External stakeholders are individuals, groups, or organizations that are not part of a business's internal structure but have a significant interest in or are affected by the business's actions and performance. Understanding external stakeholders is crucial for businesses to navigate their environment effectively and make informed decisions.
Suppliers provide the goods, materials, or services that businesses need to operate.
The interests of suppliers as an external stakeholder group include the following points:
Suppliers are interested in securing contracts for regular orders from their business customers.
They demand prompt payment from their business clients for the orders placed and the deliveries made.
Whilst they may offer larger business customers price discounts, suppliers strive to achieve reasonable prices for the goods and services they supply.
Having a good professional relationship with suppliers means the business is more likely to receive timely deliveries and better credit terms.
A business will use multiple suppliers to purchase raw materials which are then used to manufacture products or they may purchase finished goods to sell onto their customers.
Having a supplier which is reliable and delivers the required quantity of high quality goods on time and at the right price is essential for any business.
If a business has a supplier which isn't reliable, it in turn would let its customers down through either having no stock or poor quality products, which would lead to a loss of customers to competitors.
Suppliers have a vested interested in the business doing well as the more successful the business is using its materials and products, the longer they are likely to supply them.
Also, if a business is performing well, it’s likely to pay its invoices on time etc. which also helps the cashflow of the supplier.
Suppliers are a very influential external stakeholder for a business, for example if the supplier increased their prices the business would either make less profit or would have to increase its own selling price.
Key Points:
Reliability is crucial: Late or substandard deliveries can severely impact a business's operations.
Quality matters: The quality of supplied goods directly affects the final product or service.
Mutual benefit: Suppliers benefit from the success of their client businesses through regular orders and timely payments.
Real-World Application:
Consider a smartphone manufacturer. If a supplier of microchips fails to deliver on time or provides faulty components, it could delay product launches or lead to recalls, damaging the manufacturer's reputation and financials.
Lenders provide financial support to businesses, often crucial for start-ups or expansion plans.
The interests of financiers as an external stakeholder group include the following:
They are interested in the financial health of an organization in order to judge the ability of the business to repay its debts and to generate profits.
They expect regular and prompt repayment of the money lent to the business.
They also demand a positive yield (competitive financial return) on their investment funds.
Lenders are the external stakeholder who lend the business money and can be essential for business start-ups or when a business is wanting to expand and grow.
There are various types of lenders available to businesses such as: banks, credit unions, peer-to-peer lenders, the government, or even family and friends would classify as a lender.
Once a lender has provided a business with money i.e. through a loan, they have a vested interest in that business being successful so they receive their money back in full and on time.
However, lenders have a lot of power over the lending process, they choose who they lend money to, how much they lend, how much interest is charged and how long the business has to repay.
Key Points:
Various types: Banks, credit unions, peer-to-peer lenders, and even family and friends can be lenders.
Interest in business success: Lenders want businesses to succeed to ensure loan repayment.
Power in lending terms: Lenders decide on loan amounts, interest rates, and repayment periods.
Real-World Application:
A small bakery looking to expand might seek a loan from a local bank. The bank would assess the bakery's business plan, financial health, and market potential before deciding on the loan terms. The bakery's success in repaying the loan could influence its ability to secure future financing for further expansion.
Competitors are rival businesses operating in the same market or industry.
The interests of competitors (or rivals) include:
Competitors are interested in the organization’s operations, such as its product range and pricing strategies.
Competitors are also interested in the finances of the business in question, such as its final accounts and how competitive its remuneration package is (such as salaries and fringe benefits offered to its employees).
Competitors also have a vested interest in the behaviour and operations of the business in question as this can affect the reputation and sales of the industry as a whole.
It is not uncommon for rival companies to hold shares in the business in question. For example, Cathay Pacific Airways (CPA) is partially owned by Air China (which holds 30% of the shares in Hong Kong's flagship carrier) and Qatar Airways (which owns 9.4% of the shares in CPA). Porsche owns more than 31% of the shares in Audi (which itself is part of the Volkswagen Group). Sinochem, the Beijing-controlled chemical giant that also produces high-end tyres, is Pirelli's biggest shareholder, with a 37% stake in the Milan-based multinational tyre manufacturer.
Rivals are also interested in benchmark data to measure their own performance, such as sales turnover, market share, and financial ratio analysis.
Nearly every business has some form of competitor as an external stakeholder. It is crucial for businesses to understand their competition to ensure they can be competitive in the market they operate within.
Competitors are very influential in business, every business can directly or indirectly affect the performance of its competition. Just a simple price drop or promotion can literally draw customers away from the competition, just think about the supermarket industry and the price wars and intense competition which exists.
Essentially, businesses in any industry should conduct regular competitor analysis to analyse what their competitors sell, how they sell it, and for what price etc. which allows the business to make more informed business decisions, attract customers, and influence their business positively.
Key Points:
Drive innovation: Competition often leads to improved products and services.
Market influence: Competitors' actions can directly affect a business's market share and pricing strategies.
