Influences on Business

What you'll learn

This revision guide covers all external and internal influences that affect business decision-making and operations at GCSE level. You'll understand how technology, legislation, the economic climate, ethical considerations, and environmental factors impact business success. These concepts are essential for OCR GCSE Business Studies paper questions worth 6-12 marks.

Key terms and definitions

Technology — The use of scientific knowledge, tools and systems to improve business efficiency, productivity and communication.

Legislation — Laws and regulations passed by government that businesses must comply with, covering areas such as employment, health and safety, and consumer protection.

Stakeholder — Any individual or group with an interest in the activities and performance of a business, such as employees, customers, suppliers or the local community.

Economic climate — The current state of the economy, including factors like employment levels, interest rates, inflation and consumer confidence.

Ethics — Moral principles that guide business behaviour and decision-making, focusing on what is considered right or wrong beyond legal requirements.

Sustainability — Meeting current business needs without compromising the ability of future generations to meet their own needs, often focusing on environmental protection.

Pressure group — An organized collection of people who campaign to influence business or government decisions on specific issues, such as environmental protection or workers' rights.

Exchange rate — The value of one currency expressed in terms of another, affecting businesses that import or export goods and services.

Core concepts

Technology influences

Technology affects every aspect of modern business operations. Businesses must continuously adapt to technological changes to remain competitive.

E-commerce and online presence

• Allows businesses to sell products 24/7 without physical premises
• Reduces overhead costs (rent, utilities) but increases website development and maintenance expenses
• Expands potential market from local to global customers
• Examples: ASOS operates purely online, while Tesco combines physical stores with online shopping

Communication technology

• Email, video conferencing (Zoom, Microsoft Teams) enables instant communication with stakeholders worldwide
• Cloud storage allows employees to access files from any location
• Social media platforms provide low-cost marketing and direct customer engagement
• Mobile technology enables flexible working patterns

Production technology

• Automation and robotics increase production speed and consistency
• Computer-aided design (CAD) and computer-aided manufacture (CAM) improve product quality
• Reduces long-term labour costs but requires significant initial investment
• May lead to redundancies affecting employee morale and local communities

Payment systems

• Contactless payments and mobile wallets (Apple Pay, Google Pay) speed up transactions
• Online banking facilitates faster supplier payments
• Digital payment systems reduce cash handling costs and theft risk

Economic influences

The economic climate significantly impacts business performance, affecting both costs and revenue.

Interest rates

• Set by the Bank of England's Monetary Policy Committee
• High interest rates: Borrowing becomes more expensive, reducing business investment and consumer spending on credit; existing loan repayments increase
• Low interest rates: Cheaper borrowing encourages business expansion and consumer purchases, particularly for expensive items like cars and houses
• Affects savings — high rates encourage saving rather than spending

Unemployment levels

• High unemployment: Larger pool of job applicants, potentially reducing wage pressure; lower consumer spending as fewer people have income
• Low unemployment: Businesses may struggle to recruit skilled workers and may need to increase wages; higher consumer confidence and spending
• Caribbean economies often experience higher unemployment volatility due to tourism dependency

Inflation

• The rate at which prices rise over time, measured by the Consumer Price Index (CPI)
• Increases business costs (raw materials, wages, utilities)
• Reduces consumer purchasing power if wages don't increase at the same rate
• May force businesses to increase prices, potentially losing price-sensitive customers

Exchange rates

• Strong pound: Imports become cheaper (benefits businesses buying foreign materials); exports become more expensive for foreign buyers (reduces competitiveness abroad)
• Weak pound: Exports become more competitive internationally; imports become more expensive
• Particularly affects businesses trading with the EU, USA or Caribbean nations
• Example: A Jamaican business importing machinery from the UK benefits when the Jamaican dollar strengthens against the pound

Economic growth and recession

• Growth period: Rising consumer incomes increase demand, particularly for luxury goods and services
• Recession: Falling demand, business closures, reduced investment; consumers prioritize essential purchases
• Discount retailers (Poundland, B&M) often perform better during recessions

Legal and political influences

Businesses operate within a framework of legislation designed to protect various stakeholder groups.

