A business does not function in a vacuum. It has to act and react to what happens outside the factory and office walls. These factors that happen outside the business are known as external factors or influences. These will affect the main internal functions of the business and possibly the objectives of the business and its strategies. Main Factors
The main factor that affects most business is the degree of competition how fiercely other businesses compete with the products that another business makes. The other factors that can affect the business are:
Social how consumers, households and communities behave and their beliefs. For instance, changes in attitude towards health, or a greater number of pensioners in a population.
Legal the way in which legislation in society affects the business. E.g. changes in employment laws on working hours.
Economic how the economy affects a business in terms of taxation, government spending, general demand, interest rates, exchange rates and European and global economic factors.
Political how changes in government policy might affect the business e.g. a decision to subsidies building new houses in an area could be good for a local brick works.
Technological how the rapid pace of change in production processes and product innovation affect a business.
Ethical what is regarded as morally right or wrong for a business to do? For instance should it trade with countries which have a poor record on human rights? Changing External Environment
Markets are changing all the time. It does depend on the type of product the business produces, however a business needs to react or lose customers. Some of the main reasons why markets change rapidly:
Customers develop new needs and wants.
New competitors enter a market.
New technologies mean that new products can be made.
A world or countrywide event happens e.g. Gulf War or foot and mouth disease.
Government introduces new...
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