Benchmark for performance: Businesses often measure their success against competitors.
Real-World Application:
n the electric vehicle market, companies like Tesla, Nissan, and traditional automakers constantly innovate to outperform each other. This competition has led to rapid advancements in battery technology, driving range, and affordability of electric vehicles.
Debtors are individuals or organizations that owe money to the business, often customers who have purchased goods or services on credit.
Debtors of a business, are those people or organisations which owe the business money from a previous agreement such as the sale of goods in which the buyer of those goods has a set amount of time to repay e.g. 30 days after receipt. In this case, the buyer would become a debtor of the business.
In business, it is common for money not be exchanged at the point of sale.
In the B2C (Business to Customer) world, many businesses often offer credit terms for customers such as a ‘buy now pay later’ credit agreement, often giving the customer 3, 6 or 12 months to pay for the goods they purchased.
In the B2B (Business to Business) world, many businesses offer credit terms for their business customers such as the ability to pay through invoice, giving the business purchasing goods a set amount of time to repay them without penalty.
Offering credit to customers was originally for big ticket items but you can now take credit out on small items and spread the cost of most purchases i.e. for a pair of trainers.
Key Points:
Cash flow impact: Managing debtors is crucial for maintaining healthy cash flow.
Credit terms vary: Businesses may offer different credit terms for B2B and B2C transactions.
Changing landscape: Credit is increasingly available for smaller, everyday purchases.
Real-World Application:
A office furniture supplier might offer 30-day payment terms to its business customers. This allows the customers to furnish their offices and potentially generate revenue before paying, but requires the supplier to manage its cash flow carefully.
Creditors are individuals or organizations to which the business owes money.
Creditors are the people or organisations which money is owed to.
If a business has debtors, then by default it is a creditor itself as it is owed money by its customers e.g. for goods it has supplied. However, many businesses rely on creditors to support their cashflow and it is very common for suppliers to be a creditor of a business.
For example, if a supplier offers a business the option to pay for their goods in 30 or 45 days after purchase, it allows the business to sell some of these goods or produce goods from raw materials to generate additional cash before paying the supplier.
Key Points:
Role reversal: A business can be both a creditor (to its customers) and a debtor (to its suppliers).
Cash flow management: Being a creditor can support a business's cash flow by encouraging sales.
Balancing act: Businesses must balance being a creditor with managing their own debts.
Real-World Application:
A construction company might be a creditor to its clients (allowing them to pay in installments as the project progresses) while also being a debtor to its suppliers of building materials. Managing this balance is crucial for the company's financial health.
Customers are vital external stakeholders who purchase products or use services offered by a business.
Customers are the people or organisations which purchase the products or use the service offered by the business.
It’s also important to understand that customers can be either internal or external.
Internal customers are those who are directly related to the business such as the employees of the business, who are often given staff discount as a benefit for working for the business.
External customers are those who don’t have any direct connection to the business and bring revenue into the business in exchange for a product or service.
Without customers a business cannot be successful nor can it survive over the long term, It could be argued that customers are one of the most influential when it comes to the success of the business and should be viewed as a long term asset.
Key Points:
Can be internal (e.g., employees) or external (general public)
Crucial for business success and survival
Customer satisfaction leads to loyalty and positive word-of-mouth
Dissatisfied customers may switch to competitors or leave negative reviews
Impact on Business:
Directly affect revenue and growth
Influence product development and service quality
Can be viewed as long-term assets
Real-World Application:
A restaurant chain that consistently provides excellent food and service is likely to develop a loyal customer base. These customers not only provide regular business but also recommend the restaurant to others, contributing to its growth and success.
Government bodies at local, national, and international levels that influence and regulate business operations.
The government can be a very influential external stakeholder for any business as the laws which are set by the government lay the boundaries that businesses must operate within which can often hinder businesses and leave the owners of the business feeling restricted and frustrated etc. especially as government rules and regulations are constantly changing, businesses can find it difficult to keep up to date.
However, it is in the interest of the government for businesses to do well as it is good for them and the economy in general e.g. the more successful a business is, the more tax the business is likely to pay from its profits and the more employees the business is likely to hire, which in turn means more wealth for the general population and more spending power which boosts the economy further etc
Key Points:
Set laws and regulations that businesses must follow
Can both support and restrict business activities
Have a vested interest in business success for economic growth
Impact on Business:
Influence operational boundaries through laws and regulations
Provide support through policies and initiatives
Collect taxes from business profits
Government stakeholders exist at multiple levels, each with unique impacts on businesses:
Examples: County councils, city councils, parish councils
Impact:
Regulate local business operations (e.g., zoning laws, local permits)
Provide local infrastructure and services
Collect local taxes and fees
Examples: Department for Business, Energy and Industrial Strategy, HM Revenue and Customs
Impact:
Set national business regulations and policies
Implement and enforce tax laws
Provide national-level support and initiatives
Examples: Foreign and Commonwealth Office, Department for International Trade
Impact:
Facilitate international trade relationships
Negotiate trade agreements
Provide support for businesses operating internationally
Real-World Application:
A UK-based company expanding into the EU market would need to navigate local regulations in the new country, comply with UK national export regulations, and adhere to EU-wide standards, demonstrating the multi-level impact of government stakeholders.
