Essay About Government Spending And Product Innovation Affect

External Business Enviroment
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Introduction
A business does not function in a vacuum. It has to act and react to what happens
outside the factory and office walls. These factors that happen outside the business
are known as external factors or influences. These will affect the main internal
functions of the business and possibly the objectives of the business and its strategies.
Main Factors
The main factor that affects most business is the degree of competition — how
fiercely other businesses compete with the products that another business makes.
The other factors that can affect the business are:
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Social — how consumers, households and communities behave and their beliefs.
For instance, changes in attitude towards health, or a greater number of
pensioners in a population.
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Legal — the way in which legislation in society affects the business. E.g.
changes in employment laws on working hours.
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Economic — how the economy affects a business in terms of taxation,
government spending, general demand, interest rates, exchange rates and
European and global economic factors.
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Political — how changes in government policy might affect the business e.g. a
decision to subsidise building new houses in an area could be good for a local
brick works.
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Technological — how the rapid pace of change in production processes and
product innovation affect a business.
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Ethical — what is regarded as morally right or wrong for a business to do. For
instance should it trade with countries which have a poor record on human
rights.
Changing External Environment
Markets are changing all the time. It does depend on the type of product the business
produces, however a business needs to react or lose customers.
Some of the main reasons why markets change rapidly:
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Customers develop new needs and wants.
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New competitors enter a market.
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New technologies mean that new products can be made.
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A world or countrywide event happens e.g. Gulf War or foot and mouth
disease.
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Government introduces new legislation e.g. increases minimum wage.
Business and Competition
Though a business does not want competition from other businesses, inevitably most
will face a degree of competition.
The amount and type of competition depends on the market the business operates in:
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Many small rival businesses — e.g. a shopping mall or city centre arcade — close
rivalry.
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A few large rival firms — e.g. washing powder — Omo and Ariel or Coca-Cola and
Pepsi.
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A rapidly changing market — e.g. where the technology is being developed very
quickly — the mobile phone market.
A business could react