EDEXCEL GCSE BUSINESS · PAPER 1
External influences
Understanding external influences on business · Lesson 5 of 5
Last Lesson
Answer from memory before the answers appear.
1. How does rising unemployment affect a business selling luxuries?
Customers have less income, so sales fall.
2. What does SPICED stand for?
Strong Pound, Imports Cheap, Exports Dear.
3. How do higher interest rates affect a business with a loan?
Repayments rise, increasing costs and reducing profit.
4. What is VAT?
A tax added to the price of most goods and services.
Learning Objectives
1. Explain why external influences are important to a business.
2. Explain possible responses to changes in technology.
3. Explain possible responses to changes in legislation.
4. Explain possible responses to changes in the economic climate.
Why External Influences Matter
External influences are factors outside a business that it cannot control but that affect how it operates.
▸ Outside its control. A small business cannot stop a new law, a rise in interest rates or a new technology.
▸ Opportunities. Some changes help - a new technology may cut costs, or a weaker pound may boost exports.
▸ Threats. Others hurt - rising costs, new rules or customers with less to spend.
▸ The key skill. Spotting changes early and responding well, so the business survives and even benefits.
The Three External Influences
|
Technology New ways to sell, promote, communicate and take payment - e-commerce, social media, digital communication and payment systems. |
Legislation New or changed laws on consumer rights, pay, discrimination, and health and safety. |
|
The economic climate Changes in unemployment, incomes, inflation, interest rates, taxes and exchange rates. |
|
PART ONE
Responding to Change
How a small business can react to each influence.
Responding to Changes in Technology
Adapt, or be left behind by competitors who do.
▸ Adopt it. Start selling online, take contactless payments or promote on social media.
▸ Train staff. Make sure staff can use new systems to serve customers well.
▸ Change the marketing mix. Sell through new channels, compete on price online, promote digitally.
▸ Weigh the cost. New technology costs money, so a small business must judge whether the extra sales or savings are worth it.
Responding to Changes in Legislation
Obeying the law is not optional, but how a business adapts is a choice.
▸ Update practices. Change pay rates, refund policies, recruitment adverts or safety procedures.
▸ Absorb or pass on costs. Accept lower profit, or raise prices to cover the extra cost - for example after a minimum wage rise.
▸ Cut other costs. Find savings elsewhere, such as reducing waste or energy use.
▸ Use it positively. Promote high standards, such as a five-star hygiene rating, to win customers.
Responding to Changes in the Economic Climate
When the economy changes, the marketing mix and costs usually change with it.
▸ Falling incomes or rising unemployment. Offer cheaper products, value deals or smaller portions, and target new customers.
▸ Inflation. Raise prices carefully, find cheaper suppliers, cut waste and reduce costs.
▸ Higher interest rates. Pay off loans, avoid new borrowing, and delay expensive plans.
▸ Exchange rates. An importer might find a UK supplier when the pound is weak; an exporter might sell more abroad.
Change and Response
|
External change |
Threat or opportunity? |
Possible response |
|---|---|---|
|
A rival starts selling online |
Threat |
Build a website or use an online marketplace |
|
The minimum wage rises |
Threat |
Raise prices slightly or cut costs elsewhere |
|
Inflation raises ingredient costs |
Threat |
Find cheaper suppliers or reduce portion sizes |
|
Interest rates fall |
Opportunity |
Borrow to invest in new equipment |
|
The pound weakens |
Opportunity for an exporter |
Promote more to overseas customers online |
|
Unemployment rises |
Threat for luxuries |
Offer value deals and cheaper options |
Adapting to Survive
|
This café is responding to several external influences at once. A value lunch deal answers customers who have less to spend; online ordering and contactless payments answer changing technology. None of the changes were the owner's choice - but the response was. |
Value deals for the economy, online ordering for technology: responding to change. |
Case Study
|
CASE STUDY 2020: Every Influence at Once In March 2020 the COVID-19 pandemic brought sudden changes from every direction. New laws forced cafés, restaurants and pubs to close their doors to customers. Many small food businesses responded with technology, switching to takeaway, delivery apps and online ordering almost overnight. The government responded to the economic damage with support such as the furlough scheme, which paid most of the wages of staff who could not work, and in August 2020 "Eat Out to Help Out", which paid half the cost of meals out from Monday to Wednesday, up to £10 per person. The businesses that survived were those that adapted fastest. |
|
March 2020 Lockdown laws close cafés and restaurants |
August 2020 Eat Out to Help Out: 50% off meals, up to £10 a head |
Key Terms
|
External influence A factor outside a business that it cannot control but that affects it. |
Economic climate The state of the economy, including jobs, incomes and prices. |
|
Opportunity An external change that could help a business. |
Threat An external change that could harm a business. |
|
Adapt To change the way the business works in response to an external change. |
|
Your Task: The Business Response Plan
15 minutes
|
You run a small independent bike shop that imports most of its bikes from Europe. In the same year, the pound weakens, the National Minimum Wage rises, and a large online retailer starts selling bikes more cheaply. For each change, say whether it is a threat or an opportunity, and plan one response. 1. Weak pound: threat or opportunity? Response? 2. Minimum wage rise: threat or opportunity? Response? 3. Online competitor: threat or opportunity? Response? |
A good answer shows: All three changes identified as threats, each with a realistic response - e.g. find UK suppliers, raise prices carefully or cut costs, and compete on repairs, expert advice and servicing that an online retailer cannot offer.
Can I...?
☐ Explain what an external influence is.
☐ Explain why external influences matter to a business.
☐ Explain responses to changes in technology.
☐ Explain responses to changes in legislation.
☐ Explain responses to changes in the economic climate.
☐ Judge whether a change is a threat or an opportunity.
Summary
✓ External influences are outside a business's control but affect everything it does.
✓ The three influences are technology, legislation and the economic climate.
✓ Changes can be threats or opportunities.
✓ The business can choose how it responds - adapting quickly helps it survive.
|
EXAM FOCUS Justify how a small business should respond to a rise in the cost of its raw materials. (9 marks) For response questions, weigh up two options, explain the effect of each on sales, costs and profit, and make a clear, justified choice - "it depends on" how customers react. |