the impact of technological change on business and business decisions

6 External Influences on Business

External influences are forces outside a company’s direct control. They can create opportunities that a firm can exploit, or threats that it must mitigate. Understanding each influence enables managers to anticipate change, evaluate risk and choose appropriate strategic responses.

6.1 Political Influence

• Definition: Government actions, policies and the stability of the political environment that affect how businesses operate.
• Key Political Drivers (Cambridge 9609)
  • Privatisation and nationalisation of industries
  • Government control of employment, wages and working‑time regulations
  • Restrictions on marketing and competition (e.g., advertising bans, price‑control legislation)
  • Location decisions driven by tax incentives, subsidies or regional development policies
  • Political stability / risk of unrest or policy reversal
  • Lobbying pressure and influence of interest groups
• Typical Impacts
  • Cost of production – higher corporate tax or wage controls reduce profit margins.
  • Market entry – tariffs, quotas or licensing requirements may deter export to a particular country.
  • Strategic positioning – subsidies for renewable energy encourage investment in green technologies.
• Example: The UK “Super‑duty” on high‑emission vehicles forces car manufacturers to accelerate development of electric models.

6.2 Legal Influence

• Definition: Laws, regulations and judicial decisions that set the framework within which businesses must operate.
• Key Legal Drivers (Cambridge 9609)
  • Health & safety legislation (e.g., Workplace (Health, Safety and Welfare) Regulations)
  • Consumer protection (e.g., Consumer Rights Act, product safety standards)
  • Employment law (minimum wage, anti‑discrimination, redundancy rules)
  • Intellectual‑property rights (patents, trademarks, copyrights)
  • Data‑privacy regulations (GDPR, Data Protection Act)
  • Competition law (anti‑trust, price‑fixing prohibitions)
• Typical Impacts
  • Compliance costs – investment in safety equipment, data‑security systems or legal advice.
  • Product redesign to meet new safety or labelling standards.
  • Risk of legal action, fines and reputational damage if breached.
• Example: GDPR forced UK e‑commerce firms to overhaul data‑handling procedures, incurring costs but also gaining a competitive edge through higher consumer trust.

6.3 Economic Influence

• Definition: Macro‑economic conditions that affect demand, costs and profitability.
• Key Economic Drivers (Cambridge 9609)
  • Inflation and price‑level changes
  • Interest rates and cost of borrowing
  • Exchange‑rate fluctuations
  • Economic growth (GDP) and business confidence
  • Unemployment and labour‑market conditions
  • Consumer confidence and disposable‑income trends
• Typical Impacts
  • Pricing strategy – high inflation may require price rises to protect margins.
  • Investment decisions – high interest rates increase the cost of finance.
  • Export competitiveness – a weak domestic currency can boost overseas sales.
  • Labour costs – low unemployment can push wages up, affecting unit costs.
• Example: The 2022‑23 rise in UK interest rates caused many SMEs to postpone capital‑expenditure projects.

6.4 Social & Demographic Influence

• Definition: Societal values, cultural trends and demographic changes that shape consumer behaviour and labour markets.
• Key Social‑Demographic Drivers (Cambridge 9609)
  • Age structure (e.g., ageing population, youth bulge)
  • Population growth and migration patterns
  • Lifestyle changes (health consciousness, sustainability focus)
  • Cultural attitudes and ethical concerns
  • Social media and influencer culture
  • Work‑life balance expectations (flexible working, remote work)
• Typical Impacts
  • Product development – demand for low‑sugar, plant‑based or ethically sourced goods.
  • Marketing messages – need for inclusive, culturally sensitive advertising.
  • Workforce policies – introduction of flexible hours, parental leave, remote‑working tools.
  • Location decisions – firms may locate near growing population centres or university clusters.
• Example: The “plant‑based” movement has driven fast‑food chains such as McDonald’s and KFC to add vegan menu items.

6.5 Technological Influence

• Definition: Development, adoption and diffusion of new or improved products, processes or services that alter how businesses create and deliver value.
• Types of Innovation
  • Disruptive innovation – creates a new market or value network (e.g., ride‑hailing apps, digital streaming).
  • Incremental innovation – modest improvements to existing products or processes (e.g., faster micro‑processors, energy‑efficient LED lighting).
• Technology Life‑Cycle – Introduction → Growth → Maturity → Decline. Timing decisions (first‑mover vs follower) depend on the stage of the cycle.
• Key Drivers (Cambridge 9609)
  • R&D breakthroughs (AI, quantum computing, biotechnology)
  • Consumer demand for performance, convenience or lower cost
  • Government policy (carbon‑reduction targets, digital‑infrastructure investment)
  • Competitive pressure and global knowledge transfer
• Quantitative Illustration – Global AI investment grew at a CAGR of 42 %** between 2015 and 2023 (IDC).
• Impact on Business Functions

Decision‑Making Process for Technological Adoption

1. Identify the need – performance gaps, cost pressures or market opportunities.
2. Gather information – research alternatives, benchmark rivals, consult experts.
3. Evaluate options – cost‑benefit analysis, risk assessment, strategic fit (SWOT/PEST).
4. Make the investment decision – choose financing, decide on timing (first‑mover vs follower), determine scale.
5. Implement – procurement, staff training, change‑management plan, system integration.
6. Monitor & review – set KPIs, compare actual performance with forecasts, adjust as required.

