What you'll learn
No business operates in isolation — it is affected by technology, the economy, laws, the environment and society, and it must respond to these outside influences to succeed. For AQA GCSE Business Studies you need to understand the main external influences on business, how they affect decisions, and how businesses respond to them. This guide covers technology, the economic climate, legislation, environmental and ethical considerations, and globalisation. By the end you should be able to explain how each influence affects a business and analyse how businesses respond.
Key terms and definitions
External influences — Factors outside a business's control that affect how it operates.
Technology — Tools and systems, such as e-commerce and digital communication, that change how businesses work.
Economic climate — The general state of the economy, including growth, unemployment and interest rates.
Interest rates — The cost of borrowing money, or the reward for saving.
Legislation — Laws that businesses must follow.
Ethics — Ideas about what is morally right and wrong in business.
Globalisation — The growing connection and trade between businesses and countries around the world.
Stakeholder — A person or group with an interest in a business.
Core concepts
Technology
Technology has a huge influence on business. Key developments include:
- E-commerce — selling online, which lets businesses reach customers anywhere and trade 24 hours a day, often with lower costs than a physical shop.
- Digital communication and social media — cheaper, faster ways to reach and interact with customers and to advertise.
- New production technology — machines and automation that can improve efficiency and quality.
Technology brings opportunities (wider markets, lower costs, better efficiency) but also challenges (the cost of new equipment, the need to train staff, and greater competition as customers can compare businesses online).
The economic climate
The economic climate affects how much customers can and will spend. Important factors include:
- Unemployment — high unemployment means people have less money, so they spend less.
- Interest rates — when interest rates rise, borrowing costs more, so both businesses and customers may spend less; the business's own loan repayments also rise.
- Consumer income — when incomes rise, people tend to spend more, boosting sales.
A boom (a growing economy) usually means higher sales, while a recession (a shrinking economy) usually means lower sales, and businesses must adjust, for example by cutting costs.
Legislation
Businesses must obey the law, and legislation influences many of their decisions. Important areas include:
- Consumer law — protects customers, for example ensuring goods are of satisfactory quality and described accurately.
- Employment law — protects workers, for example on pay, working hours, and preventing discrimination.
- Health and safety law — requires businesses to keep employees and customers safe.
Following the law protects customers and staff and avoids fines and damage to reputation, but it can increase costs and paperwork for the business.
Environmental and ethical considerations
Businesses are increasingly influenced by environmental and ethical concerns. Customers, pressure groups and governments expect businesses to act responsibly — for example by reducing pollution and waste, sourcing materials responsibly, and treating workers fairly. Acting ethically and sustainably can attract customers and improve reputation, but it may also increase costs (for example, using more expensive sustainable materials). Businesses must balance the desire to make a profit against acting responsibly, and this trade-off is a common exam theme.
Globalisation
Globalisation is the growing connection and trade between countries. It influences business by:
- Opening up new markets abroad, so businesses can sell to more customers.
- Allowing businesses to source materials and labour from other countries, often more cheaply.
- Increasing competition, because foreign businesses can also sell into the home market.
Globalisation offers big opportunities to grow, but also means businesses face more competition and must consider factors such as exchange rates and trade rules.
How businesses respond
Businesses cannot control these external influences, but they can respond to them. For example, they might adopt new technology to stay competitive, cut costs during a recession, ensure they comply with new laws, adopt greener practices to meet customer expectations, or expand abroad to take advantage of globalisation. Being able to explain how a business responds to a particular influence is exactly what the exam tests.
Stakeholders and their influence
As well as broad external forces, businesses are influenced by their stakeholders — the individuals and groups with an interest in the business. These include customers (who want good quality and value), employees (who want fair pay and job security), shareholders or owners (who want profit), suppliers, the local community, and the government. Different stakeholders often want different things, which can create conflict — for example, cutting costs might please owners but upset employees. Businesses have to balance these competing interests when making decisions. Being able to identify stakeholders and explain how they influence and are affected by a business is closely linked to the external influences in this topic.
Why the impact depends on the business
The same external influence can affect different businesses in very different ways, and strong answers recognise this. For example, a rise in interest rates hits a business with large loans much harder than one with no borrowing; new technology is a bigger opportunity for a business that sells products suited to online selling; and a recession affects sellers of luxury goods more than sellers of essentials. The size, type and situation of a business all change how much an influence matters. This is why application to the specific business in the question is so important — a general answer about "interest rates rising" is worth less than one that explains the effect on that particular business.
Worked examples
Example 1: The effect of technology
Explain one way e-commerce can benefit a small business. E-commerce lets a small business sell online to customers anywhere, not just locally, widening its market. It can also trade 24 hours a day with lower costs than running a physical shop, which can increase sales and profit.
Example 2: The effect of interest rates
Explain how a rise in interest rates could affect a business. Higher interest rates make borrowing more expensive, so the business's loan repayments rise and customers have less money to spend as their own borrowing costs increase. This can reduce sales and profit, so the business may need to cut costs or delay borrowing for expansion.
Example 3: Responding to environmental concerns
A business faces pressure to reduce its environmental impact. Explain one benefit and one drawback of responding. A benefit is that acting sustainably can attract environmentally conscious customers and improve the business's reputation. A drawback is that greener methods or materials may cost more, reducing profit in the short term.
Example 4: The impact of globalisation
Explain one opportunity and one threat that globalisation brings to a business. An opportunity is access to new markets abroad, allowing the business to sell to more customers and grow. A threat is increased competition, as foreign businesses can sell into the home market, which may reduce the business's sales.
Common mistakes and how to avoid them
A common error is treating external influences as things a business can control. They are outside the business's control; the business can only respond to them. Focus your answer on the response.
Students often give only one effect. Many influences have both opportunities and threats — for example, technology widens markets but increases competition. Give a balanced answer.
Another mistake is confusing the economic terms. A boom is a growing economy (more spending); a recession is a shrinking one (less spending). Higher interest rates make borrowing more expensive.
When discussing legislation or ethics, do not forget the cost side. Complying with laws or acting ethically protects people and reputation but can increase costs, and good answers weigh this trade-off.
Finally, apply your answer to the specific business in the question. The impact of an influence often depends on the type and size of the business, so refer to its situation.
Exam technique for "Influences on Business"
Learn the main external influences — technology, the economic climate, legislation, environmental and ethical factors, and globalisation — and be ready to explain how each affects a business.
For most questions, give both the opportunities and the threats an influence brings, and explain how the business might respond. This balanced approach suits "analyse" and "evaluate" questions.
Use the context of the business in the question, as application marks matter, and support your points with reasoning about sales, costs and competition. Use business terms accurately — e-commerce, interest rates, legislation, globalisation — throughout, and reach a supported judgement where the question asks for one.
Quick revision summary
- External influences are outside a business's control; it can only respond to them.
- Technology (e-commerce, social media, automation) widens markets and cuts costs but increases competition and requires investment.
- Economic climate: unemployment, interest rates and income affect spending; a boom raises sales, a recession lowers them.
- Legislation (consumer, employment, health and safety) protects people but adds costs.
- Environmental and ethical concerns can improve reputation and attract customers but may raise costs.
- Globalisation opens new markets and cheaper sourcing but increases competition; businesses respond by adapting their strategy.