External Factors

External Factors:

External factors are usually beyond the control of the business. The best way for a business to deal with these external changes is to be pro-active. A successful business would be ahead of these changes rather than hurriedly making knee-jerk reactions. There are six main external factors which would possibly affect the performance of a small business :Political, Economic, Social, Technological , Legal and Environmental (PESTLE Analysis)

Political

Essentially, political factors include laws and regulations that either force a business to take a certain action or restrict it from taking certain actions. Political changes can have a significant impact on small businesses. UK’s relationships with other countries can either close or open up major markets. (The stability of the government too plays a major role. Internationally, a business can encounter additional political factors such as embargoes, tariffs, un co-operative governments, and even war.

Economic

The economy usually undergoes fluctuations with alternating periods of boom and slumps. Boom times are beneficial for most businesses while slump can make companies fall apart. Rising Demand and low interest rates generally encourage businesses to take more risk and expand. Changes in the interest rate, changes in exchange rates between international currencies, rising inflation can impact the performance of a small business significantly. High interest rate push up currency values, which make imports cheaper and exports dearer, thus lowering profit margins.

Social

These relate to changes in lifestyle, spending patterns, and overall changes in consumer behaviour. The age structure of the population also alters over time.eg. The baby boomer generation in ...

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...blic awareness of environmental issues. Most of it does benefit the environment, but inevitably this has a financial impact on businesses both large and small. One recent example is the regulation requiring that a specific minimum proportion of all packaging should be recycled. A less enthralling example is the current political objective to reduce pollution by imposing high taxes on road fuel; this may seem environmentally friendly but as fuel prices increase motorists naturally look for the lowest prices. These lower prices are typically found in service stations run by the multinational oil companies and the major supermarket chains, against whom small local independent garages cannot compete. Environmental issues and regulations are unlikely to go away, so only those businesses which take a proactive stance and prepare to work with them will eventually survive.