External Factors that Affect a Business

Contents

 External Factors in PESTLE Analysis

 External Factors in SWOT Analysis
 Specific Examples of External Factors that Affect Businesses
 Conclusion
 Operating a successful business isn’t just about working hard, but rather
about working smart. This can mean improving on planning, management,
and targeting, along with many other things. The first step in actually doing
so, though, is periodically reviewing and analyzing where you are in the
market, and what you are doing.
 Looking at the factors that affect the performance and operation of your
business can provide this information, which will tell you what exactly
might need improving. These factors can be positive or negative, and
either internal or external. What we mean by this is that these factors can
either be as a direct consequence of the actions of the company (internal),
or completely unrelated and avoidable (external).
There are a number of different external variables which can affect a business. To
give a few examples, think of:
 how the weather might affect a food production company,
 how the development of technology might affect a traditional publishing
company,
 or how the actions and success of competitors might affect any company.
If your business was the only thing in existence, then external factors wouldn’t
matter. However, this is never the case. There will always be variables out of your
control that directly affect how your business functions and performs, and as such
there is no excuse to ignore them!
External Factors in PESTLE Analysis
PESTLE analysis, a more developed form of ‘PEST’ analysis, is one of the most
important tools in business analysis (hence the name of this website!), and relies
almost entirely on external factors.
PESTLE analysis focuses on six important factors which can influence business —
political ones, economic ones, sociocultural ones, technological ones, legal ones,
and environmental ones. In case it hasn’t just yet clicked, all of these six factors
are external. Companies generally can’t change local and global politics, the
world’s economy, society’s behaviour, the development of technology, local law,
or the environment — but yet, all of these factors directly affect how companies
operate and whether or not they succeed.
External Factors in SWOT Analysis
SWOT analysis is another popular business analysis technique. Unlike with PESTLE
analysis, not all of the factors taken into account in SWOT analysis are external.
SWOT analysis looks at the Strengths, Weaknesses, Opportunities, and Threats of
(or facing) a given company, so in fact, it looks at two internal factors and two
external factors.
Strengths and Weaknesses are the two internal variables. A company can directly
influence what it works on (and hence what it turns into strengths), and what it
neglects or forgets about (which become weaknesses).
Opportunities and Threats, on the other hand, are the external factors taken into
consideration in SWOT analysis. Opportunities come and go randomly, without
you being able to change their timing or frequency (but only how you approach
them). The same goes for Threats.
Specific Examples of External Factors that Affect Businesses
Let’s look at some examples of external factors that influence businesses to
further understand their nature and importance.
1. Nestle — Retailers introducing own brand-products: Supermarket
chains (e.g. Walmart, Kroger, Aldi) which provide Nestle with many of
their sales are slowly beginning to create their own brands and
promote them in increasing amounts. Nestle cannot prevent these
companies from doing so (which is what makes this an external
factor).
2. Apple — Increasing labor costs inChina: Recently increasing labor
costs in China, where Apple has many of its products manufactured,
means that there is less profit to be had for Apple. Again, Apple
cannot stop this from happening, making it external, but they can still
choose how to approach the challenge.
3. Pepsico — Social media growth: The development of social media
platforms is a positive, external factor for Pepsico. This provides
them with a new way to market their product and raise public
awareness for it. To clarify once again: this is an external factor
 because, even if Pepsico wanted to, it wouldn’t be able to prevent
the growth of social media.
Conclusion
In summary, the external factors that affect a business are the variables which
influence the operation and performance of a company despite their innate
inability to be changed. They play a huge part in both the SWOT analysis, and the
PESTLE analysis. There are many general examples of how external factors can
affect businesses, as well as specific ones which can be seen in massive
transnational corporations like Nestle, Apple, and Pepsico.