External Factors that Impact Business Decisions (Edexcel IGCSE Business)

In stable regions, businesses can plan their activities and invest in the knowledge that political factors are unlikely to have an unexpected impact

If governments make trade agreements with other countries or join trade blocs businesses may benefit from easier trade of goods and services

Tax rates can be raised or lowered according to government priorities

• E.g. Carbon taxes encourage manufacturing and energy businesses to reduce emissions
  
  

Tax loopholes can be closed to increase tax revenues and improve fairness in the tax system

• E.g. From 2024, the UK government will require online marketplaces such as Ebay to report sellers' revenues so that individuals earning more than a modest amount can be taxed on earnings

Governments restrict the sale of some products to buyers in other countries

• E.g. Arms manufacturers are usually prohibited from selling weapons to unstable foreign regimes
  

Protectionist measures such as the application of tariffs and quotas can be applied to imported goods

• E.g. The US government applies tariffs to most Chinese manufactured goods

Governments set budgets for key public services, including education, healthcare, transport and national security

• E.g. The Portuguese government prioritises spending on infrastructure and [popover id="N28FxuQymRXBFVE8" label="R&D"] to grow its economy

  • Spending on public services has risen while labour costs have fallen

  • Exports have risen and increased foreign direct investment is taking place in the growing economy

Change laws to make environmentally-damaging practices illegal

• E.g. Ban hazardous materials in manufacturing processes 

Impose financial penalties on businesses that break environmental regulations and order them to clean up environmental damage

Curb business activities that cause environmental damage

• E.g. Pollution permits allow businesses to pollute up to a certain limit

Education can change the level of skills in an economy

A better educated workforce may mean that the economy can move from a primary dominant sector to a secondary sector

• Higher levels of education open up well-paid employment opportunities
  

Knowledgeable, skilled employees help develop innovative products

• E.g. India's young and well-educated population is highly skilled in IT, leading to many multinationals locating support services in the country

Some countries have seen significant movement of populations towards cities (urbanisation)

• This provides increased labour and creates new markets for businesses operating in cities
   

In some countries, the lack of availability of lower-skilled labour has caused significant problems

• E.g. UK food producers have struggled to recruit domestic seasonal workers to pick and process crops since 2016

Consumers are better informed about global issues than ever before

• E.g. Indonesia, Vietnam and the Philippines have customers that are more eco-friendly than the global average
  
  

Businesses need to meet these consumer needs by providing goods and services that allow them to shop locally, be environmentally friendly and be ethical

Ageing populations as a result of reduced mortality and low birth rates create new markets for businesses

• E.g. Businesses such as Arts Abroad offer focused trips targeted at single, mature travellers
  

Individuals live healthy lives for longer due to improved healthcare and remain in work for longer

• Businesses may benefit from the loyalty of older workers but may need to offer more flexible contracts

Groups such as women and those with disabilities increasingly work, increasing labour supply for businesses

• E.g. Insurance company Allianz operates a positive disability discrimination policy, offers a range of flexible working options and runs an internal network for employees with disabilities
  
  

Businesses may need to consider access arrangements and vary working contracts to attract these workers

These allow efficient and convenient storage and interrogation of data

This technology speeds up communication processes

These are used to process transactions quickly and accurately

These allow for e-commerce activity, online marketing and the rapid sharing of data