Welcome to Topic 1.5: Understanding External Influences on Business!
Ever wonder why some businesses suddenly change their prices, start selling online, or have to follow strict rules about how they treat staff? It’s because businesses don't exist in a bubble! They are constantly affected by the world around them. In this chapter, we will look at external influences—things outside a business’s control that can make the difference between success and failure. Think of a business like a boat on the ocean; it can steer itself, but it must deal with the weather, the waves, and the tide!
1.5.1 Business Stakeholders
A stakeholder is anyone who has an interest in how a business is doing. They are "invested" in the business’s success (or failure) for different reasons.
Who are the Stakeholders?
The syllabus identifies these key groups:
- Shareholders (Owners): They want the business to make a profit so they get a return on their investment.
- Employees: They want good pay, job security, and a safe place to work.
- Customers: They want high-quality products at a fair price.
- Managers: They want the business to grow so they can get bonuses or promotions.
- Suppliers: They want the business to do well so they can keep selling materials to them and get paid on time.
- Local Community: They want the business to provide jobs but don't want too much noise or traffic.
- Pressure Groups: These groups want the business to act ethically (e.g., protecting the environment).
- The Government: They want the business to follow the law and pay their taxes.
Stakeholder Conflict
Don't worry if this seems tricky, but stakeholders often disagree! This is called stakeholder conflict.
Example: If a business wants to increase its profit, it might try to pay Employees less. The Owners will be happy (more profit), but the Employees will be unhappy (less pay). That’s a conflict!
How Stakeholders Impact Business
Stakeholders aren't just affected by the business; they can affect the business too!
Example: If Customers are unhappy with a product, they will stop buying it, which causes sales to fall. If Pressure Groups protest, it might damage the business's reputation.
Quick Review: Stakeholders are individuals or groups with an "interest" in the business. They often want different things, leading to conflict.
1.5.2 Technology and Business
Technology changes fast, and businesses must keep up to survive. Here are the main types of technology businesses use today:
- E-commerce: Selling products online (like a website or an app).
- Social Media: Using platforms like Instagram or TikTok to talk to customers and advertise.
- Digital Communication: Using email, video calls (like Zoom), or instant messaging to talk to staff and suppliers.
- Payment Systems: Offering ways to pay like Apple Pay, Google Pay, or contactless cards.
How Technology Influences Business
- Sales: E-commerce allows a small local shop to sell to the whole world 24/7!
- Costs: Technology can be expensive to buy at first, but it can lower costs in the long run (e.g., sending an email is cheaper than posting a letter).
- Marketing Mix: Technology changes how businesses promote (social media ads) and where they place their products (online instead of a physical shop).
Key Takeaway: Technology helps businesses reach more people and work faster, but it requires constant investment to stay up to date.
1.5.3 Legislation and Business
Legislation is just a fancy word for laws. The government makes laws to protect people. Businesses must follow these, or they could face huge fines or be shut down.
1. Consumer Law
These laws protect Customers. They focus on:
- Quality: Goods must work as described and be of "satisfactory quality."
- Consumer Rights: If a product is broken, the customer has the right to a repair, replacement, or refund.
2. Employment Law
These laws protect Employees. They cover:
- Recruitment: You can't refuse to hire someone based on their age or gender.
- Pay: Businesses must pay at least the National Minimum Wage.
- Discrimination: Treating everyone fairly regardless of race, religion, or disability.
- Health and Safety: The workplace must be safe (e.g., having fire exits and safety gear).
The Impact of Legislation
Following the law increases costs for a business (e.g., buying safety equipment or paying higher wages). However, the consequences of not meeting these obligations are worse: legal fees, fines, and a terrible reputation.
Memory Aid: Think of "Law" as the "Rules of the Game." You might find them annoying, but if you break them, you get sent off the pitch!
1.5.4 The Economy and Business
The economic climate refers to how much money is flowing around the country. This has a huge impact on small businesses.
Key Economic Factors:
- Unemployment: If many people don't have jobs, they have less money to spend, so business sales go down.
- Consumer Income: When people earn more, they spend more. Simple!
- Inflation: This is when prices rise. If inflation is high, a business's costs (like electricity or ingredients) go up.
- Interest Rates: This is the "cost of borrowing money." If interest rates go up, loans become more expensive, and customers might spend less because their mortgages cost more.
- Government Taxation: If the government increases taxes, businesses have less profit left over, and customers have less money in their pockets.
- Exchange Rates: This matters if a business buys from or sells to other countries. A change in the value of the Pound (£) can make imports cheaper or exports more expensive.
Common Mistake to Avoid: Don't assume high interest rates are always bad. While they make borrowing expensive, they might encourage people to save money!
1.5.5 Importance of External Influences
External influences are important because they are unpredictable. A business that ignores them will likely fail. Success comes from responding to these changes effectively.
How Businesses Respond:
- To Technology: A shop might close its physical store and move entirely to e-commerce to save money.
- To Legislation: A factory might invest in new safety guards for machines to meet Health and Safety laws.
- To the Economy: During a time of low consumer income, a luxury restaurant might start offering a "budget menu" to keep customers coming in.
Final Key Takeaway: Businesses cannot control the external environment, but they can control how they react to it. Being flexible and prepared is the key to survival!
You've finished the notes for External Influences! Take a quick break, then try to list three stakeholders and one thing they want from a business. You've got this!