External factors that can impact a business. Businesses can’t control external factors but must respond to them. These political, economic, social, technological and environmental factors are represented by the acronym PESTE (Graham, 2007)

1. External factors
affecting the
operation of
businesses
Lecturer: Sal Maiorano
Date: 23rd June 2020

2. Learning Objectives
Identify key external factors
Describe the impact of the external factors on a business

3. External factors
Outside influences that can impact a business.
Businesses can’t control external factors but must respond to them.
These political, economic, social, technological and environmental factors
are represented by the acronym PESTE (Graham, 2007).

4. Political factors
TAX
Governments can raise or lower corporation tax, which will
impact on profits.
LAWS
They can bring in new laws like the National Minimum Wage,
which impacts on profits and employment rights..
POLITICAL STABILITY
Brexit will have an impact on the way UK firm’s trade with
the EU single market.

5. EU students in higher
education in the UK
In 2018/19 there were 143,000 EU students in UK
Universities may assist to a decline of EU students, as
they will be treated as “international” students, with higher
tuition fees.
source: commonslibrary.parliament.uk/

6. Economic factors
ECONOMIC GROWTH
If there is economic growth then more jobs will be created
and more tax will be paid.
INTEREST RATES
When interest rates are high, businesses borrow less and
invest less. However they receive more interest on money
saved in the bank.
UNEMPLOYMENT
If unemployment is high, then firms have more potential
workers to choose from. More competition for jobs means
that it is easier for a business to keep wages down.

7. UK GDP fell by 2.0% in
Quarter 1 2020
“Services and construction saw record declines with car sales and
restaurants all falling substantially.
Although very few industries saw growth, there were some that
did including IT support and the manufacture of pharmaceuticals,
soaps and cleaning products."
Jonathan Athow, Deputy National Statistician for Economic
Statistics
source: https://www.ons.gov.uk/

8. Social factors
DEMOGRAPHICS
Demographic change is most commonly used to reflect
changes in population such as birth rate, life expectancy and
levels of immigration.
LIFESTYLES
Lifestyles are changing too. We are more health-conscious
so healthy foods and habits are becoming more important to
customers.
TASTES AND TRENDS
Tastes and trends are also changing constantly.

9. 40.42% Individuals
followed a healthy and
balanced diet in the UK
KS conducted a survey on the eating habits among people in
the UK.
It was found that 40.42 percent of the respondents followed
a healthy and balanced diet.
source: https://www.statista.com/

10. Technological factors
ICT
Information Communication Technology can make processes
and communication within a business quicker and more
efficient.
E-COMMERCE
More and more firms are online. This widens the number of
customers and lowers the costs of production but it is highly
competitive.
AUTOMATION
Automation refers to the introduction of machines to do work
that was previously done by people. For example the
introduction of self-scan checkouts in supermarkets means
that fewer employees are needed on the tills.

11. Pandemic Forces Car
Dealers to Do the
Unthinkable: Sell Online
Dealerships have long resisted e-commerce, but with many
showrooms closed, the dynamic is changing.
Cazoo, an online car retailer launched just six months ago
will this week lay claim to the status of becoming Britain's
fastest-ever technology 'unicorn'.
source: https://www.sky.com/

12. Environmental factors
THE PHYSICAL CONDITIONS THAT A BUSINESS
HAS TO DEAL WITH,
Climate change. The weather can have a major impact on a
firm’s sales. Many products and services are seasonal and
good summers mean the increase in sales of fizzy drinks and
sun tan lotion.
THE GREEN CREDENTIALS OF GLOBAL BUSINESS,
Recycling and pollution. Being a ‘green’ firm is also important.
Firms that recycle goods will attract customers who want to
buy from companies that are environmentally friendly.

13. Electric Vehicle Sales
Source: InsideEVs.com and HybridCars.com

14. There are a various external factors that can impact the ability
of a business or investment to achieve its strategic goals and
objectives.
If a business hopes to perform smoothly and successfully, the
management need to take all these elements into
consideration before making any decision.
IN CONCLUSION