The document discusses how businesses are affected by factors in the external environment that are outside of their control, including political, economic, social, technological factors. It introduces the PEST analysis framework for examining the external environment and provides examples of how different external factors impact businesses and should be considered in their objectives and strategies. The document also gives specific examples analyzing how certain external and economic factors impact businesses.

1. External
Environment
By Alex Arancibia, for Nuevo Mundo High School – Gye, 2012
Sources: - Business and Management for IB, Paul Hoang, 2007
- Business and Management for IB, Peter Stimpson, 2011
- Business and Management for IB, Paul Clark, 2009

3. Businesses depend for their survival on
understanding and responding to external
factors that are beyond their control. Many of
the factors are ‘constraints’ because they may
limit the nature of decisions that business
managers can take.

4. PEST Analysis
An acronym standing for political, economic, social,
technological that refers to an analytical framework
for external environment factors affecting business
objectives and strategies. PEST is sometimes
rearranged as STEP and has also been extended to
STEEPLE (social, technological, economic,
environmental, political, legal and ethical) and
PESTLE (same categories as STEEPLE but without
ethical considerations)

5. Political
In most countries, political and legal constraints on a business
fall into the following main categories:
● employment laws
● consumer protection laws
● business competition laws
● political changes resulting from a new government, e.g. policies
towards foreign direct investment by multinationals
● major policy changes such as nationalizing some banks in the
US and UK after the 2008–9 crisis.

6. Employment rights
In China, current employment rights are governed by the
PRC Employment Law of 1995. There are 13 sections
to this law which cover almost all aspects of
employment relationships. These include working
hours, holidays, health and safety, training, social welfare,
disputes and discrimination on the grounds of race, sex,
disability or age.
1 Why do you think the Chinese government introduced such a wide-
ranging law as this, covering all aspects of employer–employee
relationships?
2 Do these laws help or damage business interests? Explain your
answer.

8. Economic
Mainly four macro-economic objectives:
● economic growth and rising living standards
● low levels of inflation
● low levels of unemployment
● balance of payments equilibrium, over time,
between the value of imports and exports.

9. Economic
Governments use tools known as 'policies' to
achieve their objectives. Mainly fiscal and
monetary policies.
fiscal policy changes in government spending
levels and tax rates
monetary policy changes in the level of interest
rates which make loan capital more or less
expensive

10. Economic

Fiscal policy

Direct

To income, wealth or profit

Indirect

Sales tax, such as VAT, or demerit goods

11. Economic

Fiscal policy

Progressive: proportion of tax increases as the
income increases

Regressive: proportion of tax falls as income of
taxpayer rises

Proportional: percentage of tax remains the same,
irrespective of income.
Common examples of taxes: income,
corporation, sales, capital gains,
inheritance, excise, customs, stamp

13. Economic

Monetary policy

Is designed to control the amount of spending
and investment by altering interest rates to
affect the money supply and exchange rates.

What are the implications of higher interest
rates?

14. Economic
Monetary Policy
Businesses are charged varying levels of
interest rates for four main reasons:
-Risk
-Time
-Administration costs
-Expectations

15. Economic

Growth – trade cycle (business cycle)

16. Economic

Growth

Balance of payments
• Current account: X – M
• Capital account: flows of money, government
reserves, foreign currencies.

Exchange rate
• Appreciation
• Depreciation

Protectionism

Tariffs, quotas, subsidies, embargos, tech and
safety standards

17. K&Q sell jeans in the UK. They buy their jeans
from an American supplier and import 10,000
pairs for a cost $30 each, per month. K&Q
then sell these to customers at a price of £30
each

18. a. Use the various exchange rates to complete
the table below.
b. Comment on the relationship between
changes in the exchange rate and the level of
profits.
c. By engaging in international trade, explain two
other costs K&Q might incur.
d. Examine how a (£)
Exchange
rate
Pucrchase
cost ($) high exchange rateor Loss (£)
Purchase
cost
Sales
revenue (£)
Profit can be
both an opportunity and a threat to a business
£1 = $1.00
such as K&Q
£1 = $2.00
£1 = $1.50
£1 = $2.50

19. Economic

Inflation

Demand Pull inflation

Cost Push inflation

How does inflation impact on international
competitiveness of a country?

How do governments control inflation?

20. Economic

Unemployment

What are its social costs?

What are its economics costs?

What do governments do to tackle
unemployment?

21. Economic

Unemployment policies

Demand-side

Expansionary fiscal

Expansionary monetary

Protectionist measures

22. Economic
Unemployment policies
-Supply-side
-Stimulate investment and business
activity
-Education and training

23. Economic

Types of unemployment

Frictional / transitional

Seasonal

Technological

Regional

Structural

Cyclical

24. Social and Cultural
The attitude of a society towards a wide range of
different issues will affect what good and
services are provided in the economy
The structure of society is constantly evolving.
The changes occurring in many countries
include:
● an ageing population with reduced birth rates and longer life
expectancy, although in some nations the average age is falling due
to high birth rates
● changing role of women – increasingly seeking employment and
posts of responsibility in industry
● improved education facilities – resulting in increasing literacy and
more skilled and adaptable workforces

25. ● early retirement in many high-income countries – leading
to more leisure time for a growing number of relatively
wealthy pensioners
● in some countries, rising divorce rates – creating
increasing numbers of single-person households
● job insecurity, often created by the forces of globalization
– forcing more employees to accept temporary and part-
time employment (some workers prefer this option)
● increased levels of immigration – resulting in changing
and widening consumer tastes

26. An ageing population
The main effects associated with an ageing
population are:
● a larger proportion of the population over the
age of retirement
● a smaller proportion of the population in lower
age ranges, e.g. 0–16 years old
● a smaller number of workers in the economy
but a larger number of dependants, that is
below working age or retired – this puts a
higher tax burden on the working population.

