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Influences on Business

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Business Studies

Have you noticed that businesses, their products, and the ways they operate change over time? For example, several years ago Cadbury did not offer vegan chocolate bars and McDonald’s did not offer vegan burgers. Both of these brands developed vegan options as a result of external factors, which in this case, were new diet trends. However, there are many other factors that influence businesses.

Technological influences on business

The rapid development of technology has had a huge impact on businesses and the way they operate.

Influences on Business, Technological influences on business, StudySmarterTechnological influences on business, Wikimedia Commons

Here, the main aspect relates to communication, which, for a business to run smoothly, has to be effective. A system that has certainly transformed the ways communications are done in businesses is information and communication technology.

Information and communication technology (ICT) is a computing and communication system used by businesses to convey information to their stakeholders.

ICT is used by businesses to communicate with their employees, suppliers, customers, and Government organizations.

Influences on Business: Technology and business operations

There are two main aspects the development of technology has had the biggest impact on:

  • Network of employees – previously, it was impossible for a company to employ people that were based in a different city, country, or continent. Owing to the development of technology, they are now able to take on people from all over the world.

  • Information handling – technology has also changed the way businesses store information. As a result of being able to collect information through the internet and other technologies, not only is it easier to receive information, but it is also easier to analyse it to then take action and improve products when needed.

Influences on Business: E-commerce

You must have noticed that currently many goods and services can only be purchased online.

E-commerce (electronic commerce) refers to buying and selling of products through the internet.

Amazon sells its products through the internet. It only recently introduced physical grocery stores (Amazon Fresh) and customers can only purchase most products sold on the website online.

Ethical and environmental influences on business

Every business has certain ethical practices and environmental factors that it is influenced by.

Influences on Business: Business ethics

Business ethics refer to business morals, policies, and practices that guide business decisions and actions.

Business ethics are generally accepted principles that cover the business' interaction with customers, the treatment of its employees, its interaction with other businesses and the Government, and how it deals with negative publicity. These principles can be accountability, care, honesty, loyalty, respect, and many others.

Nowadays many multinational corporations place emphasis on diversity in the workplace. In doing so, they aim to employ people of different backgrounds, genders, social groups, races, etc.

Influences on Business: Business environment

Business environment is the sum of all events, factors, and conditions, internal or external, that influence business activities.

The business environment refers to everything that is happening around the business. It provides inputs in the form of either regulations, reviews, or needs to the business, and the business, in turn, provides outputs to the environment in form of its products or other services.

Government regulations, health and safety regulations, economic situation, political environment, technology changes, environment culture, customers demand, demographics, and tax rates are environmental factors that can affect the business.

The economic influences on business

Another factor that can highly influence a business is the economic climate.

Influences on Business, The economic influences on business, StudySmarterThe economic influences on business, pixabay.com

Influences on Business: Economic climate

The economic climate describes the state of the economy.

Simply put, it refers to how the economy in which a firm operates is doing. The economic climate considers factors such as the quantity of goods and services produced, the affordability of goods and services, and the availability of jobs.

It is important to note that the economic climate tends to change. It may either improve or weaken. If levels of production, consumer income and spending, and employment rise, the economic climate will improve. However, if they fall, the economic climate will weaken.

The economic factors that can highly influence a business are interest rates, level of employment, and consumer spending.

Influences on Business: Interest rates

Interest rates are the cost of borrowing money expressed as a percentage.

Low interest rates are very favourable for businesses. This is because then they can borrow money to purchase products and equipment necessary to operate without paying excessively high fees. What is more, low interest rates encourage customers to take out loans and spend money on products manufactured by businesses.

Influences on Business: Level of employment

Level of employment is the number of people engaged in productive activities in an economy.

The level of employment indicates the number of people in a country that have jobs and earn money. For businesses, a high level of employment means that they employ more people who produce more goods and services. Moreover, it means that customers earn more money and are more likely to spend it on a business's goods and services.

Influences on Business: Consumer spending

Consumer spending is the value of goods and services bought by consumers over a time period, usually a month or a year.

As the name suggests, consumer spending refers to money customers spend on goods or services offered by businesses. Of course, the more they spend, the better for businesses.

Globalisation influences on business

Globalisation has had a huge impact on businesses in the twenty-first century.

Globalisation is the growing integration of the world's economies, populations, and cultures. It implies the increasing interaction among people, companies, and Governments worldwide.

The main outcomes of globalisation include international trade, migration, and multinational corporations.

Influences on Business: International trade

International trade refers to the buying and selling of goods and services across borders. Over the last decades, more and more countries have been importing and exporting products from and to other countries. Owing to this, regardless of the country they operate in, companies can use products that are manufactured in any part of the world.

