BUSINESS

STUDIES
PRELIMINARY
T O P I C 1 : N AT U R E O F B U S I N E S S
EX TERNAL INFLUENCES ON THE BUSINESS ENVIRONMENT
SYLLABUS
LINKS

Business Studies Stage 6

Syllabus
INFLUENCES IN THE
BUSINESS ENVIRONMENT
The three categories of influences are:
• External influences
• Internal influences
• Stakeholders
INFLUENCES IN THE
BUSINESS ENVIRONMENT
No business operates in isolation. Businesses deal with an
ever-changing environment.
- e.g. if interest rates increase, then a business may not be
able to afford to purchase new equipment.
- e.g. reduced competition in the market may mean a business
increasing their individual market share and profitability.
All business decisions about how and what to produce are affected
by the environment in which the business operates.

Successful business managers have a good understanding of the

environment in which the business operates. This allows them to
respond positively to changes that take place and prepare for the
impact such changes will have on their business operations.
 EXTERNAL VS INTERNAL
The external The internal
environment includes environment includes
those factors over those factors over
which the business which the business has
some degree of
has very little control.
control

Sometimes there is overlap

GEOGRAPHICAL - EXTERNAL

Major factor: Australia’s geographic location within the Asia–Pacific region and the
economic growth in a number of Asian nations, especially China. They provide
challenging opportunities for business expansion, sales and profit.

Major factor: demographic factors (study of population, including the size, age, sex,
income, cultural background and family size. Changes in any of these factors can lead
to changes in demand levels and the nature of products and services.
A major demographic issue that has a considerable impact on businesses is changes
in the age structure of our population. Commonly referred to as the ‘greying’ of the
Australian population, baby-boomers — people born between 1946 and 1964 — are
now reaching retirement age. This will cause some skill shortages in the workforce as
well as an increase in demand for age-related services such as health and aged-care
GLOBALISATION
• Another important geographical influence is that of globalisation.

The Earth is a global community whose individual members are linked

through the mechanism of international trade: the buying and selling
of goods and services between nations. a process that sees people,
goods, money and ideas moving around the world faster and more
cheaply than before. Globalisation, assisted by the technological
revolution in communications and computers, is radically altering the
shape of world markets, as well as the nature of business and
everyday life.

Critics argue that the process results in a ‘race to the bottom’ in

wages and conditions. This inevitably leads to exploitation of workers,
especially in developing countries, and the loss of jobs in developed
SOCIAL EXTERNAL
INFLUENCES
Social external influences relate to changes in society and social structures.
Changes in the structure of the population, in consumer lifestyles and
behaviour will affect buying patterns. E.g. During a recession, demand for
luxury items might plummet, while discount retail stores experience a
significant surge in demand.
• Healthy eating • Sustainable practices/products
• Family friendly options • Celebrity influence

• Everything in moderation
SOCIAL - EXTERNAL
LEGAL EXTERNAL
INFLUENCES
Too much government interference!
Too much red tape!
Too many regulations!

Legal external influences relate to changes in laws and

regulations. Businesses must be careful to keep within the
law and to anticipate ways in which changes in laws will
affect the way they must behave.
LEGAL EXTERNAL
INFLUENCES
An area of law that has significantly altered business
conduct is the Trade Practices Act 1974 (Cwlth), which
applies to virtually all businesses in Australia. It is
administered by the Australian Competition and
Consumer Commission (ACCC), which is an independent
statutory authority.
The ACCC operates nationally for the enforcement and
administration of competition and consumer
laws. A breach of any of the consumer protection
provisions of the Trade Practices Act can result in the
ACCC taking criminal proceedings against the business
concerned.
The Act allows the courts to impose penalties of up to
$1.1 million for companies, and $220 000 for individuals
who breach the Act.
LEGAL EXTERNAL
INFLUENCES
POLITICAL – EXTERNAL
POLITICAL EXTERNAL
INFLUENCES
Political external influences relate to ways in which
changes in government and government policy can
influence business.
• Floating of the Aus $ (Dec
• government regulators – ACCC 1983)
ASIC
• GST was a huge change in
• Political parties have different 2000
approaches to managing the
economy • Free trade – removal of
protection
• Tax and areas of Law
• Government plays a major role
POLITICAL EXTERNAL
INFLUENCES
• Fiscal Policy – influences economic and non-
economic objectives through variations in public
income and expenditure (tax revenue, borrowing
and government spending)

