6.1 External Influences – Competitors and Suppliers
Objective
To understand how competitors and suppliers shape a business’s external environment, how they interact with the wider PESTLE forces, and how the information they provide is used at each stage of the decision‑making process (objective‑setting, planning, implementation, review) in the Cambridge IGCSE/A‑Level Business (9609) syllabus.
1. The Wider PESTLE Context
Competitors and suppliers do not act in isolation. Their power is affected by the broader political‑legal, economic, social‑demographic, technological and environmental environment.
PESTLE factor
Typical effect on competitors
Typical effect on suppliers
Political‑legal (e.g., trade tariffs, health & safety regulations)
Changes entry barriers; can force rivals to alter pricing or product standards.
Alters input costs, may require localisation or compliance‑related investment.
Firms may differentiate on eco‑efficiency, altering competitive dynamics.
Suppliers may need greener processes, affecting cost structures.
2. Political‑Legal Influences (6.1.1)
Regulation & standards – safety, food, environmental, data‑protection rules can raise compliance costs for rivals and force suppliers to upgrade processes.
Trade policies – tariffs, quotas, import licences affect the price of imported inputs and the competitive position of domestic rivals.
Privatisation & deregulation – can create new market entrants (increased rivalry) or open up new supplier markets.
Employment law – minimum wage, health & safety impact labour costs for competitors and the cost of labour‑intensive supplies.
Example: The UK’s post‑Brexit tariff on steel increased automotive manufacturers’ input costs and gave domestic steel producers a competitive edge.
3. Economic Influences (6.1.2)
Macroeconomic policy – fiscal stimulus can boost consumer spending, reducing price competition; tight monetary policy can raise borrowing costs for rivals.
Inflation & exchange rates – affect the price of imported raw materials and the ability of foreign competitors to price aggressively.
Unemployment – high unemployment may reduce wage pressures (lower costs) but also shrink market demand.
Example: A 5 % rise in the US dollar made imported components cheaper for UK electronics firms, improving their cost position against domestic rivals.
4. Social‑Demographic Influences (6.1.3)
Changing consumer values – demand for ethical, vegan, or locally produced goods pushes rivals to adapt product ranges and forces suppliers to certify practices.
Population structure – ageing societies increase demand for health‑related products, creating niche opportunities for both competitors and specialised suppliers.
Example: The rise of “fair‑trade” awareness led coffee chains to source beans from certified growers, while rivals that did not adapt lost market share.
5. Technological Influences (6.1.4)
Automation & robotics – lowers production costs for rivals that invest, increasing price pressure.
Digital platforms – e‑procurement and cloud‑based supply‑chain management improve supplier reliability and reduce lead‑times.
Innovation cycles – rapid product development forces competitors to shorten time‑to‑market and suppliers to provide advanced components.
Example: Apple’s shift to in‑house chip design reduced dependence on external suppliers and gave it a differentiation edge over rivals.
6. Environmental Influences (6.1.5)
Legislation – carbon taxes, waste‑disposal rules raise operating costs for both producers and raw‑material suppliers.
Resource scarcity – limited water or raw‑material availability can increase supplier power and create competitive advantage for firms with secure sources.
Consumer activism – drives competitors to adopt “green” branding and forces suppliers to prove sustainability credentials.
Example: EU’s REACH regulation required chemical suppliers to provide safety data, increasing compliance costs for cosmetics manufacturers and prompting some rivals to switch to safer alternatives.
7. Competitors – Role, Impact and Strategic Response
7.1 Why Competitors Matter
Determine the intensity of market rivalry (price, promotion, product).
Influence market‑share and long‑term profitability.
Drive continuous innovation, differentiation and efficiency.
7.2 Key Drivers of Competitive Pressure
Driver
Impact on Business Decisions
Market concentration (few large rivals vs many small rivals)
High concentration → stronger price‑setting power; may require cost leadership or niche focus.
Barriers to entry (capital, patents, regulation)
High barriers protect incumbents; low barriers demand rapid response to new entrants.
Threat of substitutes
Encourages product differentiation, quality improvement or price adjustments.
Buyer power (size & concentration of customers)
Strong buyers can force price cuts; firms may need to add value or build loyalty.
Industry growth rate
Fast growth reduces rivalry; slow/negative growth intensifies competition for market share.
7.3 Strategic Responses
Cost leadership – achieve the lowest unit cost to compete on price.
Differentiation – offer unique features, quality or brand image.
Focus / niche – serve a specific segment better than rivals.
Carbon‑footprint reporting may affect market access and regulatory compliance.
Technology integration (e‑procurement, IoT)
Improves visibility, reduces lead‑time and supports Just‑In‑Time (JIT) production.
8.4 Strategies to Manage Supplier Power
Multiple sourcing – reduce dependence on a single supplier.
Vertical integration – acquire or develop own supply facilities.
Long‑term contracts – lock in price, volume and quality standards.
Supplier development – collaborate on R&D, training and process improvement.
Negotiation tactics – use volume discounts, alternative offers or competitive bidding.
Ethical sourcing policies – set standards for labour, environment and traceability.
9. Linking Competitor & Supplier Analysis to the Decision‑Making Process
Cambridge Business expects students to connect external‑influence analysis with the four stages of decision‑making: objective‑setting → planning → implementation → review.
Decision‑making stage
Typical business decision
Competitor information required
Supplier information required
Objective‑setting
Set market‑share or profit targets.
Rivalry intensity, likely reactions to price or product moves.
Cost ceiling based on input‑price trends and availability.
Planning
Choose pricing, product range, production volume.
Benchmark rival prices, promotions and new‑product launches.
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