An Overview of the External Environment: Further Exploration (VCE SSCE Business Management): Revision Notes
An Overview of the External Environment: Further Exploration
Introduction to the external business environment
When planning a business, you must carefully consider factors beyond your direct control that will influence operations and success. This note explores three critical areas: technological developments, global considerations, and corporate social responsibility. Understanding these external factors allows businesses to adapt, remain competitive, and plan effectively for the future.
The external business environment encompasses factors outside a business's direct control but significantly impacts its ability to operate successfully. These factors require continuous monitoring and strategic adaptation.
Technological considerations
The importance of technology in business planning
Technology continues to evolve at an accelerating pace, fundamentally changing how businesses operate and compete. Staying current with technological advances is essential not only for running day-to-day operations but also for identifying new business opportunities. Technology has particularly transformed the competitive landscape for small businesses, enabling them to compete more effectively for customers and access broader markets.
Technological development refers to the innovations and improvements in technology that can assist a business in carrying out work.
During the planning stage, businesses must consider how technology will be integrated into key operational areas including:
- Record keeping and financial management systems
- Marketing and sales channels
- Operational processes and workflows
How technology impacts business operations
Technology influences business planning and operations in several important ways. Understanding these impacts helps businesses make informed decisions about technology investments and strategies.
| Area of impact | How technology affects the business |
|---|---|
| Operating costs | Software systems enable automation of essential processes such as accounting, payroll, and record keeping, reducing manual labour and improving efficiency |
| Managing sensitive information | Technology provides tools to create secure environments for protecting customer data and confidential business information |
| Communication processes | Businesses can develop sophisticated communication systems for marketing, information sharing, and internal collaboration. This includes portals for accessing and updating documents |
| Increased employee productivity | Computer programs and software typically allow processes to be completed with greater accuracy and speed |
| Establishing and maintaining a customer base | Technology enables even small businesses to reach markets far beyond their local region, accessing national and global customers |
| Outsourcing | Businesses can plan to outsource specific functions either domestically or internationally to reduce costs and focus on core activities |
Adapting to technological change
As technology continues to advance, businesses must remain flexible in their planning. New marketing platforms, particularly social media, constantly emerge and influence how businesses reach their target markets. These developments require businesses to regularly review and update their marketing strategies.
Staying Current with Technology
Technology may lead businesses to modify the products or services they initially planned to offer. While forecasting future technological trends is challenging, businesses must actively monitor developments to identify opportunities and maintain competitiveness.
Technology-driven planning should focus on:
- Identifying market niches or gaps
- Taking advantage of emerging opportunities
- Maintaining competitiveness regardless of business size
- Building foundations for future expansion
Cyber security in business planning
A critical aspect of technological planning involves protecting the business from cyber threats. According to the Australian Cyber Security Centre, cybercrime costs Australian businesses an average of nearly $300,000 per incident, with Victoria accounting for 25% of the country's cybercrime victims.
When planning a business, consider these key cyber security threats:
Viruses or malware (malicious software): These can affect computer operations and corrupt data. They often spread through email attachments from unknown sources or online scams.
Hackers capturing personal data: Sensitive information becomes vulnerable when shared over inadequately protected wireless networks.
Free software downloads: Some free applications collect and share information without proper authorization.
Essential Cyber Security Measures
To protect your business, implement these preventative measures:
- Install and maintain up-to-date virus scanners on all computers
- Secure wireless internet networks with strong password protection
- Never open email attachments from unverified sources
- Exercise caution when downloading free applications from the internet
- Keep software and operating systems current through automatic updates, as hackers often exploit vulnerabilities in older versions
Additionally, prepare for potential cyber-attacks by:
- Regularly backing up files to external hard drives or cloud storage
- Storing backup devices securely
- Testing backup systems regularly
Under the Notifiable Data Breaches scheme, organizations covered by the Privacy Act 1998 must notify the Office of the Australian Information Commissioner (OAIC) and affected individuals when personal information is accessed, disclosed without authorization, or lost (known as a data breach).
Global considerations
Understanding the global business environment
Australia's prosperity depends on businesses adapting to changing global conditions and maintaining competitive practices. Living standards will only continue to improve if businesses sustain productivity growth and strong trading relationships. When planning a business, you must carefully consider how global factors will affect operations.
