Impact Of External Influences Flashcards
Political factors effecting businesses
- Members joining or leaving the EU. Could disrupt financial markets
- Measures to increase national security has become priority for many governments. This could restrict movement of goods, people and capital, therefore negative affect on businesses
- Pressure groups, like ASH aiming to reduce harm of smoking, persuade government to increase tax on them
- Changes in government may be good
Economic factors effecting businesses
- Increase employment, increases demand for businesses
- Stable prices will create more certainty, encouraging businesses to invest for future
- Strengthening exchange rate making exports dearer imports cheaper
- Businesses May suffer during a recession especially ones selling income elastic products
Social factors effecting businesses
- In UK, more people going university, increasing quality of Human Resources, benefiting businesses
- Increasing migration, increasing workforce making recruitment easier. May also boost demand
- People appear to be becoming more Health conscious, creating opportunities for certain businesses
Technological factors effecting businesses
- Developments in technology mean businesses can replace labour with capital. Lowering unit costs as it’s more efficient
- Development of social media improved communications between businesses and customers
Legal factors effecting businesses
- Calls to ban advertising of alcohol on TV. Would effect the alcohol industries sales
- Businesses under pressure to reduce amount of sugar and salt they add to products
Environmental factors effecting businesses
- People more inclined to buy ‘green’ goods. Provides opportunities for businesses that specialise in such products
- Trend In recycling is increasing in UK. By using recycled resources, businesses can cut their costs
What are the factors of a changing competitive environment
- New entrants (more competitors in the market)
- New Products
- Consolidation (fewer businesses in the market, could be due to takeover or merger activity for example)
Impact on businesses of a changing competitive environment
Impact on a business due to new entrants
- Competition gets stronger, existing businesses have to consider their position
- E.g. growth in online shopping has forced many retailers to offer their own online shopping services
Impact on a business due to new products
- When a new product appears on the market, businesses may be forced to make changes of their own
- May adapt their products
- Lower the price of existing products
- Invest in a marketing campaign
Impact on a business due to consolidation
When consolidation occurs, number of businesses in a market falls but some existing businesses get bigger
- These bigger businesses are more likely to pose a threat to others
- They May be able to lower their costs and will have a larger market share
- May look to develop their products, diversify or cut their costs in some way
What are porters five forces about
The outline of 5 forces or factors which determine profitability of an industry
When the 5 forces are favourable, a business will be able to earn above average rates of return on capital
What are the 5 forces
1) Bargaining power of suppliers
2) Bargaining power of buyers
3) Threat of new entrants
4) Substitutes
5) Rivalry among existing firms
Describe bargaining power of suppliers
- Suppliers want to maximise profit
- More power a supplier has over its customers, higher the prices it can charge, meaning more profit
- Limiting power of supplier, will improve competitive position of a business as supplier wont charge as high prices
- Can do this by, Backward vertical integration either acquiring a supplier or setting up own business by growing organically upwards
Describe bargaining power of buyers
- Just as suppliers want to charge maximum prices to customers, so Buyers want to obtain supplies for the lowest price
- If buyers or customers have high market power, they’ll be able to beat down prices offered by suppliers
- A business can Improve it’s competitive position through extending into the customers’ market through forward vertical integration (car manufacturer setting up Their own car dealership for example) This could encourage other businesses to set up in its customers’ market to reduce power of existing customers
- Can also achieve this by making it expensive for customers to switch to another supplier (E.g. console manufacturers keep up the price of computer games by making them technically incompatible with other machines)
Describe threat of new entrants
- Existing businesses constantly under threat if their profits rise too much, this will attract new suppliers into the market who will undercut their prices.
- Businesses can counter this by erecting barriers to entry to the industry
- Can do this by, creating strong brands which will attract customer loyalty and make customers less price sensitive
- Large amounts of advertising as this is costly which the entrant may have to match to gain market share
