The term environment has multiple features. During this unit, you will have recognised how the economic environment has influenced businesses, for example retail outlets and businesses closing down due to the recession. Some shops such as high-end brand retailers, pound shops, technology, gambling sites and pawn brokers have thrived, while others have had to close down due to lack of sales. There are many external factors which will have positive and negative affects for businesses. To be successful a business must identify these and take appropriate actions to limit or exploit their impact effectively.

Businesses have no direct control over the external environment, they cannot change them easily and have to decide how best to deal with them. The external environment impacts on businesses are comprised of many factors. These factors are often used by businesses to analyse how and why they will be successful or unsuccessful-this analysis is known as "PESTLE"  and stands for:

Political

Economic

Social

Technological

Legal

Environment

There are many examples of PESTLES online, searching for PESTLES on an industry or a country in a particular year might provide you with a useful starting point. You will also find many useful stories on News websites. BBC news has a wealth of stories on big companies particularly in the Business section.

Click here to see an example of a simple PESTLE analysis for the retail industry in 2023.

Click here to see an example of a PESTLE analysis on Ireland business in general 2023.

Click here to see an example of key economic factors affecting UK businesses in 2023.

When you find useful information you can explain the issue and most importantly how it applies to your chosen business.

Government support, such as monetary grants or promotion, can inject considerable enthusiasm into new business ideas such as wind farms and solar panels. Although grants are time constrained, you have probably noticed both of these examples springing up around the country. Of course, there is a motive for government support according to government policy and promises.

The government website is regularly update with announcements. You may also recall the example of governemnt bail-out when Northern Rock and the Royal Bank of Scotland(RBS) were in financial trouble. However, there are plenty of business owners who claim government do little to support their sectors.

Membership of trading communities-

Businesses can benefit from being members of trading communities. These are often sector related, such as retail, health, publishing, tourism,catering, etc. and provide networking opportunities, advice, news and opportunities to buy or sell equipment, services, training, etc.

The European Union-

The Eurpoean Union(EU) is another form of trade association. The EU promotes itself as the "best way to realise our global future". Being a member of any trade association gives credibility in the eyes of the customer, just as you would expect a gas fitter or service engineer to be Gas Safe registerted. It can be seen to open doors to opportunities that are closely guarded or seen as exclusive.

These are about how the government and political situations can impact a business. These can be both positive or negative.

Example: If the government provides tax incentives to companies that use renewable energy, a solar panel manufacturing company might benefit. Think about the eat out to help out scheme launched during Covid times.

By searching for key political issues in the UK 2023 we can access this useful resource which is again applicable to all UK companies.

POSSIBLE POLITICAL ISSUES FOR UK BUSINESSES 2024

Covid

BREXIT

Cost of Living

Carbon Neutrality

Ukraine War

Israel Gaza Conflict

Unstable UK Conservative Government

Lack of Government in NI

Change of government in UK

Change of government US

Great article on impact of Brexit 

Economic factors greatly influence the success or demise of businesses. As you know, the recession has been blamed for the closure of thousands of high street stores. These businesses may have failed to take into account economic needs of high street stores. These businesses may have failed to take into account economic needs, competition and technological advancements. You have also learned about the success of new or diversified businesses, informed by government initiatives such as solar panels and air source heating.

Fiscal

This relates to government revenue, for example from taxes and affects every type of business. It is government controlled and dictates levels of taxation based on the cost of borrowing. This is how the government generates its income and decides its budget. Every business owner and its decision makers cannot ignore changes to fiscal policy.

Monetary and other government policies

Monetary policy affects everybody as it relates to the value of our currency and interest rates. This policy is determined by the government and decisions about how to meet expectations are controlled by the Bank of England and the Monetary Policy Committee(MPC). All businesses are affected by decisions made by the MPC.

Supply side policy

These policies aim to improve productivity and produce economic growth. Ways to achieve this include reducing taxes, such as income tax in 2014, and reducing corporation tax (the tax paid by private and public limited companies) in 2015.

