Influences on business — section overview

Section 3.2 examines the external factors that shape business decisions. Businesses do not operate in isolation — they are constantly affected by technology, ethics, the economic climate, globalisation, legislation and competition.

What 3.2 covers

Sub-topic	Key influences
3.2.1	Technology: e-commerce, social media, digital payments, automation
3.2.2	Ethical and environmental considerations
3.2.3	Economic climate: interest rates, exchange rates, inflation, unemployment
3.2.4	Globalisation: multinationals, trade barriers, opportunities and threats
3.2.5	Legislation: consumer law, employment law, health and safety
3.2.6	Competitive environment: price, quality, USP

PESTLE framework

Businesses analyse external influences using PESTLE:

Letter	Factor	Examples
P	Political	Government policy, taxation, Brexit
E	Economic	Interest rates, inflation, unemployment
S	Social	Demographics, consumer attitudes, fashion
T	Technological	E-commerce, AI, automation
L	Legal	Consumer/employment law, GDPR
E	Environmental	Climate regulations, sustainability

Economic climate — key variables

• Interest rates (set by Bank of England): higher rates → more expensive borrowing → less consumer spending + higher business costs
• Exchange rates: stronger £ → cheaper imports, more expensive exports
• Inflation: rising prices → consumers have less purchasing power; businesses face higher input costs
• Unemployment: high unemployment → lower consumer spending; but labour is cheaper

Technology

• E-commerce: selling online — lower overheads but high logistics costs; reach millions of customers
• Social media: free marketing, brand-building, customer feedback — but reputation risk
• Automation/AI: reduces labour costs long-term; may displace workers; improves consistency

Ethics and environment

A business may choose ethical/environmental policies because:

1. Consumer pressure (green consumers)
2. Brand reputation and trust
3. Legal compliance
4. Long-term sustainability

Trade-off: ethical sourcing may increase costs → lower profit margins.

Globalisation

Opportunities: access to international markets, cheaper labour/materials offshore, global supply chains

Threats: more competition from overseas firms, exchange rate risk, political instability, ethical concerns about exploiting cheap labour

Trade barriers: tariffs (import taxes), quotas (quantity limits), embargoes (bans)

Legislation

• Consumer law: Sale of Goods Act (goods must be as described, fit for purpose); Consumer Rights Act 2015
• Employment law: National Minimum Wage, contracts, maternity/paternity rights, anti-discrimination
• Health and safety: Health and Safety at Work Act 1974 — duty of care to employees and customers

Common exam mistakes in 3.2

1. Higher interest rates are always bad for business — not if the business holds savings; also reduces inflation
2. Ethical = unprofitable — not necessarily; ethical branding can command premium prices
3. Exchange rate direction confusion — weaker £ = exports cheaper for foreign buyers = potentially more exports