EXTERNAL INFLUENCES These are factors that the business can not control (External constraints) PESTEL Analysis is a part of the external analysis that gives a certain overview of the different macroenvironmental factors that a Business has to put into consideration.

Political factors Tax policy, Labour law, environmental law, trade restrictions, tariffs, and political stability. Political factors may also include goods and services which the government wants to provide or be provided (merit goods) and those that the government does not want to be provided (demerit goods or merit bads).

Economic factors These include: Economic growth Interest rates – it affects the cost of capital Exchange rates – it affects the cost of imports and exports Inflation rate – it affects the value of money These factors have major impacts on how businesses operate and make decisions.

Social factors These include health consciousness, population growth rate, age distribution, career attitudes emphasis on safety. Social factors affect the way the business operates, companies may change various management strategies to adapt to these social trends (such as recruiting older workers).

Technological factors These include ecological and environmental aspects such as:- R&D activity, Automation, Technology incentives The rate of technological change. Technological can determine barriers to entry of new firms, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation.

Environmental factors They include weather, Climate change, which may especially affect industries such as tourism, farming, and insurance. climate change is affecting how companies operate and the products they produce - it is both creating new markets and or destroying existing ones.

Legal factors include Discrimination law, Consumer protection law, Employment law, Health and safety law These factors can affect how a company operates, its costs, and the demand for its products.

GLOBALISATION Benefits 1.Offers a wider choice of goods (services). products from other nations 2.Creates competition for local firms and thus keeps prices low. 3.Globalisation promotes specialisation. Countries can begin to specialise in those products they are best at making. 4.It has improved political and social links among different nations. Drawbacks 1.Cheap imports from developing nations could lead to unemployment in developed countries. 2.Choosing to specialise in certain products may lead to unemployment in other sectors which are not prioritised. 3.Increased competition for infant industry. 4.‘Dumping’ of goods by certain countries at below cost price may harm industries in order countries Globalisation means the integration of national economies into the international economy through trade, direct foreign investment, capital flows, migration, and the spread of technology.

PROMOTION OF FREE TRADE 1.Reduced transportation costs, especially resulting from development of containerization for ocean shipping. 2.Reduction or elimination of capital controls 3.Reduction, elimination, or harmonization of subsidies for local businesses 4.Creation of subsidies for global corporations 5.Harmonization of intellectual property laws across the majority of states, with more restrictions. 6.Supranational recognition of intellectual property restrictions (e.g. patents granted by China would be recognized in the United States) Free trade is the elimination of tariffs on imports and exports; creation of free trade zones with small or no tariffs

Exchange rate is the rate at which one country’s currency can be exchanged for another country’s currency. This is where the exchange rate is set and maintained by the government irrespective of the market forces. Fixed Exchange Rate This is where the exchange rate is allowed to fluctuate according to the market forces without the intervention of the Central bank or the government. Floating Exchange Rate Demand for any country’s currency on the foreign exchange market is determined by demand for that country’s exports of goods and services and by changes in foreign investment in that country. This is because when foreigners buy another country’s exports of goods or services they must pay for these in the currency of the exporting country. In the same way Supply of any country’s currency on the foreign exchange market is determined by that country’s imports of goods and services and by its investment in other countries. Thus when the demand for a currency rises its price goes up and it becomes costlier. Currency Appreciation is when the value of the currency goes up as compared to other currencies e.g Earlier 1 Pound could get $1.5, Now 1 Pound can only get $ (because US$ has Appreciated) Currency Depreciation is when the value of currency falls as compared to other currency Earlier 1 Pound could get $1.5, Now 1 Pound can get $1.8 (because US$ has depreciated)

What causes the fluctuation in currency value? 1.Changes in the imports and exports of the country: An increase in exports of a country will lead to an increase in demand for the currency and thus the value rises. 2.Changes in Interest rate: Higher interest rate will attract more foreign investors to invest in the country and thus the demand for currency will rise, resulting in appreciation in value of the currency. 3.Changes in Inflation rate: Higher inflation rate will make the country uncompetitive in the international market. The exports will fall resulting in decreased demand for the currency and hence lower value.