Unit 4

Time to start taking notes; I will test you at the end (without notes/books) –

result goes on the database

BUSS4

Introduction to External Influences

A2 Business

Introduction to external influences Some external influences will have

beneficial effects on firms and others have adverse effects

Saga holidays targets the older generation so the rising life expectancy is a benefit An ageing population will enlarge their

target market so there is a good chance of increasing revenue and profit

In 2008 Transport for London announced an increase in the congestion charge for 4x4 cars to £25 per day. Less polluting vehicles with smaller engines pay only £8 per day This probably wouldn’t affect the

demand for new 4x4’s because the buyer is unlikely to worry about the charge and so companies such as BMW may not be affect

Second hand car dealers may see a reduction in revenue and profit because it will affect the demand for 2nd hand 4x4’s to more price sensitive customers

An external influence is a factor beyond a firm’s control that can affect its performance e.g. changes in consumer tastes, laws and regulations, and economic factors such as the level of spending in the economy as a whole

Insert fig 37.1 P253

Introduction to external influences – changes in law

Changes in law can have a dramatic effect on a business

In September 2006 new regulations came in regarding child car seats Every motorist had to have a restraint Every child under 12 had to wear a seat

belt but also had to sit on a booster seat Younger children and babies had to have

their own car seat This created a huge boost for

businesses such as Britax and Halfords

The government gave warning of the change in 2005 so that companies could build production capacity and stock levels

Introduction to external influences – demography

Changes will be a threat to some firms and an opportunity to others

One of the most important changes to the UK’s demography recently has been immigration

Europe expanded giving these EU citizens the right to live and work in Britain

More than 800,000 Eastern Europeans registered to work in the UK

JD Wetherspoon Could not have expanded so successfully

without this source of labour Typically eastern Europeans are hard

working and have the skills to work behind a bar

If the migrants had not been available they may have had to attract new staff by increasing wages

They have also started stocking a large amount of Polish beer

Demography – changes to the size, growth and age distribution of the population

Insert JD Wetherspoon

Introduction to external influences – demography

Property developers Most European migrants cannot afford to

purchase property This increased the numbers looking for

rented property Property developers bought houses to

rent out The boom in buy to let property has

helped house prices in the UK double since 2000

Not all firms have gained Many UK plumbing firms had to cut their

prices Good news for consumers Bad news for British plumbers who had

previously enjoyed high incomes and now have to deal with a lot more competition

Demography – changes to the size, growth and age distribution of the population

Technological factors These can also bring opportunity or threats Before digital technology ITV had only 2

competitors They now have to compete against hundreds of

channels provided by Sky and Cable TV providers such as Virgin and Telewest

Internet technology has opened up new entertainment possibilities (such as YouTube and Bebo) that compete head on with conventional TV

These technological advances threaten ITV’s ability to generate revenue from selling advertising slots in between its free-to-air programmes

For entrepreneurs like Larry Page and Sergey Brin (the founders of Google) these technological advances have meant massive opportunities

For BT this is an opportunity to move into a new market

The boundaries between the telecommunications and TV market are blurring

Commodity prices Commodities are internationally

traded goods such as oil, copper, wheat and cocoa

These are bought by firms as raw materials and so if their prices rise then the firm’s costs will also rise

The price of oil is important to most companies as oil is used during transportation and an ingredient of plastic is oil (packaging)

Even companies such as Apple will be affected by rising oil prices

It will cost more to buy plastic pellets needed to produce the casings for its laptop computers, ipods and mobile telephones

The price of oil is determined by the strength of supply and the world demand

The price is beyond the control of any firm

What can firms do about external influences

Make the most of favourable external influences while they last

Luck can play an important role in determining whether a business flourishes or not, especially in the short run

Over time good luck and bad luck tend to level out

The key to success is to make the most of favourable external influences

For example interest rates were relatively low between 1993 and 2007

This encouraged a debt-fuelled consumer spending boom that helped luxury goods/services companies

These companies should have made the most but also asked themselves ‘what if’ questions e.g. ‘what if the interest rates were suddenly increased?’ and how would we respond to the drop in demand

What can firms do about external influences

Minimise the impact of unfavourable external influences

When faced with adverse external influences successful firms make quick changes to their business to offset the external constraint

Ryanair could do nothing about rising oil prices but it could attempt to cut other costs within the business to compensate

If Ryanair can improve its internal efficiency the impact of the adverse external influence can be minimised

Insert Ryanair P255

Evaluation of external influences An important aspect of any

evaluation of external factors is to distinguish between external change that was predictable and change that was not

The UK ban on smoking in pubs in 2007 was know abut for more than a year before it happened

Every pub had an opportunity to think about a new strategy

Contrast this with the complete unpredictability of events such as the collapse of transatlantic travel that followed the terrorist attack on the World Trade Centre in September 2001

Managers that fail to deal with predictable events are weak

Those that succeed are impressive