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External influences

Factors stemming from outside the business that can affect decisions over, or success in achieving the business’s objectives – for example – consumer needs and expectations; the state of the market; level and nature of demand; competitor activities; the quality, reliability and flexibility of suppliers; as well as political, legal, social, economic and technological factors. All businesses are affected by external influences. These external influences may provide new opportunities, or may threaten its ability to achieve its objectives in the short, medium, or long term. Political and legal factors concern the government and the extent to which it intervenes in markets, regulating business activity. Different political parties have different viewpoints on what is and is not good for business. Policies on privatisation and the EU have provided numerous opportunities for business but lead to increased competition, making it more difficult for a business to achieve its objectives, eg in terms of sales and market share. The government are also responsible for setting legislation which often acts as a constraint, influencing a business’s decisions relating to marketing and employment, in particular. Being a member state of the European Union has brought increased legislation with certain sectors being particularly affected. The government also influences business activity through its policies on taxation. Economic factors concern the level of interest rates, exchange rates, inflation and employment. Changes in economic factors may affect a business’s cost structure and / or the amount of disposable income a consumer might have to spend on goods and services. In a recession, for example, where unemployment is high, firms providing luxury goods tend to be particularly affected and may be forced to downsize or de-layer, in order to cut costs and avoid closure. Social factors concern changes in demography and changes in the values, attitudes, needs and expectations of customers, employees, and society as a whole. Changes in the size and structure of the population may lead to changes in demand for a business’s good or services. For example, an ageing population is leading to increased demand for certain types of holidays, medicines and household equipment. Consumers are much more educated and experienced, and have higher expectations in terms of standards of service than previous generations, as do employees with regards to working conditions. People are also far more health conscious, leading to new products and markets, and there is also growing concern about the environment. This is putting increasing pressure on firms to be more socially responsible. For example, by minimising and recycling waste. Technological factors concern the methods and machinery used to produce products as well as the actual product themselves. Advances in technology have led to completely new markets eg digital cameras and television, and once popular products becoming obsolete. Also, technological advances enable businesses to invest in new cost saving machinery and equipment which may require changes in working practices and organisational structures. Businesses also exist in an increasingly competitive environment and if they are to keep ahead of the competition, they must continually look for new ways of improving quality, raising service levels and providing value for money.

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