• Affects all aspects of business activity – regulations,

infrastructure – roads, transport, health and safety,
support for industry, business taxation,
employment laws and taxes – income tax and
national insurance contributions, pension
contributions.
POLITICAL EXTERNAL
INFLUENCES
 Tourism

LEGAL EXTERNAL
industry fact
sheet

INFLUENCES
Last Updated: 18
November 2016

This fact sheet provides

an overview of the legal,
operational and business
issues relevant to the
tourism industry group.
This group covers
businesses from a wide
variety of industries that
sell goods or provide
services to visitors who
have travelled from their
usual place of residence
(international or
domestic) such as:
•tour operators
•travel agents
•short-term
accommodation
providers
•recreation service
providers
•transport and hire
service providers.
TECHNOLOGICAL - EXTERNAL
Provide opportunities for businesses to adopt new
breakthroughs, innovations, and inventions to cut costs and
develop new products.
• Increased productivity
• Improved quality and range of goods
• Reducing costs
• Eliminating boring repetitious jobs
• Increases need for highly skilled labour
• Emphasis on training
 TECHNOLOGICAL - EXTERNAL
Payments get even easier - With Apple Pay, Google Pay and a litany of mobile payment
solutions flooding the market, the trend is toward making payments as easy as a click of a
smartphone button, reversing transactions just as easy and sending automatic invoices by
email a snap.
Security becomes nonnegotiable - Email is not usually secure, employee mobile devices
are unprotected in many cases. VoIP phone systems are not always fully encrypted, and
sites have gaping holes. Nearly 5,000 company data breaches have compromised
million records containing information about medical histories, Social Security numbers or
bank data since 2005.
Communications gets embedded - Skype and WhatsApp; According to ComScore 11.3
percent (and growing) of all internet users rely solely on their mobile devices to get online,
and this year you’ll start to see more click-to-call buttons embedded directly into apps to
cater to directly to this quickly growing mobile minority.
Connected devices bring real-time updates - Inventory that self-reports when it is low.
Field equipment that signals when something is wrong. Trucks that self-track. Products
notify a company when a refill is needed or a malfunction may occur.
Wearables reach employees - With self-reporting devices comes business velocity, and
the wearables trend makes it easy for employees to interact with real-time data from
connected devices throughout the course of a day. Some companies are giving wearables
to their employees on the ground for second-by-second inventory updates. Others are
using them internally to see how their corporate employees interact
The cloud envelops everything - Nearly every business uses the cloud for all or some of
its business software. Roughly 93 percent to be exact. The cloud enables connectivity with
other systems and reduced maintenance and mobility among other benefits.
https://thenextweb.com/business/2016/01/13/6-business-technology-trends-for-2016/#.tnw_jphuRl1K
ECONOMIC - EXTERNAL

Economic influences on a business relate directly to

their economic environment, which is dependent on
changes in economic growth.

A growing economy provides greater opportunities

for businesses to make profits through discretionary
spending, so businesses welcome rising living
standards.
ECONOMIC - EXTERNAL
Economic cycles (or business cycles) are the periods of
growth (‘boom’) and recession (‘bust’) that occur as a
result of fluctuations in the general level of economic
activity
ECONOMIC - EXTERNAL
BOOM CYCLES:

• Higher levels of employment. Employers may be willing to employ

people as they feel business sales and profits will remain stable or
increase in the future.

• Inflation may increase. In periods of growth, some business owners feel

that consumers are more willing to spend their income, so they may
the opportunity to increase their prices to achieve higher profit

• Wages increase as employees seek to keep their wages rising at the

same rate as inflation.

• The level of spending by consumers increases as they have more

confidence in the economy and feel secure in their employment.
ECONOMIC - EXTERNAL
RECESSION PERIOD:
• Unemployment levels rise as many business owners experience
decrease in sales, which means they are unable to maintain their
current number of employees.
• Inflation may remain stable or fall as consumer spending is
reduced. A business must work harder to gain sales, so prices
remain stable and in line with competitors.
• Wages are less likely to rise as employers are concerned about
business costs and employees are concerned with job stability.
• The level of spending usually decreases as consumers who are
concerned about job security are more inclined to save rather
spend any excess income.
ECONOMIC - EXTERNAL

http://www.businessinsider.com.au/what-small-business-should-know-about-the-global-economy-2016-6
COMPETITIVE SITUATION -
EXTERNAL
 COMPETITIVE SITUATION

The number of
competitors
refers to the
size and
number of
firms that exist
within an
industry.

