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National 5 – Business Management

Unit 1 – Understanding Business

Outcome 2

External Factors - Pupil Notes

EXTERNAL FACTORS

1. Political

These factors are happening in the politically in the environment

in which the Business operates. For example, tax policy and

employment laws.

2. Economic

These factors are happening within the economy (financial system) in the

country where the Business operates. For example, economic

growth/decline and interest rates.

3. Social

These factors are happening in the general public in the market in

which the Business operates. For example, population changes

and lifestyle choices.

4. Technological

These factors are happening with IT hardware and software

which can impact on what the Business does. For example,

changes/developments in mobile phones and tablet

computers.

5.

National 5 – Business ManagementUnit 1 – Understanding BusinessOutcome 2 – External Factors

*** Definition ***

External factors are found out with a Business but still have an affect on its

success. These are not under the control of the Business.

Environmental

These factors are happening in the natural environment which will impact on

the Business. For example, global warming and recycling.

6. Competitive

These factors are the activities of any current or potential

competitors. For example, what products they are offering and

what pricing strategies they use.

POSSIBLE IMPACT OF EXTERNAL FACTORS

FACTOR A BUSINESS MAY HAVE TO…

Political Change ingredients of a product Adapt the working environment Change how/where they advertise

Economic Look to increase sales (promotion) Find an alternative source of finance

Social Change their menu to include healthier options Extend opening hours to fit with lifestyle changes

Technological Invest in new IT equipment Train staff in the most up-to-date technology

Environmental Change product labelling to include recycling

information Close during severe weather

Competitive Lower prices Introduce a new promotion Change to selling online (e-commerce)


POLITICAL - REAL WORLD EXAMPLES

• Introduction of The Smoking, Health and Social Care (Scotland) Act 2005• Annual change to The National Minimum Wage Regulations 1999• Changes in the level of Corporation Tax

Case Study - Tobacco display ban (Scotland) to begin ( Dec 2012)

A ban on the display of cigarettes in Scotland's shops will come into force in April 2013 after

a tobacco firm lost its legal fight to stop the move. The ban is supposed to remove the

temptation for young people to take up smoking. “I have always been clear on the need to

allow retailers sufficient time to make the necessary changes and so we have decided that

April 2013 represents a fair timescale for implementing the display ban” said Michael

Matheson, Minister for Public Health. He added "While the decreasing number of Scots

smoking is to be welcomed, removing tobacco from open view is a critical step in helping to

reduce the sense that these products are as acceptable as others." The ban on tobacco

product displays is already in force in England, Wales and Northern Ireland. Scottish Liberal

Democrat leader Willie Rennie said the Supreme Court's "rejection of Imperial Tobacco's

argument is good for health in Scotland".Source: www.bbc.co.uk

ECONOMIC - REAL WORLD EXAMPLES

• Changes in exchange rates (€ v £)• Inflation• The Global Recession

Case Study – Shop closures in Scotland 'average one a day' (Oct 2012)

An average of one shop a day closed during the first eight months of the year (2012), a study

of Scottish towns and cities has found. A total of 188 stores closed in the first six months of

2012, with the situation said to have accelerated in July and August when another 65 closed.

According to figures compiled for financial firm PricewaterhouseCoopers (PwC), 175 stores

opened in eight months. But there was an overall net loss of 78 high street shops. Glasgow

lost the largest amount of outlets, with 105 closing and only 47 opening, giving a total fall of

58.


http://www.bbc.co.uk/

Shops selling computer games, toys, clothes, gifts, jewellery, furniture and cards are said to

have been the hardest hit so far this year. Pawnbrokers, charity shops, bookmakers, coffee

shops, discount and convenience stores and cheque cashing outlets bucked the trend. Bruce

Cartwright, head of business recovery at PwC in Scotland, said “Despite the promise of an

Olympic feel-good boost for retailers, it appears the vagaries of the British climate combined

with rising inflation, a squeeze on consumer spending, and dented consumer confidence

leading more people to look for the best deal online, have not delivered the much hoped for

gold.” He said retailers feared that shoppers would continue to be cautious, as the prospect

of rising food and fuel bills loomed large in their minds. “The insolvencies of Game, Peacocks

and Clintons demonstrated this in spades. Store-dependent high street retailers continue to

experience a drop in sales and reduced footfall.”Source: www.bbc.co.uk

SOCIAL - REAL WORLD EXAMPLES

• Change in number of women working • Change in the number of cars on the roads• Change in attitudes towards healthy living

Case Study – What we learned from the Scottish 2011 census (Dec 2012)

Scotland's population is the highest ever: The population of Scotland on Census Day 2011

was estimated to be 5,295,000. This is a rise of 233,000 on the previous census in 2001.

Scotland's population decline has reversed quickly: The 2011 survey saw it rise rapidly

above the 1971 figure. The drivers for this latest period of population increase are

attributed to natural growth (more births than deaths in the most recent years) and net in-

migration.

There are more over-65s than under 15s for the first time ever: The number of people aged

65 and over increased by 85,000 (11%) since 2001. The 854,000 children aged under 15

accounted for 16% of the population whereas those aged 65 and over (890,000 people)

accounted for 17%.

There are more females than males: The number of males was 2,567,000 (48%) and there

were 2,728,000 (52%) females.