Quantitative Analytical Tools (for technology projects)

• Net Present Value (NPV) $$NPV=\sum_{t=0}^{n}\frac{C_{t}}{(1+r)^{t}}$$ where $C_{t}$ = net cash flow in period $t$, $r$ = discount rate, $n$ = project life.
• Payback Period – number of years required to recover the initial outlay.
• Internal Rate of Return (IRR) – discount rate that makes NPV = 0.
• Break‑even Analysis – sales volume where total revenue equals total cost after technology implementation.

Models of Technological Diffusion

• Technology Adoption Lifecycle – Innovators (2.5 %), Early adopters (13.5 %), Early majority (34 %), Late majority (34 %), Laggards (16 %).
• Rogers’ Diffusion of Innovation – Adoption depends on:
  • Relative advantage
  • Compatibility
  • Complexity
  • Trialability
  • Observability

6.6 Competitors & Suppliers

• Definition: Actions of current and potential rivals, and the power/behaviour of suppliers.
• Key Drivers (Cambridge 9609)
  • Market concentration and degree of rivalry
  • Barriers to entry (capital requirements, patents, economies of scale)
  • Supplier concentration and switching costs
  • Buyer power and price sensitivity
• Typical Impacts
  • Pricing pressure – intense rivalry can force price cuts.
  • Need for differentiation – product, service or brand uniqueness.
  • Supply‑chain risk – reliance on a few suppliers may cause disruption.
• Example: The 2020‑2022 semiconductor shortage forced automotive manufacturers to revise production schedules and seek alternative suppliers.

6.7 International Influence

• Definition: Global forces that affect domestic businesses, including trade agreements, exchange‑rate movements and cultural differences.
• Key International Drivers (Cambridge 9609)
  • World Trade Organisation (WTO) rules and regional trade blocs (EU, NAFTA/USMCA, ASEAN)
  • Foreign‑direct investment (FDI) incentives and restrictions
  • Exchange‑rate volatility and currency‑risk management
  • Political risk in overseas markets (instability, expropriation)
  • Cultural and language differences influencing marketing and HR practices
• Typical Impacts
  • Market expansion opportunities – access to larger customer bases.
  • Currency risk – fluctuations can affect profit margins on exports.
  • Need for cross‑cultural marketing and localisation of products.
• Example: Brexit introduced new customs procedures for UK‑EU trade, raising costs for manufacturers exporting to Europe.

6.8 Environmental Influence

• Definition: Ecological considerations and sustainability pressures that affect business operations.
• Key Environmental Drivers (Cambridge 9609)
  • Climate‑change legislation (carbon taxes, emissions caps)
  • Resource scarcity (water, rare earths)
  • Consumer “green” preferences and ethical buying
  • Regulatory pressure for waste reduction, recycling and circular‑economy practices
• Typical Impacts
  • Investment in cleaner technology and energy‑efficient processes.
  • Changes to product design (e.g., biodegradable packaging).
  • Reputation management – sustainability reporting and green branding.
• Example: Major UK supermarkets have introduced zero‑plastic packaging to meet consumer expectations and avoid future regulatory penalties.

Summary Checklist – External Influences

• Which external factor creates the greatest opportunity for the firm?
• Which factor poses the most serious threat and how can it be mitigated?
• How do the influences interact (e.g., technological change driven by environmental regulation)?
• What strategic response (first‑mover, follower, defensive) best matches the identified influences?

7 Business Strategy

Strategic analysis tools translate insights from external influences into coherent long‑term plans.

7.1 SWOT Analysis

• Strengths & Weaknesses – internal resources, capabilities, culture, financial position.
• Opportunities & Threats – external influences covered in Section 6.

7.2 PESTLE Analysis

PESTLE expands the basic PEST framework to include Legal and Environmental factors, matching the eight external influences.

7.3 Porter’s Five Forces

• Threat of new entrants
• Bargaining power of suppliers
• Bargaining power of buyers
• Threat of substitutes
• Rivalry among existing competitors

7.4 Ansoff Matrix

7.5 Porter’s Generic Strategies

• Cost Leadership – compete on price through low cost structure.
• Differentiation – offer unique features, quality or brand image.
• Focus – target a narrow market segment (cost focus or differentiation focus).

7.6 Value‑Chain Analysis

Breaks a firm into primary and support activities to identify where value is added and where cost efficiencies can be gained.

Strategic Checklist

• Does the chosen strategy align with the firm’s core competencies and resources?
• Is the external environment (PESTLE) supportive of the strategy?
• Which strategic risks (e.g., technological obsolescence, regulatory change) need mitigation?
• What additional capabilities must be developed (e.g., digital skills, sustainability reporting)?