27. An ageing population
Business objectives and strategy will need to adapt to:
● changing patterns of demand. There will be more ‘grey’
consumers than teenagers and they buy different products.
Therefore, a construction company might switch from building
large apartments for families to smaller units with special
facilities for the elderly. Market research will be important for a
business that believes the demand for its portfolio of products
could change as the population ages.
● a change in the age structure of the workforce. There may be
reduced numbers of youthful employees available, and
businesses may need to adapt their workforce planning to
enable the employment of older workers, or to keep existing
workers beyond retirement age. Although younger employees
are said to be more adaptable and easier to train in new
technologies, older workers may show more loyalty to a
business and will have years of experience that could improve
customer service.

28. Changing patterns of employment
The main features of changing patterns of employment include:
● an increase in the number of women in employment and in the
range of occupations in which they are employed
● an increase in student employment on a part-time basis – some
industries are substantially staffed by students and part-timers, e.g.
McDonald’s; most other fast-food shops and supermarkets are
largely staffed in this way
● an increase in temporary, part-time and flexible employment
contracts – these are introduced by employers to reduce the fi xed
costs of full-time and salaried posts and to allow for flexibility when
faced with seasonal demand or uncertainties caused by increasing
globalisation
● more women taking maternity leave and then returning to work.

29. -Identify two changes to the structure of the labour workforce forecast over this period.
Explain how these changes might have an impact on the human resources strategy
of a business.
-Evaluate whether a business should provide more than the basic legal minimum in
terms of conditions of employment and health and safety at work.

30. The impact of multiculturalism
The most consumed take-out food in the UK is
not fish and chips or the American hamburger
but the Indian curry.
Look at the immigration issue in the US which
evolved into the 'Arizona Law'.

31. Technological
Technological change is affecting all businesses
and all departments within business.
Think of two simple things people do:

checking a bank account balance

Sending a résumé
How has technology affected these two
processes?

32. Impact of applications of technology on business

33. Impact of applications of technology on business

34. Impact of technology in objectives and
strategies

Costs

Regular training costs

Redundancies

Higher profits in the future

Labor

Adaptation

Job security

Motivation

Trade union interventions

35. Impact of technology in objectives
and strategies

Management

Computer literacy

Data processing for decision making

Reviewing and controlling

Monitoring competition

36. Environmental

Externalities: +/-

Public awareness: for example, global warming

Weather changes: Tsunami SE Asia (2004),
Katrina US (2005)

Health: Mad cow disease (late 90s), Bird flu
(2006), Swine flu (2009),

37. PEST Analysis of Pepsi
The PEST analysis method has been successfully applied by Pepsi, which
has obtained economic advantage in its industry. The PEST analysis
method and examples specific to Pepsi are seen in the following factors:
Political: The manufacture, delivery, and use of numerous Pepsi products
are subject to many federal regulations, like the Food, Drug and Cosmetic
Act. The business is also governed by government and foreign rules. The
international business is subjected to the political stability.
Economic: The products of Pepsi are influenced by the raw material yield
being used in the soft drinks, juices, etc. All distribution is affected by the
cost of fuel. Operations in international markets involve the study of
unpredictable changes in foreign exchange rate. The economic impacts of
such movements are serious because these affect the growth. Pepsi is
also subjected to availability of energy, supply of money, business cycles,
etc.
.

38. Social: Lifestyle has great influence on the use
of Pepsi products, and their advertisements
are designed accordingly. Introduction of Pepsi
products in the international market requires
an in depth study of the local social structure.
Technology: Pepsi is influenced by the modern
manufacturing techniques applicable to their
business divisions of soft drinks, juices, and
snack food. Pepsi has to focus on the latest
distribution techniques, and other technological
advances in their industry

39. PEST Analysis for McDonald's
restaurants- entering a new market

40. Nintendo and Apple
Nintendo's Wii games console and Apple's iPod
are huge with its customers. Nintendo latest
console appeals to the new market segments
such as women and the elderly. Demand is
high in Asia, Europe and the USA (where it
outsells its nearest rival by a ratio of 2 to 1). In
april 2007, Apple announced the sale of its 100
millionth iPod, making it the most successful
music player in history.

Explain how the technological environment can
present opportunities for hi-tech firms such as
Nintendo and Apple.

42. Zimbabwe's inflation problems
Zimbabwe has been suffering the
impacts of hyper inflation for a
number of years, with rates reaching
7365% in july 2007. This meant that
prices of goods and services in the
country were more than doubling
each week.
In june 2006, the country's Reserve

44. 
http://www.revistalideres.ec/empresas/textilera-gra

http://www.elcomercio.com/negocios/compras-tarje