External Influences Affect All Firms

External Influences Affect All Firms
External Influences Affect All Firms Many businesses are quite capable of organising themselves internally, however this does not guarantee complete business success. Businesses have many outside pressures to face, which can become quite complicated to manage. These are called external influences. There are many factors that can affect a business, of which the market is just one. Businesses are tremendously influenced by the markets in which they trade. The size of a business does this: whether it is local, national or even international will affect the nature of the product that they supply and also the quantity. Competition is also a factor that can influence the rise or fall of a business. Communications and methods of transportation such as the delivery of products by air have made the competition in the market place more intense. Many businesses in the United Kingdom now face competition from other continents from around the world. A good example of this is the UK grocery market where the competition had become fiercer following the coming of foreign supermarket chains such as Aldi. Also new products, price changes and take-overs of other businesses can be a big influence. Economical influences are a factor too. Interest rates are the priced paid for borrowed money, this can affect businesses because every month the Bank of England?s Monetary Policy Committee (mpc) assembles each month and decides on whether to alter the base rate of interest
So if the mpc decide to alter the base rate of interest this could have sufficient implications for businesses. A rise will result in greater overheads for most businesses, for example increased interest charges on any loans. When rates increase, businesses might delay borrowing but may be able to do a small amount about the increase costs of long-term loans. Basically this means business with high proportions of long-term borrowing are likely to be hit hardest. However if the business is small they are usually most affected by rising rates due to their small financial reserves and larger need to borrow. Some business though actually can benefit from a rise in interest rates. A clear example of this is that supermarkets might see the sales of own brands rise as consumers have less money to spend. An exchange rate is the price of one currency expressed in terms of another. Significant changes in the exchange rate can create a number of problems for businesses: firms find it hard to see earnings from overseas sales in an exchange rate change occurring in between agreeing the price and receiving payment. If the pound rises in values then earnings from export sales can decline. Cost of imported raw materials may vary owing to exchange rate variations. Therefore, a price told to customers might suddenly become unprofitable if the price of materials overseas rise. Exchange rate variations can change the price charged overseas for a product. A rise in the value of the pound makes it more hard for exporters, whilst a drop in value of the pound makes exports more price competitive. Inflation is an on going rise in the general price level and is associated fall in value of money. Inflation is not a problem for businesses when the rate is low; when the rate is high, rising rapidly or both together it can cause major problems for businesses. An example of this is falling sales, research shows that during inflation people try to save more and sales for many businesses fall. Also it can be difficult to maintain competitiveness. Rising wages and raw material costs may force businesses to raise prices or accept lower profit margins. Unemployment can have serious implications for businesses. Cyclical unemployment might result in businesses suffering from falling sales. In the short term, firms may be able to add any surplus production to stocks. On the other hand, businesses may seek new markets, such as overseas. Structural unemployment can have a significant effect on businesses because it is often highly localised and extremely on going. Technological changes in recent times have had significant implications for businesses. Some of these developments include personal computers (PC?s); CD?s and mini disks fax machines; the Internet and mobile telephones. The development of technology has been very beneficial for businesses. It has allowed new methods of production resulting in lower costs and high profits on each sale. Also it can make organisation of such things as files and documents easier to handle. However there are some disadvantages of technological change. Businesses in high technology markets face demands to research new products and to apply more resourceful methods of production, This can be very expensive to do, leading to profits being used to generate this. The law affects almost all areas of business activity. Marketing, production, employment, relationships with customers and competitors; even the establishment of the business itself are examples of business operations powered by the law. The UK law can be classified into two categories. Criminal law sets out the relationship between individuals, businesses and the states. If individuals and businesses break a criminal law like the Sex Discrimination Act they will be prosecuted by the state. Civil Law governs the relationship between individuals and businesses. Both individuals and businesses could sue one another over breaches of civil law, for example a business might sue an employee over break of contract. The influence of society itself can affect a business. A businesses social responsibilities are the duties it has to employees, customers, the environment, society and their shareholders. Also ethnical behaviour which is generally seen as being morally correct. These two ideas are becoming linked in modern businesses. Any business taking a morally correct choice is likely to be taking other groups in society into account. For example, Shell has been criticised for causing pollution from its oil drilling in Nigeria and for failing to lobby the Nigerian government to improve its record on human rights. Shell now has realised that it needs to become ?a better corporate citizen in Nigeria?. Socially responsible actions by Shell in these circumstances would also be ethical ones. Finally the climate is a factor. This can cause a significant blow to a business if it does not go their way. A very good example of this is what happens in the wine industry. Every year producers of wine hope for a sufficient climate so they will be able to produce a good harvest so they can get the crops needed to make the beverage. Unfortunately this year the Italian industry struck a bad harvest, which limited their quantity and quality of their product. Because of this they will now find it extremely difficult to compete next years market, This will give their main competitor Australia an advantage. However other countries such as Argentina, Chilli and South Africa are starting to climb up the league and have a good chance of increasing their sells. Although only the customer will decide this in the long run as they buy the product. In conclusion to the title of this essay, ?External Influences Affect All Firms, To What Extent Do You Agree With This Statement?? I believe that this statement is very honest. From the evidence I have given in this essay it is clear that there are a lot of factors that influence and affect businesses. Take the climate, may seem small compared to the other factors, but it has a significant affect if it takes the wrong path. Also the obvious factor ? the market itself, its size can cause many problems. Basically every business if it?s a large company set in the heart of London, or a small corner shop down the road has to take each factor into consideration to maintain their business stays afoot. Although its hard and definitely impossible to grasp to a full one hundred percent.

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