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How Internal And External Influences Business Essay

Business can be looked at in multiple ways, it may refer to a persons activities relating to buying and selling, it can be a person’s employment and also the activities of a firm. A Business can be defined as an organisation that aims to satisfy the needs and wants of the community by providing it with goods and services while at the same time aiming to make a profit. Without business the world as we know it would not exist. Business provides employment and income to employees in return for their labour and work, it encourages economic growth, provides competition which results in cheaper products and larger range of products available to consumers and it provides us with the goods and services we require to live our lives. Internal influences that impact on businesses include products, location, management, resource management and business culture. External influences that may impact on businesses include economic influences, financial, geographic, social, legal, political, institutional, technological, competitive situation and market influences. External and internal influences can either affect businesses in a positive or negative way. If a business can use the influences positively they may achieve a profit. Although if a business is affected negatively by these changes it can affect their productivity which will affect their profit and May also cause the business to breakdown completely.

Importance of business in Australia

Business plays a crucial role in Australian society. If not for Business our lives would be very different. Businesses provide Australians with the goods and services we require to live our lives as comfortably and easily as we do. Not only do businesses provide us with goods and services but they provide us with a freedom of choice and give us the opportunity to buy a range of products at competitive prices. Businesses also provide us Business also with entertainment as well as necessities that improve our quality of life such as food and clothing. Businesses also provide millions of Australians with income, businesses provide people with income in return for their hard work and labour. Businesses either provide employees with a salary or wages. Businesses are also crucial in the development of new products or improvements on existing products, this is referred to as an innovation. Business acts as a driving force in our economy by creating wealth and economic growth in the economy. Finally business improves our quality of life by providing us with goods and services that we don’t have the knowledge and equipment to make ourselves.


Internal influences

Internal influences are the influences that the business has some extent of control over, these include products, location, resources, management and business culture.

Product Influences:

The types of goods and services being produced affect the internal dealings of a business. For example a different structure is required for different types of goods and services, for example products that are large and difficult to make in comparison with services such as an electrician or shop owner.

The amount of goods and services produced also affects the internal environment of a company, for example a company if successful in making a lot of products will make more money and be able to expand their operations.

The internal environment of a company may also be influenced by the type of business that it may be and the type of products it produces.

The size of a business is based on the products produced and the technology used in the business and the amount of products that are produced. All these may affect the amount of money generated by the business and the ultimate size of the business. [3] 

Location influences:

Location is one of the most important things when considering starting your own business, it may be the difference between success and failure. For the highest success rate it is essential that a business is located in a shopping centre or on a main street. A good location will lead to many people noticing the business and purchasing goods and services from there and will lead to increased sales and profits. On the other hand a bad location will result in minimal customers and affect sales and lower profits.

It is important for businesses to be in highly visible areas with a lot of people which may be more expensive but will reward them with more profit unless it is a business that doesn’t require passing customer traffic such as manufacturing businesses. [4] 

Resource influences:

There are four main types of resources in a business:

Human resources: the most important part of a business, the employees.

Information resources: this is the information and data required by a business to function properly.

Physical resources: equipment, machinery, buildings and raw materials.

Financial resources: the money required to create products and provide services.

By using all these resources businesses are able to create the goods and provide services demanded by consumers. [5] An example of human resource influence is shown in the article ‘MySpace slashes workforce in half’.

Management Influences:

Increased competition due to globalisation and improved technology has forced businesses to flatten their management which means that there is fewer people in charge which results in faster decision making and adapting to market conditions faster because less people have to approve the changes. Management influences also include if a business axes jobs in order to perform more efficiently and make a larger profit. This is evident in the article ‘Telstra axes another 100 call centre jobs’. Telstra has let these people go in order to hire people overseas on much lower salaries. This benefits the business by allowing them to work more efficiently and create a larger profit by paying their workers less. [6] 

Business culture:

Every business has different values, ideas, expectations and beliefs that are incorporated in the workplace. Be able to use the business culture to your advantage may help in making it easier for things to get done faster and to make positive changes. This helps in achieving a more profitable and productive business. Elements of a business culture include values, symbols, rituals and heroes. [7] 

Internal influences have a massive impact on Businesses in Australia. Some impacts of internal influences on businesses include the businesses location, it is critical to have a good location in order to make a profit and be a successful company, if the business is located in a bad area it will attract fewer customers and will not make much money. Also management influences affect employment in Australia with people losing their jobs in order for the businesses to operate more efficiently and make larger profits. If a company decides to increase the amount of goods it produces this will expand the company and if successful obtain a larger profit, but if it fails it will be left with excess products and lose a lot of money. A business may also be affected negatively if it lacks financial resources, this will result in the business being unable to pay employees and be able to pay for equipment and information resources which will result in the business failing to make a profit. [8] 

External Influences:

External influences are the influences that the business has little or no control over. These include economic, financial, geographic, social, legal, political, institutional, technological, competitive situation and market influences.