Influences on Business: Migration

Migration is the movement of people from one place to another with the intention of settling in a new place. Due to fewer opportunities, poor living conditions, and/or political situations in some countries, citizens have decided to leave and seek opportunities in other countries.

Countries with high levels of immigration include the world’s biggest economies such as the United Kingdom, Germany, and the United States. This is because in these countries immigrants can find well-paid jobs and afford a better living.

Influences on Business: Multinational corporations

Multinational corporations are companies that operate in at least one country other than their home country.

Nowadays companies can easily move their operations abroad. This has been caused by the development of technologies that allow communication between employees in different countries and the development of transportation that allows entrepreneurs to travel and maintain activities in numerous locations.

McDonald’s is a fast-food restaurant that serves customers all over the world. It operates not only in its mother country of the United States but also in many other countries including the UK.

Legislation influences on business

Everyone in society, including businesses, has to follow the law.

Influences on Business, Legislation influences on business, StudySmarterLegislation influences on business, pixabay.com

Legislation, in other words, law, lays down a set of rules that govern the way society operates.

Legislation ensures that businesses are not exploiting customers or employees. It also protects businesses from fraudsters or from anticompetitive market conditions like monopolies.

The main laws that affect businesses are consumer law and employment law.

Influences on Business: Consumer law

Consumer law, also customer protection law, refers to laws that prevent businesses from treating their customers unfairly. It protects customers against issues such as fraud or 'miss-selling' when they buy a product or service.

Influences on Business: Employment law

Employment law is the legal agreement between employers and employees which defines and regulates their relationship. It focuses on aspects such as payment, discrimination, recruitment, and working conditions.

Competitive environment influences on business

For a competitive environment to exist, there must be at least two businesses that try to attract customers in the same market.

A market is a place where there are buyers and sellers. They come together to make transactions and exchange goods and services.

Competition can be more or less fierce, depending on how many competitors there are and how much market share they have. However, typically, businesses that offer similar products compete the most fiercely with one another.

These are the three most common ways companies compete with each other:

  • Price – offering prices lower than competitors,

  • New products – developing new products different from competitors' products,

  • Advertising – promoting products and brands through various channels.

Sainsbury’s and Aldi continuously compete with each other. Both supermarkets try to lower their prices and develop new products to attract customers. Additionally, they keep promoting them wherever possible.

As you can see, technology, ethics, environment, economy, globalisation, legislation, and the competitive environment all have an influence on businesses. These external influences all have significant impacts on the business and its operations.

Influences on Business - Key takeaways

  • Businesses are influenced by many external factors such as technology, ethics, environment, economy, globalisation, legislation, and the competitive environment.
  • Technological developments have transformed the way communication is conducted in business and has led to the emergence of e-commerce.
  • Business ethics refer to business morals, policies, and practices that guide business decisions and actions.
  • The economic climate describes the state of the economy. It considers factors such as the quantity of goods and services produced, the affordability of goods and services, and the availability of jobs.
  • Globalisation is the growing integration of the world's economies, populations, and cultures. It has led to the emergence of multinational corporations, which are companies that operate in at least one country other than their home country.
  • The main laws that affect businesses are consumer law and employment law.
  • A competitive environment is defined as an environment in which at least two businesses try to attract customers in the same market.

Frequently Asked Questions about Influences on Business

There are two main laws that affect businesses: consumer law and employment law. Consumer law protects customers against issues such as fraud or 'miss-selling' when they buy a product or service. Employment law, however, focuses on aspects such as payment, discrimination, recruitment, and working conditions for employees.


The economic factors that can influence a business are interest rates, level of employment and consumer spending. 


Technological change has transformed the way communication is conducted in business. New systems allow businesses to manage their network of employees and handle data easily and more effectively. Additionally, technological change led to the emergence of e-commerce which is the buying and selling of products through the internet. 

Business ethics are generally accepted principles that cover the business's interaction with customers, the treatment of its employees, how it interacts with other businesses and the government, and how it deals with negative publicity. The business environment is the sum of all events, factors and conditions, internal or external, that influence business activity. It provides inputs in the form of either regulations, reviews or needs to the business and the business, in turn, provides outputs to the environment in form of its products or other services.

In a competitive market, in order to succeed, businesses have to keep an eye on their competitors and develop strategies that will allow them to attract customers and beat the competition.

Final Influences on Business Quiz

Question

What is a multinational company? 

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A business that operate in more than one country

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Give some examples of multinational companies

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Coca-Cola, Unilever, Pepsi, Starbucks, McDonald’s, BMW, Suzuki, Samsung

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What is the country from which a multinational company originates called? 

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the home country

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What is a host country? 

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The country that a multinational company operates in but not the home country. 

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In which business sectors do multinational companies exist? 

