Political, economic, social and technological influences

Introduction to External Influences: The PEST Analysis

Welcome! In this chapter, we are looking at the world outside of a business. Imagine a business is like a ship on the ocean. The captain (the manager) can control the ship, but they cannot control the weather, the waves, or the wind. These are external influences.

To help businesses understand this "weather," we use a tool called PEST analysis. This stands for Political, Economic, Social, and Technological influences. By understanding these, a business can spot opportunities to grow or prepare for "storms" that might cause trouble.

Don't worry if this seems like a lot to take in at once! We will break down each letter of PEST one by one with simple examples.

6.3.1 Political Influences

Political influences are the actions taken by the government that affect how a business operates. Since the government makes the rules, businesses have no choice but to follow them.

Government Policies

These are the specific plans or laws the government introduces. For example, if a government decides to promote healthy eating, they might introduce a "sugar tax" on fizzy drinks. This is a political influence that forces drink companies to change their recipes or raise their prices.

Political Stability

This refers to how "calm" or predictable a country’s government is.
• High Stability: In stable countries, laws don't change suddenly, and there is no risk of violent protests or war. This makes it "safe" for businesses to invest money.
• Low Stability: If a government is constantly changing or there is a lot of unrest, a business might be afraid to open shops there because their property could be damaged or the rules might change overnight.

Key Takeaway:

Political influences are about rules and stability. The government creates the environment where the business lives.

6.3.2 Economic Influences

This is all about money and how the economy is performing. It affects whether customers have enough money to buy products and how much it costs the business to borrow money.

The Business Cycle

The economy doesn't stay the same; it moves like a roller coaster. This is called the Business Cycle. There are four main stages:
1. Expansion (Recovery): The economy is growing, more people are getting jobs, and they start spending more.
2. Peak (Boom): The economy is at its strongest. Spending is very high, but prices might start rising too fast (inflation).
3. Contraction (Recession): The economy starts to slow down. People worry about losing their jobs, so they spend less.
4. Trough (Slump): The lowest point. Unemployment is high, and many businesses may struggle to survive.

Economic Policies

The government and the Bank of England use "tools" to try and keep the economy stable:
• Taxation: Direct taxes (like Income Tax) are taken from wages. Indirect taxes (like VAT) are added to the price of goods. If taxes go up, people have less money to spend!
• Interest Rates: This is the cost of borrowing money. If the Bank of England base rate goes up, it becomes more expensive for a business to take out a loan to expand. It also means customers with mortgages have less "spare" cash to spend in shops.
• Subsidies: This is "free money" given by the government to help a business. For example, the government might give a subsidy to a company making solar panels to encourage green energy.

Quick Review Box:
• Boom = High spending, high profit.
• Recession = Low spending, high risk of failure.
• High Interest Rates = Expensive to borrow, less customer spending.

Key Takeaway:

Economic influences determine how much money is flowing through the pockets of customers and businesses.

6.3.3 Social Influences

Social influences are about people—their habits, their lifestyles, and what they think is important. If a business doesn't keep up with social changes, they become "uncool" or irrelevant.

Demographics and Lifestyle

Demographics is a fancy word for "who lives in the country." For example, if the population is getting older (an ageing population), businesses might start selling more healthcare products or cruises instead of baby clothes.

Tastes, Culture, and Fashion

What people like changes over time.
Example: Ten years ago, very few people were vegan. Today, it is a massive social trend. Businesses like Greggs or McDonald's had to change their menus to include vegan options to keep their customers.

Buying Behaviour

How do people shop? There has been a huge shift from High Street shopping (physical stores) to Online shopping. A business that only has a physical shop might struggle if their customers prefer buying from their sofas.

Community and Pressure Groups

Pressure groups are organisations that try to influence business behavior (e.g., Greenpeace). If a pressure group starts a protest against a business for using too much plastic, that business might face a social influence to change its packaging or risk a bad reputation.

Key Takeaway:

Social influences are about trends and people's choices. Businesses must "read the room" to stay popular.

6.3.4 Technological Influences

Technology changes faster than anything else! It can help a business be more efficient, but it can also be expensive to keep up with.

Artificial Intelligence (AI) and Automation

Automation means using robots or drones to do jobs instead of humans. In a warehouse, a robot can work 24/7 without a break. AI can help a business by predicting what customers will want to buy before they even know it themselves!

Communication and Social Media

Social media allows businesses to talk directly to customers. However, it is a double-edged sword—one bad review can go viral in minutes! Cloud services also allow employees to work from anywhere, changing how offices operate.

Modern Transport and Tech

The rise of Electric Vehicles (EVs) is a major technological influence. Delivery companies like Amazon or DPD are switching to electric vans to meet environmental goals and save on fuel costs.

Cybersecurity

Because so much business is done online, cybersecurity is vital. If a business gets "hacked" and loses customer data, they could face huge fines and lose the trust of their customers.

Common Mistake to Avoid:
Students often think "Technological" only means the internet. Remember, it also includes manufacturing (robots), transport (electric cars), and software (AI and cybersecurity)!

Key Takeaway:

Technological influences are about innovation. It helps businesses work faster and smarter, but it requires constant investment.

Chapter Summary: The Big Picture

A business cannot control the PEST factors, but it must react to them.
• Political: Follow the laws.
• Economic: Watch the money.
• Social: Understand the people.
• Technological: Use the tools.

Memory Aid: Think of PEST as a "Health Check" for the world around the business. If the business stays healthy and aware, it will survive!