External influences
External influences
External influences are factors outside a business's control that affect its activities and success. They can change costs, demand, revenue, profits and the business's chances of success.
External influences can be positive or negative. A change can create an opportunity, such as new customers or lower costs, or a threat, such as higher costs or falling demand. The same change can affect two businesses in different ways, so a business has to judge what it means for its own products and customers.
The main external influences
| Influence | What it includes | Possible effect on a business |
|---|---|---|
| Technology | New equipment, software, systems and ways of working | A bakery's new stock software reduces wasted ingredients and changes how staff order supplies. |
| Legislation | Laws and regulations that businesses must follow | A new safety rule means a skateboard shop must train staff and keep records. |
| Economic climate | Changes in interest rates, exchange rates, inflation, unemployment and economic growth | Higher inflation pushes up a café's ingredient costs while leaving its customers with less spare cash to spend. |
The economic climate means the state of the economy, not the natural environment or the weather. Legislation includes laws and regulations that every business must follow, whatever its size.
Because these influences come from outside, a business cannot stop them happening. It can, however, monitor them: watching news, prices, laws and customer behaviour so it can anticipate change and respond in time. This matters because an external influence can force a business to change its products, processes, prices, staffing or plans. For example, a new allergen labelling law may force a sandwich shop to reprint menus, retrain staff and change suppliers, which costs time and money. The effect is not automatic: it depends on how big the change is, how long the business has to prepare and how much of its trade depends on the affected products.
Practise this
Edexcel GCSE Business · 1.5.5 External influences