External Factors that Impact Business Decisions (Edexcel IGCSE Business)

Government stability and trading relationships

• In stable regions, businesses can plan their activities and invest in the knowledge that political factors are unlikely to have an unexpected impact
  
  
• If governments make trade agreements with other countries or join trade blocs businesses may benefit from easier trade of goods and services

Tax regulations

• Tax rates can be raised or lowered according to government priorities
  • E.g. Carbon taxes encourage manufacturing and energy businesses to reduce emissions
    
    
• Tax loopholes can be closed to increase tax revenues and improve fairness in the tax system
  • E.g. From 2024, the UK government will require online marketplaces such as Ebay to report sellers' revenues so that individuals earning more than a modest amount can be taxed on earnings

Trade restrictions

• Governments restrict the sale of some products to buyers in other countries
  • E.g. Arms manufacturers are usually prohibited from selling weapons to unstable foreign regimes
    
    
• Protectionist measures such as the application of tariffs and quotas can be applied to imported goods
  • E.g. The US government applies tariffs to most Chinese manufactured goods

Investment in public services

• Governments set budgets for key public services, including education, healthcare, transport and national security
  • E.g. The Portuguese government prioritises spending on infrastructure and [popover id="N28FxuQymRXBFVE8" label="R&D"] to grow its economy
    • Spending on public services has risen while labour costs have fallen
    • Exports have risen and increased foreign direct investment is taking place in the growing economy

• Change laws to make environmentally-damaging practices illegal
  • E.g. Ban hazardous materials in manufacturing processes 

• Impose financial penalties on businesses that break environmental regulations and order them to clean up environmental damage

• Curb business activities that cause environmental damage
  • E.g. Pollution permits allow businesses to pollute up to a certain limit

Social Factor

• Education can change the level of skills in an economy
• A better educated workforce may mean that the economy can move from a primary dominant sector to a secondary sector

  • Higher levels of education open up well-paid employment opportunities
    
    

• Knowledgeable, skilled employees help develop innovative products

  • E.g. India's young and well-educated population is highly skilled in IT, leading to many multinationals locating support services in the country

Migration

• Some countries have seen significant movement of populations towards cities (urbanisation)

  • This provides increased labour and creates new markets for businesses operating in cities
     
• In some countries, the lack of availability of lower-skilled labour has caused significant problems
  • E.g. UK food producers have struggled to recruit domestic seasonal workers to pick and process crops since 2016

Awareness of contemporary issues

• Consumers are better informed about global issues than ever before
  
  • E.g. Indonesia, Vietnam and the Philippines have customers that are more eco-friendly than the global average
    
    
• Businesses need to meet these consumer needs by providing goods and services that allow them to shop locally, be environmentally friendly and be ethical

Demographic structure

• Ageing populations as a result of reduced mortality and low birth rates create new markets for businesses
  
  • E.g. Businesses such as Arts Abroad offer focused trips targeted at single, mature travellers
    
    
• Individuals live healthy lives for longer due to improved healthcare and remain in work for longer
  • Businesses may benefit from the loyalty of older workers but may need to offer more flexible contracts

Social mobility

• Groups such as women and those with disabilities increasingly work, increasing labour supply for businesses
  
  • E.g. Insurance company Allianz operates a positive disability discrimination policy, offers a range of flexible working options and runs an internal network for employees with disabilities
    
    
• Businesses may need to consider access arrangements and vary working contracts to attract these workers

Databases

Email & Messaging Apps

Bespoke finance programs

Online technologies

• These allow efficient and convenient storage and interrogation of data

• This technology speeds up communication processes

• These are used to process transactions quickly and accurately

• These allow for e-commerce activity, online marketing and the rapid sharing of data