External factors

Businesses operate in an ever changing world. External factors are things outside a business that will have an impact on its success. Their impact can be positive or negative.

A business cannot control external factors. All it can do is react to them and make decisions to help it remain successful.

The acronym PESTEC is used to help remember the different types of external factors. These are:

  • political - For example, new legislation
  • economic - For example, inflation and unemployment
  • social - Changes in taste and fashion or the increase in spending power of one group, for example, older people
  • technological - For example, being able to sell goods online or using automation in factories
  • environmental - For example weather conditions affecting sales or production and growing interest in being ‘green’ , for example by recycling
  • competitive - The impact of a rival firm which may have a similar product or which may lower its prices

Each of the external factors can affect a business positively or negatively. In some cases it can even be both.