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3.1.4 Impact of External Influences - Coggle Diagram
3.1.4 Impact of External Influences
Key Terms
Monopoly - A market dominated by a single business
Oligopoly - A market dominated b a few large businesses
PESTLE Analysis - Analysis of the external political, economic, social, technological, legal and environmental factors affecting a business
PESTLE Analysis
Political
Some parts of the world are politically volatile and special attention is to be paid if businesses venture into politically unstable countries
The issue of national security has become a priority for many governments
If measures designed to improve national security restrict the movement of goods, people and capital, this could have a negative impact on businesses
Pressure groups which aim to eliminate the harms done by businesses
Changes in the government
Economic
The general state of the economy can have a huge impact on business activity
Falling unemployment might help increase demand for businesses
Stable prices would create more certainty, which should encourage businesses to invest in the future
A strengthening exchange rate could make exporting more difficult, but imports could become cheaper
Lower interest rates would make borrowing cheaper and encourage more investment
Some businesses suffer badly during a recession
Businesses which produce goods and services that are income elastic will have the most problems
Social
Over time there are likely to be changes in the way society operates
In the UK, more people are going to university
This could increase the quality of human resources, which benefits businesses
The population in many countries is ageing
This could affect demand patterns and create new opportunities for some businesses
Increasing migration might increase the size of the potential workforce, making recruitment easier
It may also boost demand
People may appear to be becoming more health conscious
This may create opportunities for certain businesses
Technological
The rate of technological change seems to gather pace all the time
Businesses usually welcome technological developments because they often provide new product opportunities or help to improve efficiency
Changes in technology can shorten product life cycles
This is because new products are quickly develped to replace ones that use older technology
Developments in technology often mean that businesses can replace labour with capital
This is welcomed because human resources are often said to be the most expensive and difficult to manage
New technology also lowers unit costs
The development of social social media has helped to improve communications between businesses and customers
This allows businesses to keep abreast of chaging consumer needs
Legislation
The government provides the legal framework in which businesses operate
It also directs legislation at businesses to protect vulnerable groups that might get exploited
There have been calls to ban the advertising of alcohol on television
This may have a negative impact on the beverages industry
Businesses in the food industry are currently under pressure to reduce the amount of sugar and salt they add to products
The government in the UK states that it wants to reduce the amount of 'red tape' in business
This may benefit a wide range of businesses
Environmental
People are increasingly protected of the environment because of threats posed by businesses
People are also concerned about the threats to wildlife and natural habiatats that businesses may pose
People are inclined to buy 'green' goods
This provides opportunities for businesses that specialise in such products
New ways of generating power using renewable sources
The trend towards recyclying is gathering pace in the UK
By using recycled resources, businesses can cut their costs
The Structure of Markets
Competitive Markets
In a competitive market there is likely to be a large number of buyers and sellers, and the products sold by each business are close substitutes for each other
Barriers to entry in competitive markets will be low and businesses have very little control over the price charged
There will be a free flow of information about the nature of the products, availability at different outlets, prices, methods of production and the cost and availibility of production factors
Competition is the rivalry that exists between firms when trying to sell goods in a particular market
Uncompetitive Markets
Some markets are dominated by a single producer or just a few large businesses
In a small number of markets such as rail travel and water supply, a monopoly exists
A monopoly may also exist in a market where a small shop serves the whole community without competition
Monopolies may attempt to explit consumers by charging higher prices and preventing competition
As a result, the government is obliged to monitor the activities of monopolies closely
A market that is dominated by a few very large producers is called an oligopoly
One of the key features of an oligopolistic market is interdependence
This means the actions of one business will affect another
There are usually high barriers to entry in oligopolistic markets and the larger firms can exploit economies of scale
Interdependence causes prices to remain stable for long periods of time
This is because all firm in the market are afraid of a price war
In an oligopoly, businesses are are more likely to engage in non-price competition, such as advertising and promotion