Economic Growth

The government is striving to grow the economy so that the UK does not return to a recession. If you imagine that the government is you, look at your own financial circumstances. Calculate how much money you have coming in and how much you expect to spend. What is left? Everyone needs money to survive, so you have to ensure that you do not spend more than you can afford or else you have to find ways to grow our economy at international, national, regional and local levels according to opportunity and need, for example, building projects, the Help to Buy scheme, and increasing job and training opportunities.

These policies aim to improve productivity and produce economic growth. Ways to achieve this include reducing taxes, such as income tax in 2014, and reducing corporation tax (the tax paid by private and public limited companies) in 2015.

Exchange Rates

Another factor influencing the success or failure of businesses and our economy is exchange rates. These can fluctuate greatly and how our UK currency, pounds sterling, compares with the US dollar, euros and the Japanese Yen is analysed daily. Each of these currencies is influential in the UK'S purchasing and selling power globally, although not exclusively, depending on the countries trading. 

Exchange rates are influenced by many factors such as unemployment, inflation (a general increase in prices and fall in the purchasing value of money) and other complex factors such as the activity on the stock exchange and speculation. In other words, how much our currency is worth when trading with other countries. You may well have experienced fluctuations if you have ever bought foreign currency to go on holiday.

Imagine the impact fluctuating exchange rates have on the travel industry. Airlines, rail and logistics companies are just a few of the businesses which must try to forecast their incomewhile anticipating the costs of running the business, for example vehicle maintenance, fuel costs and the predicted number of passengers etc.

Exchange rates are partly responsible for fluctuating oil prices. For example, in the summer of 2015 the price of petrol was 30p per litre less than two years previously. Consider what other factors might have influenced this reduction.

These involve the economy's health and policies that affect businesses.

Example: If a government lowers interest rates, it becomes cheaper for businesses to borrow money for expansion.

Again thinking carefully about suitable search criteria will help you to access useful links. By searching for Key economic factors affecting US economy we get this very useful report which will be applicable to all businesses operating in the US.

Attitudes to saving

Banks and the government rely on people to save money. The money saved is used to boost the economy as it is borrowed by business and householders for mortgages, etc. However, with less money in people's pockets (disposable income) and interest rates remaining at a low rate previously unheard of, banks and governement are finsing it difficult to encourage saving. This is why the government has introduced initiatives such as increasing the amount that can be invested in ISAs and premium bonds.

Spending and Debt

Changes to spending habits influence the types of business that can start up and expand. For example, recent times have seen an increase in pawn brokers, gambling sites, pound and charity shops, payday lenders and businesses like Bright House which offer weekly payment schemes. (Charity shops do not have to pay business rates.) By ocntrast, pubs, building contractors, clothing furniture and photography stores etc are struggling to survive.

Social Responsibility Requirements

A sense of social responsibility also influences spending habits. For example, with the increase of charity shops people can make their own money go further while also helping a good cause. Consumers are being encouraged to consider ethical matters and the consequences of their actions much more. According to the Office of National Statistics (ONS), sales of tobacco and alcohol have dropped while the biggest growth area is recreation and culture, although this includes mostly electronic goods.

Change

Changes, for example to th edemographic trends (the characteristics of a country's population), can have a significant influence on business. For example, in Slough, Berkshire, there is a wide diversity of ethnicity which has led to new businesses catering for specialist foods, local governments services and training opportunities. In Kent, there are large Nepalese settlements, while in other areas of the UK, immigrants from Somalia are building communities. These are just a few of the factors influencing our businesses.

Consumers' tastes/preferences

Changes to consumers' tastes or preferences also influence the nature of businesses. For example, the food industry is now strongly influenced by foreign foods and recipes, while fast food remains very popular. There have been increases in restaurants such as burger chains and "simple" food restaurants: for example, one London restaurant is dedicated to grilled cheese sandwiches and one to just cereal.