Key global considerations include:
- Overseas competitors
- Overseas markets
- Offshoring of labour
- Exchange rates
- Patenting
- Copyrights
- Trademarks
- Online sales
Modern businesses can globally streamline their supply, manufacturing, and retail chains. This capability means companies increasingly focus on transferring activities and services to countries offering the greatest efficiencies.
Overseas competitors
Overseas competitors are businesses not based in Australia that compete with Australian businesses.
Businesses must compete both domestically and internationally, whether importing (bringing in) or exporting (sending overseas) goods. Competing with overseas businesses presents challenges because different countries have varying laws, practices, and regulations that may give foreign businesses competitive advantages.
Example: Labour Cost Advantages
Neighbouring countries often have lower labour costs, allowing them to keep prices for goods and services significantly lower than Australian businesses can offer. This creates a competitive challenge for Australian businesses that must find other ways to add value or differentiate their offerings.
Overseas markets
Overseas markets are markets or customers in another country that buy a business's products and services.
Expanding into overseas markets is essential for business growth. However, conducting business internationally requires understanding different requirements and regulations for specific business sectors. Cultural and social aspects of different societies also play important roles in successful international business.
Recent Australian International Business Survey data shows that Australia's exports have grown, with main products including natural gas, crude oil, and services. However, businesses face several challenges in the global economy:
- Trade tensions between major economies (e.g., USA and China)
- Political uncertainty (e.g., Brexit, European conflicts)
- Global pandemic impacts
- Weakening demand for some Australian exports
- Access to finance, particularly for small businesses
- Supply chain disruptions and container shortages
Global Market Challenges
These challenges demonstrate why careful planning for international markets is essential. Businesses must develop strategies to navigate political uncertainty, manage supply chain risks, and adapt to changing global demand patterns.
Offshoring of labour
Offshoring refers to when work is done in another country; for example, aircraft maintenance conducted in Hong Kong or app development carried out in India.
Offshoring has become a growing trend in the global economy. It differs from outsourcing, where work is conducted by a third party but remains local.
Offshoring provides flexibility, particularly in industries such as legal services, information technology, and accounting. As trade barriers fall, free trade agreements expand, and more businesses enter the global economy, offshoring continues to grow in popularity among businesses seeking competitive advantages.
Four Key Drivers of Offshoring Growth
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Technological changes: Developments in cloud computing, mobility, work flexibility, and big data have made offshore work more feasible and efficient
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Regulatory relaxation: Reduced legislation and regulations have removed legal barriers to offshore work. New trade agreements and tariff elimination have also reduced costs
-
Offshore hub development: Specific locations have emerged as major offshore centres, including India, Poland, the Philippines, China, Romania, Mexico, and parts of South America
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Globalisation pressures: Businesses face pressure to reduce costs and become more competitive. Globalisation has also provided access to skilled workers in developing markets
Exchange rates
Exchange rates represent the value of a currency against another. The Australian dollar is usually compared to the US dollar. Exchange rates can significantly influence a business's overseas sales.
Australia operates with a floating exchange rate, meaning its value is determined by supply and demand for the currency. The Australian dollar's value critically affects business revenue, with different impacts depending on whether a business imports or exports goods.
In an economic climate where the Australian dollar fluctuates, businesses must anticipate possible changes and adapt their plans accordingly. If a business intends to participate in the global economy, planning must include strategies for managing changing currency values.
Example: Exchange Rate Impacts
When the Australian dollar is strong (high value):
- Exports become more expensive for overseas buyers, potentially reducing sales
- Imports become cheaper for Australian businesses
When the Australian dollar is weak (low value):
- Exports become cheaper for overseas buyers, potentially increasing sales
- Imports become more expensive for Australian businesses
Understanding these dynamics helps businesses plan pricing strategies and manage international transactions effectively.
Patenting
A patent is a right that is granted for any device, substance, method, or process that is new, inventive and useful. A patent is legally enforceable and gives the owner exclusive rights to commercially exploit the invention for the life of the patent.