Employment law

• National Minimum Wage/National Living Wage: Sets minimum hourly pay rates (£11.44 for over 21s from April 2024)
• Equality Act 2010: Prevents discrimination based on age, gender, race, disability, religion or sexual orientation
• Health and Safety at Work Act 1974: Requires employers to ensure workplace safety
• Increases business costs but protects employees and reduces workplace accidents
• Non-compliance results in fines, legal action and reputational damage

Consumer protection law

• Consumer Rights Act 2015: Products must be of satisfactory quality, fit for purpose and as described
• Customers entitled to refunds, repairs or replacements for faulty goods
• Sale of Goods Act: Covers second-hand and sale items
• Builds consumer confidence but increases business costs through returns and complaints handling

Environmental legislation

• Regulations on waste disposal, emissions and pollution
• Businesses may need to invest in cleaner technology or waste management systems
• Packaging regulations require businesses to minimize and recycle packaging materials
• Non-compliance leads to fines and negative publicity

Data protection

• UK GDPR (General Data Protection Regulation): Businesses must protect customer data and use it only for stated purposes
• Customers have the right to access, correct or delete their personal data
• Breaches result in substantial fines (up to £17.5 million or 4% of global turnover)
• Requires investment in secure IT systems and staff training

Ethical influences

Ethical business practices extend beyond legal requirements, focusing on moral responsibility to stakeholders.

Fair trade

• Ensures producers in developing countries receive fair prices and decent working conditions
• Products carry Fairtrade certification mark
• Appeals to ethically conscious consumers willing to pay premium prices
• Example: Cadbury Dairy Milk chocolate uses Fairtrade cocoa

Working conditions

• Providing safe, comfortable working environments beyond minimum legal standards
• Paying above minimum wage (living wage)
• Avoiding suppliers that use child labour or exploit workers
• Example: Negative publicity when companies are linked to sweatshops in developing countries

Environmental responsibility

• Reducing carbon footprint through renewable energy, efficient logistics
• Minimizing plastic use and ensuring recyclability
• Sourcing sustainable materials (FSC-certified wood, sustainable palm oil)
• May increase costs but attracts environmentally conscious customers and improves brand image

Honest marketing

• Avoiding misleading claims about products or services
• Transparent pricing without hidden charges
• Example: Airlines criticized for adding excessive booking fees at checkout

Environmental and sustainability influences

Growing awareness of environmental issues shapes business operations and consumer preferences.

Pressure groups

• Organizations like Greenpeace, Friends of the Earth campaign against environmentally harmful practices
• Can organize boycotts, protests and negative publicity campaigns
• Example: Pressure on fast-food chains to reduce plastic packaging led to paper straw adoption
• Businesses respond through policy changes to protect reputation

Carbon footprint reduction

• Measuring and minimizing greenhouse gas emissions from operations
• Switching to renewable energy sources (solar panels, wind power)
• Improving vehicle fleet efficiency or using electric vehicles
• Carbon offsetting schemes (planting trees)
• Appeals to environmentally conscious consumers and may reduce long-term energy costs

Waste reduction and recycling

• Designing products for longevity and repairability
• Using recycled materials in production
• Implementing recycling programs in offices and stores
• Reducing packaging materials
• Example: Marks & Spencer's "Plan A" sustainability initiative

Sustainable sourcing

• Ensuring raw materials come from renewable or responsibly managed sources
• Avoiding materials linked to deforestation or habitat destruction
• Example: Iceland supermarket committed to removing palm oil from own-brand products

Competitive environment influences

Market competition shapes business strategy and decision-making.

Market structure

• Highly competitive markets: Many similar businesses compete, forcing competitive pricing and innovation
• Monopolistic markets: One dominant business controls market, allowing higher prices and less innovation
• Oligopoly: Few large businesses dominate (UK supermarkets: Tesco, Sainsbury's, Asda, Morrisons)

Competitor actions

• Price changes by competitors force businesses to respond or lose customers
• New product launches require competitive response
• Marketing campaigns may need matching or exceeding
• Example: Mobile phone networks constantly match competitors' contract offers

Market location

• Physical location affects footfall, accessibility and costs
• Online presence expands geographic reach
• Caribbean businesses may have smaller local markets but tourism opportunities
• Edge-of-town retail parks versus high street locations

Worked examples

Example 1: Technology impact (6 marks)

Question: Explain two ways technology might benefit a small bakery business.

Mark scheme answer: One benefit is that the bakery could use social media marketing to attract customers (1 mark). This would cost very little compared to traditional advertising like newspaper ads (1 mark) and allow the business to show photos of products to potential customers in the local area (1 mark).