However, tastes can also remain unchanged- reports from the Foreign and Commonwealth Office (FCO) reveal that our favourite takeaway food is still traditional fish and chips.

These are about how people's attitudes and preferences influence business.

Example: If more people are health-conscious, a smoothie bar might see increased demand for its products while fast food restaurants may see a reduction.

Often social issues are directly influenced by political and economical issues. For example the cost of living crisis is going to have an affect on people's attitude towards spending. Similarly Covid will have had an affect on people's attitudes towards health/lifestyle, vacinations and also spending. Large companies often take stances against political events such as the wars in Israel and the Ukraine. These can also have an affect on people's perceptions of their business.

Technological advancements and changes influence business and create opportunities for new businesses. During the mid 1980's, businesses started to introduce fax machines, and electronic typewriters and word processors became commonplace. Early adopters used computers although few employees were skilled in their use. By the mid 1990'2, this led to a change in the training courses and qualifications being offered to meet demand and public interest; by the early 21st century internet usage was almost a necessity for business to function.

Automation

Automation has been in existence for a long time, with robots building cars, but, if traced back it could be claimed that automation appeared sd early as the 8th century. The first programmable robot was developed in 1954 and robots were first introduced into the motor industry in 1962.

Of course robots are not the only form of automation. Today we take it for granted that we spend much of our everyday lives interacting with some form of automation. This includes buying tickets, setting alarm clocks, timers for heating, water, cooking, programming washing machines etc. Even certain surgical procedures or treatments are carried out to some extent by automation.

Improved Communications

Technologically , improved communications have changed the way businesses operate and especially how they are structured, for example more people can now work from home or remotely. This has led to WiFi connections being provided on trains, in stations, on ships, in aeroplanes, in restaurants, coffee shops, shopping centres and open spaces. All this encourages us to take work on holiday or maximise travel time into business time.

New businesses are increasing rapidly and some innovative ideas may even operate from a "back bedroom"- these are sometimes basedon a new craze, such as the aluminium scooter in the mid 1990s. However, unless business owners know how to sustain their business idea, and can cope with changes in demand, they can be short lived. One recent "back bedrrom" innovation is that of Marc, "inventor of Sublime Science children parties.

This relates to advancements in technology that can affect businesses.

Example: With the rise of online shopping, traditional retail stores might have to adapt to the changing landscape.

Artificial intelligence will also undoubtedly be a popluar topic for discussion although it may not have made a significant impact on all businesses or industries at present.

Certain legislation must be compiled with in business otherwise heavy fines are imposed and even imprisonment. Some of the laws affecting businesses are outlined below.

Law/Regulation: Partnership Act 1890

Business type affected: Partnership

What it means: All partnerships are governed by this Act regardless of whether the partnership has been registered as a legal partnership or limited company.

A partnership can only be dissolved if one partner wishes to retire or unfortunately dies. A partner cannot be sacked or made redundant. Regardless of the time as a partner or contribution to the business, partners must have equal share of all profits and losses, unless other legal contracts are in place stating otherwise.

Law/Regulation: Companies Act 2006

Business Type Affected:  Limited, unlimited, private and public companies

What it means: This act sets a code of conduct for businesses to operate to protect the business and it's operations (both internally and externally), its employees and its shareholders. This act informs company policies and their operations including financial, rules for forming and dissolving a business.

Law/Regulation: Charities Act 2011

Business Affected: Registered charities, non profit

What it means: The aim of this Act is to protect the charity and its fundraising activities in line with business expectations. All fundraising activities exceeding £10,000 per year must register as a charity. Charities have to set up trustees to ensure the charity operates within the law. They are not being responsible for debts but can face greater public liability.

Law/Regulation: Competition Act 1998

Business Affected: Any business

What it means: This act came into force to prevent domination by any one busioness by addressing:

• anti-competitive agreements which prevent, restrict or distort competition in the UK

• abuse of dominant market positions which prohibits limiting production, markets or technical development to the detriment of the consumer.