Economic influences:

Economic influences have a major influence on business. The Australian economy experiences economic cycles of boom and Recession. During an economic boom the level of unemployment drops considerably and due to more people being employed the level of spending increases significantly and businesses receive greater profits. Also business owners may increase their prices due to many people spending in order to make a greater profit. A recession is the complete opposite. During a recession the unemployment levels rise due to business owners having decreased levels of sales and are unable to keep the same number of employees. Due to unemployment rising people stop spending and begin to save their money instead. [9] 

Financial influences:

Financial influences that affect business include the increased competitiveness due to financial deregulation. due to globalisation of the world’s financial markets Australian businesses are able to not only use Australian financial institutions they are able to access finance from all around the world. These changes will affect the cost of borrowing money which will impact the amount of money businesses invest. Weather conditions can also cause financial impacts on businesses with the price of products and raw materials increasing due to natural disasters. This is evident in the article ‘banana industry hit badly’. Due to the cyclone destroying most of Australia’s bananas businesses must pay a much higher price to buy bananas from farmers which will also mean that consumers will pay much more for bananas. [10] Another example of this is businesses that were affected by the floods in Queensland, this is shown in the video ‘Queensland business hit hard by floods’.

Geographical influences:

Some geographical influences that impact on business in Australia are changing demographics of the population such as age, sex, income, cultural background and family size. These affect businesses because it means that there will be a change in demands of the community which will require businesses to adjust to these changes which could have a negative or positive affect on the business depending on the type of business. Another issue is that there will be a shortage of workers due to Australia having an aging population which will also mean an increase in areas like aged-care. [11] 

Social influences:

If a business reacts quickly to change in fashions and tastes they can receive great profits and increased sales, on the other hand if they fail to react to the changes in society they will fall behind competitors and will not make many sales and make little profit. Other influences that may affect businesses are peoples growing concerns about the environment and businesses are under pressure to put into action more family friendly workplace practices that help both employers and employees. [12] 

Legal influences:

Legal influences that impact businesses are that small and medium businesses are facing levels of regulations that large businesses face. Complying with these regulations is very time consuming and costly and is confusing which may cause some business owners to no understand the laws and be punished with fines. The Australian Competition and Consumer Commission make sure that all businesses operate fairly and comply with all the laws. This ensures that there will be competition between businesses which results in lower prices for consumers. This makes it harder for businesses to sell goods freely and restricts the profit they make to ensure competition between businesses. [13] 

Political influences:

Political influences that affect businesses in Australia include taxation, environmental management, social reforms and labour market reforms. Another political influence that has affected business is deregulation. Deregulation is when government regulations are removed in an attempt to increase efficiency and improve competition. Another influence is privatisation which is when a government business becomes a privately owned business. [14] 

Institutional influences:

The three main influences that affect businesses include government, regulatory bodies and other groups such as trade unions and employer trade associations. Governments affect businesses by making sure they follow all legislations and laws and that they pay all necessary taxes. The government also approves new buildings and improvements to existing buildings. Regulatory bodies monitor businesses and make sure that they are acting fairly and abiding with all laws in regards to consumers and other businesses, also to make sure that the business is being as environmentally friendly as possible. This may impact businesses by making them pay extra money to make sure they are operating as fairly and environmentally friendly as possible, this can slow the production process and be more expensive for the business. [15] 

Technological influences:

Over the past 20 years technology has had a major impact on Australian businesses. With improved technology businesses have been able to produce more efficiently and have increased their productivity. With improved technology businesses are able to make new products and improve the quality of existing goods and services. Technology has increased profits for businesses because with improved technology it means businesses require less employees therefore they pay less people. This can also be a negative, with unemployment likely to rise due to machines replacing people in the workforce. Also if a business fails to keep up with the latest technology they will struggle against other businesses and will fail to produce any profits. Technology also allows business to be easier with improved long distance communication due to email and mobile phones. [16] 

Competitive situation influences:

Competition is a very good thing for consumers, it means that they will have a greater range of products at lower prices. Businesses will try to get a competitive advantage over the competition in their particular industry in order to make maximum profits and ensure their survival. Local competitors are those businesses in Australia that compete with each other in order to sell the most goods or services. Due to these competitors a business must decrease it prices and improve their quality of products in order to be more appealing to consumers and gain an advantage over their rivals. Foreign competitors are businesses that are based overseas but sell their goods or services in Australia. This provides a major issue for Australian businesses because it means less people will buy their Australian products unless that drop their prices to that of foreign businesses which may cause a decrease in profits. [17] an example of this may also be Australians no longer buying expensive home grown bananas and instead buy foreign bananas due to the cyclone. This is evident in the article ‘banana industry hit badly’. An example of local competition is shown in the radio segment ‘the state of the milk industry’, the competition is between Coles and Woolworths.

All up external influences have major effects on how businesses within Australia operate and have a major influence on how much profit a business may make. Due to external influences being out of the control of businesses it is hard to minimise damage done by these influences. The best a business can do is adapt to changes caused by the external environment and make the most out of them. These influences impact the profits made by businesses by the economy either experiencing a boom or recession, governments taxing businesses, changes in the population that will cause businesses to change their products, technology increasing efficiency and production and the government introducing laws that limit the profit made by businesses such as anti-discrimination laws. [18] 


Businesses are one of the most important things in our society today. Without business we would not be able to live our lives as easily and as conveniently as we do. Businesses are influenced heavily by two major influences, Internal and External influences. Internal influences are easier for businesses to manage because the business is in control of these influences, for example a business owner decides where to build their business. If a business uses these influences positively they will increase productivity and increase profits. Although there are negative influences that are inevitable such as a business letting 100 workers go in order to increase efficiency and increase profits. External influences impact businesses either positively or negatively. It is hard to manage these influences because they are out of the businesses control such as if an economy goes into recession. The world of business is a very unstable and unpredictable world. Business will never be perfect due to all these internal and external influences. Business is all about adapting and making the most of what you have and in order to be a successful business person you must be willing to take a risk. [19] 

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