Australia grants two types of patents:
- Standard patents: Provide longer protection periods and broader coverage
- Innovation patents: Offer shorter protection periods with faster processing
When planning to apply for a patent, business owners must research both types to determine which best suits their needs. Factors to consider include:
- Cost differences between patent types
- Length of protection offered
- Processing time required
- Type of invention being protected
Patents have become increasingly complex with technological advances. For example, recent debates have emerged about whether artificial intelligence (AI) systems can be listed as inventors on patent applications, with different countries taking varying approaches to this question.
Copyright
Copyright exists to protect the original expression of ideas (not the ideas themselves). Copyright in Australia is free and automatic, and there is no official registry or application process.
Copyright protection typically covers:
- Books, films, music, newspapers, magazines, and artworks
- Originally created databases
- Computer programs
- Media broadcasts
The Copyright Act 1968 provides copyright protection in Australia, though copyright laws vary between countries. Protection usually lasts for 70 years from the year of the author's death or from the year of first publication after the author's death.
Copyright Limitations
Copyright does not protect names, titles, or slogans, although trademark protections may apply to these elements. Businesses in the planning stage should carefully consider any copyright restrictions and requirements affecting their operations, products, or services.
Trademarks
Trademarks are important as they protect a business from others using their reputation or products. A trademark is a protection that can be granted for any aspect of marketing. Registered trademarks are protected legally, and misuse of trademarks can be pursued under law.
Trademarks can include:
- Letters, numbers, words, and phrases
- Sounds and smells
- Shapes, logos, and pictures
- Combinations of these elements
Trademarks give businesses exclusive rights to use these elements commercially and to license or sell them to others. They serve as powerful marketing tools, helping to identify a business's unique identity—often called a brand.
Trademarks vs. Other Business Identifiers
Trademarks differ from business names, company names, and domain names. Well-known examples include Qantas's flying kangaroo and Lonely Planet's logo.
While most businesses should register trademarks, they can be used even without registration and may have significant business value. Registration provides stronger legal protection and enforcement options.
International trademark protection:
Businesses can register trademarks internationally through two methods:
- File a single international application through IP Australia, selecting countries designated in the Madrid Protocol (international trademark registration)
- File separate applications in each individual country
Design registration:
Beyond trademarks, businesses should ensure they register any designs that are new, unique, and distinctive in terms of configuration, shape, pattern, or ornamentation.
Online sales
Online sales occur when a business does not sell goods to a customer face to face; customers purchase their goods online, usually through a website.
Online sales provide significant opportunities for businesses to expand and access many potential customers. Businesses of any size can sell products and services globally through the internet. When planning a business, carefully examine how online sales can be incorporated into the business model.
Benefits of selling online:
- Reduced physical space requirements and lower rent costs
- Ability to operate from home offices
- Storage in garages or small warehouses rather than retail stores
- Focus operational resources on inventory rather than expensive storefronts
Overcoming barriers to online sales:
Some business owners have hesitated to embrace online retailing due to:
- Website creation complexity
- Administrative time requirements
- Limited computer literacy
However, to avoid being overtaken by competitors, businesses must consider incorporating online sales into their strategies.
Getting Started with Online Sales
Small and medium businesses typically begin their online journey on established marketplaces such as:
- eBay
- Etsy
- Shopify
These platforms offer low barriers to entry and minimal set-up costs, making them logical starting points.
As online sales prove successful, businesses should expand their presence across multiple platforms to reach as many potential customers as possible.
Recent trends:
The COVID-19 pandemic accelerated Australia's adoption of online shopping. According to Australian Bureau of Statistics data from late 2021, total online retailing grew significantly, partly because consumers in NSW and Victoria were unable to visit physical shops during lockdowns. This shift towards online purchasing has created ongoing opportunities for businesses to expand or create new ventures in the digital marketplace.
Corporate social responsibility considerations
Understanding corporate social responsibility
Corporate social responsibility (CSR) is a management concept whereby the business conducts itself in an ethical manner, takes responsibility for the economic, social and environmental consequences of its activities, and is accountable to a wide range of stakeholders, including employees, customers and suppliers.
Businesses must demonstrate a sense of responsibility towards the community and environment in which they operate. This can take various forms, including:
- Educational and social programs
- Environmental sustainability practices
- Ethical sourcing and production methods
- Community support initiatives
Businesses that meet these responsibilities are known as 'good corporate citizens', and communities increasingly expect businesses to recognize and fulfill their social responsibilities.