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there are thousands of multinational companies that exist across all sectors: retails, cars, technology, food, beverages

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How many types of multinational companies are there? 

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1

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What are decentralised multinational corporations? 

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Decentralised multinational corporations have a strong presence in the home country. The term 'decentralisation' means that each office is free to manage its own business operations

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What are global centralised corporations? 

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Global centralised corporations have an administrative headquarter in the home country and often outsource production to developing economies to save time and costs. 

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What are international companies? 

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International companies build on the R&D of the parent company to develop new products or product features. 

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What are transnational enterprises? 

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Transnational enterprises have a decentralised organisational structure with operations in several countries. 

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Why do multinational companies outsource production to a developing country? 

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Save production costs

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What is not a feature of a multinational company?

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Unity of control

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What are the challenges presented by a multinational company? 

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Abuse of monopoly power

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What kind of local resources can a multinational company exploit on? 

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Natural resources, infrastructure, labour, capital

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What is 'unity of control'? 

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A multinational company has a headquarter in the home country to manage the overall business activities across the globe. 

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Provide a definition of globalisation.

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Globalisation is a process of growing integration of the world's economies, populations, and cultures. It implies the interaction among people, companies, and governments worldwide. Through globalisation, the world is becoming more and more interconnected.

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What are the three factors that drive globalisation?

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Technological development, transport development and higher incomes

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What is international trade?


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International trade is selling and buying goods and services across borders.

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What impact has globalisation had on international trade over the last few decades?

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It significantly increased international trade.

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What are imports?

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Imports are goods and services produced by other countries outside of the UK and sold to residents of the UK.

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What is WTO?


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World Trade Organisation (WTO) is an international organization that aims to open trade for the benefit of all.

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What are tariffs?

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Tariffs are taxes on imports of goods and services.

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What is migration?


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Migration is a movement of people from one place to another with the intention of settling in a new place.


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Name an example of a country with high levels of international immigration.

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Any of: 

  • United States, 
  • Germany, 
  • United Kingdom, 
  • Russia, 
  • Saudi Arabia.


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What are MNCs?

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Multinational corporations are companies that operate in at least one country other than their home country.

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Give an example of a multinational corporation.


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For example:

  • McDonald’s, 
  • Starbucks, 
  • IKEA, 
  • Bayer, 
  • Tesco.

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What are the advantages of globalisation?


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  • business growth
  • reduced costs
  • inward investment


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What is meant by economies of scale?


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a reduction in costs per unit by increased output


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What are the disadvantages of globalisation?


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  • competition
  • takeovers
  • environmental harm

  • inequalities

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What is takeover?


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Takeover is when a company buys and controls another company.


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Define a market.


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Market is a place where there are buyers and sellers. They come to make transactions and exchange goods and services.


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What types of markets are there?

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Markets can be online or geographical, and local or global.

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Give an example of an online market.


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Selling second-hand clothes online through apps or websites.


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Define competition.


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Competition is when there is more than one business in a market that tries to attract customers.


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What is an indirect competition?


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Indirect competition is when there are businesses that offer different products or services, but they can still compete.


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Give an example of a direct competition.


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For example, Ryanair is a direct competitor with Wizz Air, because they offer the same service which is low fare flights.


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What is a competitive environment?


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Competitive environment is where different businesses compete within a defined market place.

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What types of competitive environment are there?


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There are several types of competitive environment: pure competition, monopolistic competition, oligopoly and monopoly.


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What is monopolistic competition?


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Monopolistic competition is when there are many competitors that offer different products or services. However, they typically serve the same purpose.


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Give an example of oligopoly.


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For example, social media. There are many social media platforms, but the market is dominated by few channels only.

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What do we call a competitive environment where there are numerous competitors which offer the same or similar goods or services?


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Pure competition or perfect competition


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Give an example of monopoly.


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For example, public utilities such as gas, electric and water are typically offered by one supplier only.

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What are the three ways in which businesses can compete?


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There are three ways in which businesses compete: price, new products and advertising.


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What is a side effect of price competition?


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It can lower profits.

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Give an example of pure competition.


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For example, agriculture. Farmers who provide a local market with grains or milk cannot change the market price of their products and have to agree with the going one.

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What is the European Union? 

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The European Union (EU) is the world's biggest economic and political union, consisting of 27 European countries. 

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How many countries are there in the EU? 

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26

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What is the European Single Market? 

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The European Single Market is the main pillar of the European Union. It was established on 1 January 1993 with an aim to making Europe a ‘home market’ for all countries within the EU. 

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What are the four basic freedoms in European Single Market?

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free movement of goods, services, labour and capital.

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What does European Single Market mean? (choose all correct answers)

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No quotas and tariffs on exports and exports

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