It is also known
as market
concentration.
COMPETITIVE SITUATION
Ease of entry
Ease of entry refers to the ability of a person (or persons) to establish a
business within a particular industry. The ease of entry will be
by the type of market concentration. When there are many small firms
(perfect competition and monopolistic competition), entry is not difficult
as businesses are small and it is more affordable for the business owner
gain some part of the market.

When there are a few firms dominating an industry (oligopolies), entry is

difficult because the firms are larger and often more established.
competitors must have enough resources to gain some control in the
market.

When there is only one firm (monopoly) that dominates an industry, no

competitors are able to enter the market because the one firm has
over all resources that are being sold.
COMPETITIVE SITUATION
Local and foreign competitors
Local competitors are those who produce or sell a good or
in the same market. Local competitors must deal with the same
variables as each other. These variables include:
• labour costs
• transport costs
• the economy
• cost of stock/raw materials.

Foreign competitors are those businesses located overseas or

offshore.

They sell their goods or services in Australia and compete with

local businesses.
COMPETITIVE SITUATION
Marketing strategies
A business will be influenced by the type of marketing measures taken
a competitor. For example, the business that uses television advertising
extensively will have greater exposure to the market than a business that
relies on flyers or word of mouth. Of course, the type and extent of
marketing will depend on:
• the size of the market — the number of existing and potential
customers
• the size of the business — the larger the business the more likely it is
invest in a range of marketing activities, especially more expensive forms
of marketing such as television and newspapers. Smaller businesses may
rely on simple marketing methods such as pamphlets, local paper
advertisements and word of mouth
• number of competitors — usually the more competitors that there are
in a market, the greater the need for marketing. This is necessary to
maintain or increase market share.
• the nature of the product — this refers to the type of product and
whether it requires extensive marketing. Some products, such as postage
MARKETS - EXTERNAL
A business will be influenced by the type of marketing measures taken by a
competitor.
This can depend on:
• the size of the market — the number of existing and potential customers
• the size of the business — the larger the business the more likely it is to
invest in a range of marketing activities, especially more expensive forms of
marketing such as television and newspapers. Smaller businesses may rely on
simple marketing methods such as pamphlets, local paper advertisements
and word of mouth.
• number of competitors — usually the more competitors that there are in a
market, the greater the need for marketing. This is necessary to maintain or
increase market share.
• the nature of the product — this refers to the type of product and whether it
requires extensive marketing. Some products, such as postage stamps, don’t
MARKETS - EXTERNAL
INFLUENCES
Labour Market Consumer Market
INSTITUTIONAL – EXTERNAL
INSTITUTIONAL – EXTERNAL
INSTITUTIONAL – EXTERNAL
INSTITUTIONAL – EXTERNAL
INSTITUTIONAL – EXTERNAL
Regulations are rules,
laws or orders that
businesses must follow.

A regulatory body is one that is set up to monitor and review the

actions of businesses and consumers in relation to certain issues
(such as advertising) and the appropriate legislation. This is to
ensure that businesses conduct themselves fairly in relation to the
consumer, the community and other businesses. There are a
number of regulatory bodies that operate in New South Wales
and Australia.
They include:
• the Department of Environment, Climate Change and Water
• the Office of Fair Trading
• the Australian Securities and Investments Commission
• the Australian Competition and Consumer Commission.
FINANCIAL EXTERNAL
INFLUENCES
Provide opportunities for businesses to adopt new breakthroughs,
innovations, and inventions to cut costs and develop new
products.

Deregulation of Australia’s financial system began in 1983 and it continues

to undergo change. This has resulted in a more flexible, market-oriented
approach across the financial sector. A substantial number of new
products have emerged, aimed at the business sector. The process of
financial deregulation has resulted in the opening up of the financial
industry to greater competition.

Due to globalisation of the world’s financial markets, it is no longer

necessary for many large Australian businesses to use only domestic
financial institutions for the raising of finance. For example, News Limited,
the global media company, can access finance from worldwide sources.
EXTERNAL INFLUENCES:
SUMMARY