Impact of External Influences (Edexcel A Level Business): Revision Note

The extent to which local and national government is expected to influence the business, including:

• Government stability and relationships with key trading partners

• Tax regulations

• Trade restrictions such as tariffs

• Political ideology and attitudes to business

• Fiscal policy

• National security status

• Investment in public services

The UK’s decision to leave the EU in 2016 has led to the reintroduction of trading restrictions for businesses importing goods from suppliers in Europe

The reduced level of threat from terrorism in the UK has helped to boost tourism

The extent to which economic indicators are expected to directly impact business performance, including:

• Inflation

• Exchange rates

• Cost of living

• The stage of the business cycle and GDP growth

• Unemployment levels

High rates of fuel and food inflation in the UK have reduced the level of disposable income for most households

A historically low unemployment level has made recruitment more challenging for UK businesses

The extent to which personal attitudes and values, culture, and demographic change are expected to affect the business, including:

• Social mobility

• Education

• Ethics and religion

• Migration

• Health profile

• Population growth and demographic structure

Greater numbers of people graduating from university have increased the quality of workers available to UK businesses

A more health-conscious population provides a lucrative market for businesses selling fitness and lifestyle products

The extent to which technological change and innovation are expected to impact the business, including: 

• Research and development

• Production and distribution processes and efficiency

• Quality and new materials

• Intellectual property such as patents, copyrights and trademarks

• Online presence

• The technology used in communication

Developments in communication technology have reduced the need for business travel

Rapid developments in technology have reduced the length of product life cycles and increased the need for businesses to carry out ongoing research, development and innovation

The extent to which changes in law and regulations are expected to impact the business, including: 

• Taxation

• Employment

• Advertising

• Health and safety

• Compliance and "red tape" created by regulatory bodies, such as the Health and Safety Executive

Changes to the level of tax levied on high-sugar products (sodas) in the UK increased selling prices and prompted some businesses to redevelop their products to reduce their sugar content

A rise in the level of the minimum wage increases businesses’ staffing costs

The extent to which changes in attitudes and government policy towards environmental protection, as well as the impact of global warming, are expected to impact the business, including: 

• Changing infrastructure - for example, in favour of green transportation networks

• Energy availability and cost

• Disposal of materials

• Changes in climate and weather patterns

• Air quality

Increased interest in environmentally responsible and ethically produced goods has created new markets for businesses to exploit

Strict rules on the disposal of commercial waste have increased costs for businesses

When there are many competitors selling similar products, the business will have little power

• Many rivals are trying to get a more significant share of the market

• Customers have a lot of choices and can shop around

When a business offers products in an industry with little or no competition, it has more power, can use premium pricing and dominates the market 

The UK energy market has experienced a significant reduction in the number of rival firms in recent years as a result of numerous takeovers

Remaining energy suppliers have been able to charge high prices and make incredible levels of profit

If new competitors can enter an industry quickly and without investing a lot of money, then the barriers to entry are low, and the threat of new entrants is high

• The market is likely to contain a large number of rival businesses

• Individual businesses are likely to have little power

Where the barriers to entry are too high for new businesses to gain a foothold and compete in the market, the threat of new entrants is low 

As a result of deregulation in the 1980s, UK consumers can access an increasingly wide selection of television channels, many of which can operate at very low cost online 

While a small number of powerful firms, such as the BBC, Netflix and Sky, dominate, it is relatively easy for new niche channels to enter the market

When a business sells to a small number of customers, those customers have significant power to negotiate lower prices 

• The business has few options when it comes to customers

• It will have to price and sell products according to customer demands

Where a business has a high number of customers, those customers have less power

• It is likely to be able to charge a high price for a product that is relatively inexpensive to produce

Boeing is an aerospace company that sells aeroplanes to airlines and governments

Airlines that purchase large numbers of planes from Boeing have significant buyer power due to their ability to negotiate lower prices and favourable contract terms

Where a business has a lot of choices over the suppliers from which it buys components:

• It is likely to be able to shop around for lower prices 

Where a supplier has significant power over a business as a result of offering specialised components, or where there is a small number of suppliers in the market:

• The business has little choice over the source of its suppliers

• It is likely to have to pay high prices for its components and accept suppliers’ terms and conditions

Large UK supermarkets wield significant power over small, local suppliers

However, in 2022, the giant food manufacturer Heinz refused to supply Tesco with any product unless it increased its payments by at least 40%, which Tesco was forced to do

Where customers can easily swap a business's products for those of a rival, the business has little power

• The business is likely to have to compete on price or invest heavily in developing a unique selling proposition

Where substitution is unlikely, a business has significant market power:

• It is likely to be able to charge a high price for its products and may be less inclined to innovate

Smartphones have become the substitute for a wide range of stand-alone goods, including calculators, cameras and even portable computers

In the case of cameras, many manufacturers have moved away from selling low-priced devices and now focus on high-end, specialist products for serious photography enthusiasts