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Level 2 Business and Economics: External Influences

Introduction

Setting up your own business is a challenging task. There are many things that can affect how your business performs. Some of these you have some control over: if costs are too high, for example, you are in a position to try to find ways to reduce costs. This might be through cutting waste, reducing the number of staff you employ, changing the way people work, using new technology and so on.

The problem is that not everything in business is within your control. There are many external influences that a business has to consider. Exactly how they affect the business will depend on the type of business and the type of influence. It could be something as simple as inconvenience caused by a protest that effectively closes your store for a whole day, losing you revenue, or it could be a longer-term effects, such as a change in interest rates, or social changes.

Anti-war protests in 2003 - businesses in many town and city centres were affected by the protests - not something you can plan for! These types of influences are called external influences. Copyright: Nick Winchester, from stock.xchng.

External influences can be divided up into different categories. These are:

• Economic - this has to do with such things as changes in interest rates, changes in inflation, economic growth and so on.
• Political - governments will often pass laws or pursue policies that can affect the way businesses operate: for example, directives on school lunches, or booster seats for children in cars. Remember also that they create legislation on employment rights. Political influences might also be seen in the actions of pressure groups.
• Social - Over time, people change and develop different views, wants and needs. A drive towards social awareness of the need for recycling or the use of packaging, the environment, fashion, obesity, vegetarianism and so on can all affect different business in different ways.
• Technological - changes in technology can revolutionise the way a business works or leave it in a position where it will be difficult to survive.

In this resource, we will look at the first of these: economic influences.

We are going to look at economic influences on a business through the following ways:

• Changes in interest rates
• Changes in exchange rates
• Changes in economic activity - economic growth and the business cycle
• Changes in tax rates

In the next resource in this series, we will look at political, social and technological influences.

Pages in the Series

• Changes in interest rates
• Who decides on the Interest Rate?
• Other effects of Changes in Interest Rates
• Changes in Exchange Rates
• Changes in Economic Activity
• Changes to Tax Rates
• Final Task
• Extension Activity: Crossword