Law/Regulation: UK Corporate Governance Code

Business Type Affected: Public sector including schools, colleges.

What it means: This code comprises the rules and regulations which all governing bodies need to comply with and legal requirements for operating, including:

• formal financial accounts

• record keeping of decision-making such as minutes of all meetings

• rules by which governing bodies conduct themselves including requirements for holding meetings (frequency, attendance)

• Who can and cannot be a governor

Law/Regulation: Financial Services Regulation

Business Affected: Financial Organisations

What it means: These are rules which act to protect consumers and provide monitoring of financial activities by third parties, for example auditors. The Stock Exchange is regulated by these guidelines, just as banks and other financial services are supervised.

Law/Regulation: Industry Regulators

Business Affected: Sector specific

What it means: These regulators act as supervisors to ensure conformity and compliance across business sectors. For example, Gas Safe regulate gas appliances, fitting, servicing and manufacture.

The Care Quality Commission is a health regulator. The Health and Safety Executive (HSE) regulate all aspects of business (and personal) operations.

All businesses must have their regulators, including registered charities (Charity Commission of England and Wales).

Your qualifications are regulated by Ofqual to ensure they are relevant, appropriate and of sufficient quality.

Law/Regulation: Government departments

Business Affected: All businesses and the public

What it means: The government has many departments aimed at ensuring everyone operates in a responsible and trustworthy manner and for the benefit of public good.

Businesses are responsible for keeping up to date with developments and changes to legislation and regulations. Ignorance cannot be used as an excuse for non compliance.

All rules and regulations, including laws, can be difficult to understand and are easily misinterpreted. Always seek professional advice if in doubt. This is why large organisations often employ their own legal department, just as the place of your study may have a specialist in their governing body.

This involves laws and regulations that affect how businesses operate.

Example: If a new law mandates stricter data protection, companies might need to invest in better cybersecurity measures.

Remember, these factors don't work in isolation. They often interact, creating a complex web that businesses need to navigate for success. Businesses that adapt well to these factors can gain a competitive advantage.

Again searching for key laws within a country or regulations within an industry may prove useful here. This link is to a new law coming in to force in the UK in the near future.

Environmental factors are factors outside of the business over which you have no control. More than ever, businesses and individuals are concerned about environmental factors and ethical trends. We all share a sense of social responsibility for our survival and that of the planet. Factors are outlined below.

Ethical trends are trends determined by moral principles.

Carbon emissions:

This means an impact on business costs such as increased taxes imposed on fuel.

Waste:

Household rubbish must now be segregated between different bins which the council collect and dispose of in controlled ways. Landfill sites are also heavily regulated, as is how water and sewage are disposed of.

In order to reduce the waste from bags given out by supermarkets and larger stores the government imposed a charge on plastic bags from October 2015.

Recycling:

Businesses must comply with the government's green policies which ultimately impact on all our lives. The government's "lets recycle" policy is under review in their quest for zero waste.

Examples of businesses built on recycling include The Recycling Factory, which sells ink cartridges, and TRAID, which remakes donated clothes for resale.

Pollution:

The amount of pollution produced impacts on our health, buildings and surroundings. Demand for reduced pollution is forcing businesses to close, such as Didcot Power Station, demolished  almost 43 years after it opened in 1970.

Businesses can benefit from being seen to support environmental issues, for example, those affecting the planet, the food we eat and people's welfare, such as Fairtrade food production, recyclable products, free range eggs, etc.

Organisations can also be forced out of business if they don't consider environmental factors and ethical trends. One of the biggest law suits ever in the USA was won in 1996 when Pacific Gas and Electric were forced to pay damages due to chromium water contamination which impacted on hundreds of people's lives.

Some businesses choose to adapt their business operations, for example Pret A Manger have made changes to their plastic packaging to make it more environmentally friendly.

These factors consider a business's impact on the environment and society.

Example: A clothing company using sustainable materials might attract customers who value ethical and eco-friendly products.