External Environments

Question 1

External Environment:

Answer 1

Consists of a number of factors that are beyond the business’ control e.g. competition, market conditions, demographic factors , incomes, interest rates, environmental issues and fair trade.

Question 2

Competition:

Answer 2

The number and strength of competing firms in an industry and the ease of entry for new competitors.

Competition with significant market share or faster growth in the market can threaten businesses.

The influence of new technologies increase the risk of new competitors.

Competitors joining forces increases their power and market share.

Question 3

Gross Domestic Product (GDP):

Answer 3

Measure of value of output (activity) in the economy, value used to assess changes in economic growth.

Question 4

Market Conditions:

Answer 4

Market conditions- factors outside the businesses control.

Market trends- is the market growing or falling?

Market structure- monopoly, oligopoly, monopolistic.

Question 5

Incomes:

Answer 5

Incomes- amount of spending power customers have.

Real Incomes- measure the amount of disposable income available to consumers e.g. households and individuals.

Question 6

Interest Rates:

Answer 6

Interest Rates- the cost of borrowing money or the return earned from saving. Whenever a business/ individual borrows money they have to repay it plus extra (interest), which can vary.

Low Interest Rates:
Businesses more likely to borrow money

High Interest Rates:
Businesses that are in debt will have to pay back more
Customers who are in debt will have less disposable income
Customers who are not in debt may want to save their money as they get a higher return

Question 7

Demographic Factors:

Answer 7

Age

Gender

Social Class

Income Level

Geographic location of customers