The local population and environment surrounding a business's operations.
The local community involves the people who live in the local area of the business, you could refer to them as neighbours of the business.
Essentially, anyone who is impacted or potentially impacted by the actions of the business and vice versa i.e. the business would also be interested in anyone in the local area who is impacting or could potential impact the business.
In general terms, the local community is concerned with the impact which businesses in their local area are having on jobs and prosperity, as well as their impact on the local environment and infrastructure.
For example, if a business was providing hundreds of jobs across a local community, this would be seen positively across the community. However, if the same business was damaging the local environment through its operations, this would be seen negatively and may cause unrest across the community.
Key Points:
Concerned with job creation, local prosperity, and environmental impact
Can support or oppose business activities
Interactions can affect a business's reputation and operations
Impact on Business:
Source of potential customers and employees
Can influence local government decisions affecting the business
May protest against harmful business practices
Real-World Application:
When a large retailer plans to open a new store, it often faces scrutiny from the local community. Concerns might include increased traffic, impact on local small businesses, or environmental effects. The retailer may need to engage with the community, potentially modifying plans or offering community benefits to gain support.
Community stakeholders also operate at different levels, each with distinct concerns and influences:
Scope: Immediate neighborhood or town where the business operates
Concerns:
Job creation and local employment
Environmental impact on the immediate area
Effects on local infrastructure and services
Scope: Broader national community and public opinion
Concerns:
Company's contribution to national economy
Alignment with national values and priorities
Influence on national policies and practices
Scope: Global community and international public opinion
Concerns:
Global environmental impact
Fair labor practices across international operations
Contribution to global economic and social issues
Real-World Application:
A multinational corporation opening a new factory would need to consider:
Local level: Addressing concerns about noise, traffic, and local job creation
National level: Ensuring compliance with labor laws and contributing to national economic goals
International level: Maintaining ethical standards across global supply chains and addressing concerns about carbon footprint
This video showcases an excellent example of how businesses can positively engage with external stakeholders, specifically the local community. Nissan, a major automobile manufacturer, is seen participating in a home-building project for first-time homeowners. This initiative demonstrates the company's commitment to corporate social responsibility and community development. By involving both Nissan owners and employees in the project, the company is strengthening its relationship with multiple stakeholder groups simultaneously.
The emotional responses from the beneficiaries highlight the positive impact of such corporate initiatives on the local community. This approach not only enhances Nissan's reputation but also fosters goodwill among its customers and the broader community, illustrating how businesses can create mutual benefits by actively engaging with their external stakeholders. Such activities can lead to increased customer loyalty, improved employee satisfaction, and a stronger, more positive presence in the local community - all of which are valuable outcomes for a business in managing its relationships with external stakeholders.
Organizations that aim to influence business practices in line with specific causes or values.
Pressure groups exist to put pressure on businesses to influence their actions in what they deem to be a positive and progressive manner. They can be formed for any reason where a collective group of people share the same values and beliefs with the aim of influencing change.
There are thousands of pressure groups which exist across the world and it’s important to be aware that they don’t exist to take power away from businesses or want any power themselves, they just want to influence those in power. For example, the typical pressure group will aim to influence businesses to act in a more ethical manner and environmentally friendly way.
There are many ways in which a pressure group can influence change in a business such as: physically protesting and organising demonstrations, running marketing campaigns against the business, and writing formally to MPs and the press so the business receives negative publicity and scrutiny with the hope that this pressures the business to change according to the focus of the campaign.
Key Points:
Focus on promoting ethical and environmentally friendly business practices
Use various methods to influence businesses, including protests and media campaigns
Do not seek power for themselves but aim to influence those in power
Impact on Business:
Can affect public perception and reputation
May lead to changes in business practices or policies
Can create both challenges and opportunities for businesses
Real-World Application:
Environmental groups pressuring fashion brands to adopt more sustainable practices have led to significant changes in the industry, with many companies now emphasizing eco-friendly materials and transparent supply chains.
Collections of individuals or organizations with shared interests or concerns about a business or industry.
Interest groups are a collection of members (people and/or organisations) who have a shared interest or concern e.g. about a particular business or an entire industry.
Collectively the members of an interest group aim to influence factors such as public policy or regulators to benefit themselves or their cause.
They aim to influence change by lobbying against the policy makers e.g. a collection of farmers might lobby against the government to increase the subsidies farmers receive.
Key Points:
Aim to influence public policy or regulations
Often focus on specific industries or business sectors
Use lobbying as a primary method of influence
Impact on Business:
Can affect industry-wide regulations or policies
May represent business interests to policymakers
Can lead to changes in subsidies, tax policies, or industry standards
Real-World Application:
A group of small business owners might form an interest group to lobby for changes in tax policies that benefit small enterprises, potentially leading to new legislation that affects all businesses in their category.