increased emphasis on green and ethical business. Businesses are using more recyclable materials and bio-fuels.

Social Factors Increased car ownership has resulted in more out of town shopping centres

Social Factors By 2028 the retirement age for both men and women will be 67 years of age

Technology Technological factors concern the quickly evolving technological advancements that can impact on organisations eg faster broadband connections, cloud computing and social media. Remember – technology can be an INTERNAL or an EXTERNAL factor. The main difference is that as an internal factor the concern is existing technology already in the business whereas as an external factor the concern is keeping up with technological developments that the business needs to invest in to remain competitive.

Technology There has been an increase of new technology. Businesses must keep up-to-date with this change in order to remain competitive. For example, automation has grown in the Secondary Sector of Industry.

Environmental factors can either arise from the way in which the natural environment impacts on an organisation or the ways that organisations act in an ethical and environmentally friendly manner. These could include storm, flood, pollution, etc.

Environmental E Environmental Factors The Iceland volcanic ash not only cost Airlines millions (£ 130 m a day according to the BBC), but effected the distribution and supply to businesses within and around Europe. This especially impacted businesses using a Just In Time (JIT) stock model.

Competitive C Competitive Factors An organisation’s competition refers to rival organisations that provide the same or a similar product and attempt to take their customers, attract new customers or keep their own customers.

Competitive C Competitive Factors Customers are more savvy than ever and will look at difference deals and prices before choosing their purchase.

Competitive Factors C With the increase of e-commerce, businesses are under increasing threat from not only local competitors, but also regional and even global organisations.

Competitive Factors Competition Policy C In 2014 the Competition and Markets Authority (CMA) was launched by the UK government. Its aim is to investigate markets and enforce competition policy to promote competition for the benefit of consumers. Reasons for promoting competition It is in the government’s interest to promote competition for the following reasons: • Prices are kept low for consumers, • Products and services are high quality, • Customer service is good, • Entire markets improve and grow, creating jobs and raising GDP, • Healthy markets can attract foreign investment.