Another benefit is using online ordering systems (1 mark). This would allow customers to place orders in advance for collection (1 mark), helping the bakery predict demand and reduce waste from unsold products (1 mark).

Examiner note: Each benefit requires identification (1 mark) plus development/explanation (2 marks). Link benefits specifically to the context provided.

Example 2: Economic climate (9 marks)

Question: Assess the impact of rising interest rates on a business that manufactures furniture.

Mark scheme answer: Rising interest rates would increase the cost of any loans the furniture manufacturer has (1 mark). This means higher monthly repayments, reducing profit margins (1 mark) unless the business increases prices, which might make them less competitive (1 mark).

Additionally, fewer customers would buy furniture on credit (1 mark) because their monthly repayment costs would be higher (1 mark). Furniture is often an expensive purchase that customers buy using credit, so demand could fall significantly (1 mark).

However, if the business has cash reserves rather than borrowing, they could benefit from higher interest on savings (1 mark). They might also face less competition if other furniture businesses with high debt levels struggle or close down (1 mark).

Overall, the impact would likely be negative because furniture is a luxury good that customers can delay purchasing (1 mark), making the business vulnerable to reduced consumer spending during high interest rate periods.

Examiner note: "Assess" requires considering both positive and negative impacts with a justified conclusion. Aim for 3-4 developed points.

Example 3: Legislation (4 marks)

Question: Outline two responsibilities a business has under the Health and Safety at Work Act 1974.

Mark scheme answer: The business must provide a safe working environment (1 mark), such as ensuring machinery is properly maintained and dangerous areas are clearly marked (1 mark).

The business must provide appropriate safety training to employees (1 mark), for example, showing new warehouse staff how to safely operate forklift trucks (1 mark).

Examiner note: "Outline" requires brief explanation. Identify the responsibility (1 mark) and add context or example (1 mark) for each point.

Common mistakes and how to avoid them

• Confusing correlation with causation: Don't assume one factor alone causes a business outcome. Multiple influences interact simultaneously. Always explain the connection between the influence and the business impact.

• Ignoring business context: Generic answers score poorly. A technology benefit for an online retailer differs from one for a construction company. Always apply your answer to the specific business scenario in the question.

• Listing without explanation: Identifying "interest rates" or "legislation" earns minimal marks. Explain how and why the influence affects the specific business, using appropriate business terminology.

• One-sided answers for "assess" or "evaluate" questions: These command words require balanced analysis. Consider both positive and negative impacts, different stakeholder perspectives, or short-term versus long-term effects before reaching a justified conclusion.

• Forgetting stakeholder impacts: Influences affect different stakeholder groups differently. Employment law benefits workers but increases costs for owners. Consider multiple perspectives when appropriate.

• Weak conclusions for higher-mark questions: Conclusions should reference the specific business context and justify why one factor outweighs others, not simply repeat earlier points or state "it depends."

Exam technique for "Influences on Business"

• Command word recognition: "State/Identify" (1 mark each, brief answer), "Outline" (2 marks, brief explanation), "Explain" (3-6 marks, detailed reasoning with cause-effect), "Assess/Evaluate" (6-12 marks, balanced analysis with justified conclusion).

• Mark allocation guides answer length: 2-mark questions need approximately 2 developed points or 1 point with explanation. 9-12 mark questions require 4-5 paragraphs including introduction, multiple analytical points, and conclusion.

• Use chains of reasoning: Start with the influence, explain the direct effect, then explain the consequence for the business. Example: "Higher interest rates → increased loan repayments → reduced profit → less money for expansion."

• Context application earns higher marks: Examiners reward answers that apply knowledge to the specific business in the question. Reference the business type, size, location, or product when explaining influences.

Quick revision summary

Business influences are external and internal factors affecting operations and success. Technology improves efficiency but requires investment. Economic climate (interest rates, unemployment, inflation, exchange rates) impacts costs and demand. Legislation protects stakeholders but increases compliance costs. Ethical considerations and environmental sustainability influence reputation and customer loyalty. Pressure groups campaign for change. Competition affects pricing and innovation. Understanding how these influences interact helps businesses make informed strategic decisions. Always consider multiple stakeholder perspectives and specific business contexts when analyzing influences.