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National 5
External factors
Businesses can’t control external factors but must respond to them. These political, economic, social, technological, environmental and competitive factors are represented by the acronym PESTEC.
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Political factors
Political factors involve the decisions and laws that governments make. These include:
- tax
- laws
- political stability
Governments can raise or lower corporation tax, which will impact on profits. They can also affect businesses by increasing value-added tax on products or business rates.
They can bring in new laws like the National Minimum Wage, which impacts on profits and employment rights. Governments can also introduce new health and safety legislation meaning that a business has to change the way it works, for example by training its staff.
The vote to leave the European Union, also known as Brexit will have an impact on the way UK firm’s trade with the EU single market. The impact may be negative (a loss of trade with EU customers) or positive (less restrictions placed on firms by EU lawmakers). For example, Scottish fishermen hope that leaving the EU will help boost their industry. On the other hand UK-based car manufacturers are worried about losing out on free access to wealthy customers in France and Germany.
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