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LO6 external influences and constrains on businesses and how they respond …
LO6 external influences and constrains on businesses and how they respond
6.1 Factors compromising external business environment
Ethical factors
moral issues which can be addressed to build up reputation and meet stakeholder expectations
ethical employers: don't exploit workforce, don't use child labor, pay above minimum wage and have fair working practices.
They are environmentally friendly, and organize CSR corporate social responsibility which invest in schemes and support activities which aid public.
consequences of not acting ethically
Loss of customers and sales. they decrease in sales revenue and market share
Damage reputation. difficult and costly to get and maintain customers
Damage employee motivation and productivity. pushes up costs and decreases profits.
Social factors
Factors that affect our lifestyle including demographical issues, attitude to work, cultural beliefs and social trends.
Demographic: businesses cooperating with the population based on age, race, gender, economic status, education, income level and employment. helps target their market.
Attitudes to work: how well an employee works and how often they come into work, there is generally a positive attitude as people believe its good for their physical and mental health.
disposable income: amount of money people have after taxes are payed, helps businesses know what types of products to stock, how to price and where to locate their shop.
Social trends: relate to values, beliefs and practices of the population. Society is always changing so business have to also change to meet new needs (vegan, technology, carbon footprint)
Cultural beliefs: businesses have to research into languages, values, cultural practices and competitors, especially when opening overseas.
Technological factors
Factors including the automation of daily used objects, due to advances in technology we now learn, play, shop, work together and communicate differently
Automation: in factories where machines are used, they're more accurate, reduce waste and minimize costs and are quicker. Caused unemployment.
Communication: important for businesses, especially multinational with many departments and headquarters.
Purchasing/ sales: more automated stock control systems and order packing making businesses run a lot smoother and faster.
Mobile: many more services available, businesses have to adapt for these: google pay and online shopping.
Economic Factors
Changes in the economy that affect price and costs of goods and services, interest rates, exchange rates, unemployment and taxation.
Interest rate: cost of burrowing money from financial institutions, businesses want low interest rates to repay loans, businesses that have made investments however want high interest rates.
Exchange rate: value of one currency against another, can help multinational businesses if there is a weak pound to have low prices, or a strong pound to buy more goods for little amount of money
Inflation: rate of increase in prices of goods, high inflation is unfavorable as there is less disposable income.
Unemployment: people have less disposable income, sales decrease, however businesses have more people to choose from and wages are low. long-term unemployment can make businesses suffer though and make workers redundant.
Taxation: increase in tax for government reduces disposable income, sales fall. increased cooperation tax mean businesses have less profit.
Environmental factors
Green or sustainability issues that exist in a business surrounding area.
6.2 External environments impact on business and stakeholders
changes in the external environment can have both positive and negative impacts, a business can plan for these impacts by carrying out SWOT analyses which can help them in their positive growth