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External Influences Affect All Firms Essay

1545 words - 6 pages

External Influences Affect All Firms

Many businesses are quite capable of organising themselves internally,
however this does not guarantee complete business success. Businesses
have many outside pressures to face, which can become quite
complicated to manage. These are called external influences.

There are many factors that can affect a business, of which the market
is just one. Businesses are tremendously influenced by the markets in
which they trade. The size of a business does this: whether it is
local, national or even international will affect the nature of the
product that they supply and also the quantity.

Competition is also a factor that can influence the rise or fall of a
business.

Communications and methods of transportation such as the delivery of
products by air have made the competition in the market place more
intense. Many businesses in the United Kingdom now face competition
from other continents from around the world. A good example of this is
the UK grocery market where the competition had become fiercer
following the coming of foreign supermarket chains such as Aldi. Also
new products, price changes and take-overs of other businesses can be
a big influence.

Economical influences are a factor too. Interest rates are the priced
paid for borrowed money, this can affect businesses because every
month the Bank of England's Monetary Policy Committee (MPC) assembles
each month and decides on whether to alter the base rate of interest.
So if the MPC decide to alter the base rate of interest this could
have sufficient implications for businesses. A rise will result in
greater overheads for most businesses, for example increased interest
charges on any loans. When rates increase, businesses might delay
borrowing but may be able to do a small amount about the increase
costs of long-term loans. Basically this means business with high
proportions of long-term borrowing are likely to be hit hardest.
However if the business is small they are usually most affected by
rising rates due to their small financial reserves and larger need to
borrow. Some business though actually can benefit from a rise in
interest rates. A clear example of this is that supermarkets might see
the sales of own brands rise as consumers have less money to spend. An
exchange rate is the price of one currency expressed in terms of
another. Significant changes in the exchange rate can create a number
of problems for businesses: firms find it hard to see earnings from
overseas sales in an exchange rate change occurring in between
agreeing the price and receiving payment. If the pound rises in values
then earnings from export sales can decline. Cost of imported raw
materials may vary owing to exchange rate variations. Therefore, a
price told to customers might suddenly become unprofitable if...

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