External factors are issues which either restrict or aid the performance of a business but are beyond its control.

PEST Analysis (Political, Economic, Social, Technological)
-analyse the opportunities and threats of the external environment within which businesses operate
-these factors are beyond the control of any individual organization and affects all businesses in the economy

Political: Government legislation (such as employment law, consumer protection rights, copy right and trade mark regulations, etc.) define the boundaries within which businesses can operate.
Economic: The state of economy in which businesses operate is determined by four key variables: inflation, unemployment, economic growth and international trade. Consumers and business confidence levels also affect the level of economic activity.
Social: Social, cultural and demographic changes can also present opportunities and threats to a business. For example, pressures for firms to become more environmentally friendly has led to a change in business behavior.
Technological: Advances in technology and work processes have improved the efficiency of business. At the same time, the high cost of staying up to date with technological progress can hinder the performance of businesses.

PESTLE Analysis (Political, Economic, Social, Technological, Legal, Environmental)
-Exactly the same as PEST with the additions of Legal and Environmental opportunities and threats

Legal: The government imposes rules, regulations and laws to ensure that the general public is protected from the negative aspects of business activity.
Environmental: Citizens, Organizations and government are increasingly aware and concerned about the negative impacts of business activity on the global environment. Firms that do not respect the environment face ruining their reputation and long-term profitability. Businesses will consider environmental issues depending their aims and objective.

STEEPLE Analysis (Social, Technological, Economic, Environmental, Political, Legal, Ethical)
-Exactly the same as PESTLE with the additions of Ethical opportunities and threats

Ethical: The moral principles that are, or should be, considered in business decision-making. Ethical firms are socially responsible towards their stakeholders, especially their customers, employees and the local community. Such firms would aim to protect the natural environment by using resources efficiently and minimizing waste.

PEST Analysis gives managers an overview of the external business environment, the factor that might affect business activity and the issues that should be addressed in any business strategy. It is a useful and straight-forward framework that aids decisions-making.
Can be used to analyse decisions such as...
1. the potential costs and beenfits of a joint venture, merger or acquisition
2. marketing planning
3. business propositions
4. investment opportunities

SWOT Analysis (Strength, Weakness, Opportunity, Threats)
-A strategic planning method used to evaluate strength, weakness, opportunity and threats involved in a project or a business.
Strength: Characteristics of the business that give it an advantage over others in the industry.
Weakness: Characteristics that place the firm at a disadvantage relative to others.
Opportunity: External chances to make greater sales or profits in the environment.
Threats: External elements in the environment that could cause trouble for the business.

helpful way for remembering SWOT

Economic Growth
-an increase in a country's economic acivity over time
-measured by the change in total output of the economy per year = Gross Domestic Product (GDP)


-the economic activity is at its highest level
-Unemployment will be low
-Business makes high levels of profit
-Investment, export, expenditure will be high

-a dip in the level of economic activity
-declining demand
-lower investment
-falling export sales
-rising unemployment

-bottom of recession
-high levels of unemployment
-workers will suffer from a lack of job security
-very low consumer spending, investment and exports
-poor cash flow & poor liquidity

Recovery/ Expansion
-level of GDP rises again
-consumption, investment, exports and employment will all gradually rise

-the continual rise int he greneral level of prices in the economy

2 main causes of inflation:
Demand Pull inflation
-excessive aggregated demand in the economy
-any factor that causes a rise in consumption, investment, government spending or international trade will lead to an increase in the economy's demand

Cost Push inflation
-higher costs of production leading to a rise in prices so that firms can maintain their profit margin


-rate of unemployment measure the proportion of a country's workforce not in employment
-demand is high, higher levels of derive demand for labour= low umemployment
-demand is low, low levels of derive demand for labour= high unemployment

2 problems of umemployment:
Social costs
-affects the network of family and friends--> arguments, separations, divorce, etc.
-affects the society--> stress, depression, low self-esteem, etc.
-increased level of crime and poverty

Economic costs
-increased burden for taxpayers
-increased government spending on unemployment benefits
-loss of international competitiveness due to lower levels of national output

Government can use demand and supply side policies:
Protectionist measures
-protect the domestic business from itnernational competition
-tariffs to give domestic porducers a price advantage

Expansionary monetary policy
-boost demand
-reducing the level of interest rate in the economy to encourage consumers and business borrowing and spending