Business Environment: External and Internal Influences

• The business environment includes all the surrounding conditions affecting how a business operates.
• External environment factors are those over which the business has limited control.
• Internal environment factors are those which the business has some control over and are within its scope.

Influences in the Business Environment

• External influences cover a range of factors like economic, financial, geographic, social, legal, political, institutional, technological, competitive situations, and markets.
• Internal influences include products, location, resources, management practices, and business culture.
• Stakeholders are also a key influence.

External Influence 1: The Economy

• Economic factors involve changes in the broader economy.
• The business cycle, is the upward and downward movement of gross domestic product (GDP) around its long-term growth trend.
• Economic growth creates more opportunities for businesses to profit.
• Strong economic growth typically leads to higher employment, wage rises, increased consumption due to greater consumer confidence, and increased inflation.
• Economic recession features two consecutive quarters of negative economic growth.
• Recession leads to higher unemployment, lower wage rise chances and decreased consumption due to lower consumer confidence.
• Stable or lower inflation rates also occurs during recessions.
• Foreign economic factors can also impact the business cycle.

External Influence 2: Financial

• The degree of financial regulation and loan availability influences business activities and investments.
• Deregulation since 1983 has opened the financial industry to greater competition.
• Companies now have increased access to finance from global sources.
• Globalisation and communication technology facilitate global financial transactions.

External Influence 3: Geographical

• A business's location and the demographics of the region influence demand for its products and services.
• Australia's proximity to Asia Pacific countries allows for consistent economic growth.
• Australia has shifted its major trading partners from the US and Europe to China and other Asian countries to reduce freight costs.
• Key trading partners include China, United States, Japan, Republic of Korea, United Kingdom
• The particular population features like age, sex, cultural background, and income level, can affect the demand of goods and services.
• Australia's aging population has a significant impact on businesses and the economy

External Influence 4: Social

• Social influences relate to changes in society and social structures.
• These involve changes in consumer lifestyles and behaviours.
• Businesses should monitor consumer culture and taste changes to increase sales and profits.
• Social influences include growing environmental awareness, family-friendly workplace demands, and workplace diversity.

External Influence 5: Legal

• Laws and regulations dictate certain business activities (e.g., dumping, tax evasion, advertising).
• Specific industries (e.g., banking, hospitality, education) have specific compliance regulations.
• Compliance can be time-consuming and costly.
• Examples include the Trade Practices Act 1974, the Competition & Consumer Act (CCA) 2010 (Cwlth), and the Fair Work Act 2009.
• The CCA is administered by the Australian Competition and Consumer Commission (ACCC).

The role of the ACC

• The ACCC is an independent statutory authority administering the Competition and Consumer Act 2010.
• It monitors anti-competitive and unfair market practices, such as misuse of market power, exclusive dealing, and resale price maintenance.
• The ACCC also oversees mergers and acquisitions that reduce competition, product safety and liability, and misleading advertising.
• ACCC operates nationally to enforce competition and consumer protection laws.

External Influence 6: Political

• Government policies (local, state, or federal) affect business operations.
• Examples include the introduction of GST (10% charge on goods and services) and increases in compulsory superannuation.
• Constant political change can lead to business uncertainty.

External Influence 7: Institutional

• Government bodies (federal, state, and local),regulatory bodies (ASIC and ACCC), and other organizations (unions, employer associations) are included.
• Employer associations develop in response to trade union growth and represent employer interests.
• They assist employers by formulating policies in line with union activities, acting on behalf of employers in negotiating enterprise or collective agreements, promoting industry, trade, and commerce, and providing advice to governments.
• Trade and industry associations are national bodies representing large employer groups and lobby the government.
• Examples include the Australian Chamber of Commerce and Industry (ACCI), the National Farmers' Federation, and the Australian Industry Group.
• The main goal of trade unions is to improve working conditions and pay rates.
• Union membership has declined due to legislation outlawing compulsory unionism, changes to work patterns, workplace agreements, and privatization of union-dominated industries.
• The Australian Securities Exchange (ASX) operates a share market where companies raise funds by issuing shares.
• Businesses list on the ASX to become public and raise capital for expansion and development.

External Influence 8: Technological

• Innovations are the creation of a new product, process, service, or system.
• Innovation is the process of improving existing creations or finding new applications for them.
• Technology influences businesses by increasing productivity and efficiency, improving quality and range of goods, and reducing costs.
• Technological developments also increase the need for highly skilled labor and accelerate the speed and volume of communications.
• Emphasis is placed on training.

External Influence 9: Competitive Situation

• Businesses aim to achieve a sustainable competitive advantage.
• This is the ability to develop strategies that ensures it has an 'edge' over its competitors for a extended period.
• Business competitiveness is influenced by the number of competitors, ease of entry, local and foreign competition, and marketing strategies.
• Market concentration is the number of competitors in a particular market

Market concentration

• A monopoly is a complete concentration by one firm, e.g., Australia Post.
• An oligopoly is where a small number of larger firms have control, e.g., car manufacturers.
• Monopolistic competition is where there is a large number of buyers and sellers, e.g., local retail shops.
• Perfect competition is where there is a large number of small firms selling similar products.
• Sellers are unable to differentiate products, and only use price for market share, e.g., fruit and vegetable growers.
• Ease of entry refers to the ability to establish a business within a specific industry.
• It is affected by market concentration and the number of competitors.
• Local competitors produce goods and services, dealing with same market variables and, labour and material costs.
• Foreign competitors are overseas and offshore, selling their goods in Australia and are competing with local businesses.
• Marketing strategies of competitors influence a business.
• For example, one business that uses television advertising gains more exposure than one using flyers or word of mouth.

Case Study Zara

• Zara launched in Australia in 2011, and shifted the local fashion sector.
• Zara has been listed on the Spanish stock market since 2001.
• Zara has expanded to increase net profit and become Spain's largest company and the world's largest clothing retailer.
• Australia was seem as a valuable market of fashion-savvy consumers for expansion.
• Zara's Australian debut opened a three level store in Sydney.
• There are currently 17 stores across the nation.
• Zara tailors its retail strategies to suit different local markets.
• Witchery and Sportsgirl have had their sales impacted by Zara's entrance into Australia.
• Retailers are forced to differentiate themselves and re-evaluate their product range, pricing and promotional strategies.
• Zara has over 2200 stores worldwide in 93 countries.

External Influence 10: Markets

• Deregulations in the financial (and Capital) market has increased the flow of funds with other countries.
• This encourages business investment.
• The labour market includes the unemployment level, supply & demand of labour.
• The flow of skilled labour will affect the number of employees hired and wages.
• Consumer taste will affect the level of supply & demand of goods & services in the consumer market.