The age group 15 to 39 saw a fall in numbers: The population aged 15 to 64 increased by

200,000 (6%) between 2001 and 2011 but those aged 15 to 39 decreased 2% to 1,702,800.

Those aged 40 to 64 increased by 14%, to 1,849,000.

Scotland is 8.38% of the UK population: The Census Day population in the United Kingdom

was almost 63.2 million. Of this, 83.9% were resident in England, 8.38% in Scotland, 4.84%

in Wales and 2.86% in Northern Ireland.

The number of children has halved in 100 years: In 2011, there were 293,000 children aged

under five, an increase of 6% from 2001. However, the number of children aged 5-14 saw a

decrease of 69,000 (11%) in the past 10 years.

Scotland's population density is among lowest in Europe: The average number of people

per sq km in Scotland is 68, among the lowest of the EU countries. The Western Isles and

the Highlands have just 9 people per sq km whereas Glasgow city has 3,395. Source: www.bbc.co.uk

TECHNOLOGICAL - REAL WORLD EXAMPLES

• Use of social media to communicate• Change in the use of mobile phones• Introduction of touch screen technology

Case Study – Britain's changing High Street (Dec 2010)

The number of empty shops in Britain is still rising, but High Streets are adapting to changing

trends, research commissioned by the BBC has found. But while certain businesses are

declining, new ones are springing up offering services not easily available on the internet,

such as beauty salons. It found that businesses such as off-licences and travel agents were

facing high closure rates.

As vulnerable businesses were disappearing, they were slowly being replaced by service-

based retailers offering something that could not be provided online. "This survey has

shown that a significant part of the High Street's issues are not related to the recession" said

the LDC's Matthew Hopkinson. "It is more a reflection of our changing shopping habits. The

internet was widely heralded as the death knell for the High Street, but the data shows that

shopping in person is still a key pastime for many." At the same time, however, the growth

of discount stores and charity shops suggests that the economic downturn is still having an

effect.



Source: www.bbc.co.uk

ENVIRONMENTAL - REAL WORLD EXAMPLES

• Natural disasters e.g., Hurricane Sandy• Change in attitude towards Global Warming• Change in recycling – availability of bins/depots

Case Study – Honey harvest 'devastated' by wet summer (Oct 2012)

A cold and wet summer across the UK has caused a "dramatic fall" in the amount of honey

produced by British bees, a survey of beekeepers has revealed. Yields are down 72%

compared to 2011, research by the British Beekeepers' Association (BBKA) suggested. An

average of 8lb (3.6kg) of honey was produced per hive this year, compared to the annual

average of 30lb (13.6kg). The majority of those surveyed (88%) said the rain and cold

weather was the main reason the harvest was poor.

Earlier this year, the cold and wet conditions forced the BBKA to issue a mid-summer

warning to feed honey bee colonies with sugar syrup if necessary to avoid starvation. Peter

Hutton, a beekeeper in Tunbridge Wells, Kent, described 2012 as “the most difficult year I

have known in my 53 years of beekeeping. Bad weather in spring prevented honey bees in

many areas from collecting nectar" he said. Paul de Zylva, a senior nature campaigner, said

“A winter drought followed by the record-breaking wet summer has affected farming,

gardens and bees alike.”Source: www.bbc.co.uk

COMPETITIVE - REAL WORLD EXAMPLES

• Supermarkets competing on prices• Increased use of comparison websites• Superstores (e.g. Tesco Extra) now sell nearly everything

Case Study – Supermarket price war: Can they all be cheapest? (Dec 2011)

Tesco promises to give you vouchers if your shopping is more expensive than it would have

been at Asda and you use its Price Check application online. Sainsbury's automatically gives

you vouchers at the till if any branded goods you've bought would have been cheaper at

Tesco or Asda. Asda will give you vouchers if your shopping is not 10% cheaper than Tesco,




Sainsbury’s or Morrisons and you use its Price Guarantee application online. But they can't

all be the cheapest, can they?

Pete Lunn, behavioural economist says “The degree to which you really exercise free choice

in a supermarket is probably more limited than you think”. It turns out, if you look back over

the last six months in the Grocer Magazine's basket of goods, which isn't influenced by

special offers like your own purchases are, Asda is generally the cheapest (although not by

as much as 10% - actually an average of about 3%), followed by Tesco, then Morrisons and

Sainsbury's. Behavioural economists say promotions have a huge effect on us. Market

researchers Kantar WorldPanel say that more than 40% of groceries are bought on special

offer, so regardless of what's on our shopping list we end up buying the stuff on special

offer.

Morrisons, is staying out of this whole bunfight. "We are hearing from customers a real

frustration with our industry, which appears to be speaking to itself, rather than them,

where promotions appear more about point scoring against competitors than engaging with

customers and their needs" a Morrisons spokesman said.

Supermarkets work very hard to monitor what their competitors are doing. "There is

everything from online comparisons to actually sending people into competitors' stores to

look at prices and to write down the details of all the offers." Bruce Dove from Brand View,

which provides the figures for Sainsbury's Brand Match, says that every time you go into a

decent-sized supermarket, there is likely to be somebody in there checking prices and

promotions for a competitor.Source: www.bbc.co.uk



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