CSR in the planning stage
All businesses, regardless of size, should strive to become good corporate citizens from the planning stage onwards. Ways businesses can contribute socially include:
- Volunteering in the community
- Establishing grant programs
- Collaborating with other businesses on social initiatives
- Developing sustainable business practices
- Supporting local and global causes
As a business grows, the scope of its social involvement should expand correspondingly. Starting with CSR initiatives early helps establish a culture of responsibility that can scale with the business.
Environmental considerations
All businesses impact the environment during their operations. Awareness of environmental impact benefits both the company and society as a whole. For example:
Financial benefits: Environmentally friendly practices often save money through reduced resource consumption
Customer attraction: Many customers prefer supporting businesses they believe contribute positively to society
Practical environmental measures businesses can implement during planning include:
- Installing rainwater tanks and solar energy systems to reduce reliance on natural resources
- Using products made from recyclable materials
- Reusing paper where possible
- Implementing comprehensive recycling programs
- Minimizing waste generation
- Developing ethical sourcing practices for supplies and products
Environmental Risk Management
Risk management planning should include:
- Identifying potential environmental risks
- Implementing control measures
- Developing action plans for environmental issues if they arise
Proactive environmental planning not only protects the environment but also safeguards the business from potential regulatory penalties and reputational damage.
Socially responsible production
Businesses must consider how their goods and services affect society broadly. For example:
Manufacturing businesses should:
- Understand and comply with industry-specific laws and regulations
- Ensure staff safety in all operations
- Verify that products will not injure customers
General social responsibility considerations:
Many new businesses now focus on ideas that contribute to both profit and social good. Common approaches include:
Example: Social Enterprise in Hospitality
Hospitality sector: Cafes have become driving forces in the social enterprise sector, with charities and businesses using them to train and employ disadvantaged people and those with disabilities who might otherwise struggle to find work.
This demonstrates how businesses can create value for both shareholders and society simultaneously.
Supply chain ethics: Businesses increasingly examine where they source products and develop relationships with suppliers who are sustainable and ethical in their employee treatment.
Fashion and textiles considerations:
For businesses in the fashion industry, reducing environmental impact involves considering:
- Material selection and use (choosing natural or organic fibres)
- Manufacturing processes and their environmental impacts
- Dyes and printing methods used on fabrics
- Ethical issues around human labour in garment production
- Wastewater contamination and disposal
- Pattern-cutting waste minimization
- Sourcing from businesses with environmental certification
- Avoiding hazardous inks and dyes
- Care instructions that minimize environmental impact (e.g., cold water washing)
- Ethical labour practices verification through 'fair trade' or 'sweatshop free' brands
- Independent third-party confirmation of ethical operating conditions
- Packaging minimization or use of recycled materials
Ethical Fashion Planning
The fashion industry faces unique challenges in balancing profitability with environmental and social responsibility. Businesses entering this sector should prioritize ethical considerations from the planning stage, as consumer awareness of these issues continues to grow.
Remember!
Key Points to Remember
Technological Considerations:
- Technology changes rapidly, and businesses must stay current to remain competitive
- Technology impacts operating costs, security, communication, productivity, and market reach
- Cyber security planning is essential, with preventative measures and backup systems critical
- Businesses must adapt their products, services, and marketing strategies as technology evolves
Global Considerations:
- Overseas competitors often have cost advantages due to different regulations and lower labour costs
- Expanding into overseas markets requires understanding different regulations and cultural contexts
- Offshoring provides flexibility but requires careful planning around legal, technological, and market factors
- Exchange rate fluctuations significantly impact import/export businesses and require strategic planning
- Patents, copyrights, and trademarks protect intellectual property and can be registered internationally
- Online sales provide opportunities for businesses of all sizes to access global markets
Corporate Social Responsibility:
- CSR involves taking responsibility for economic, social and environmental consequences of business activities
- Environmental considerations should be integrated from the planning stage
- Ethical sourcing and sustainable practices can save money and attract customers
- Businesses should plan for environmental risks and develop action plans for potential issues
- Social responsibility extends to product safety, employee welfare, and community contribution
Key Terms to Remember:
Technological development, overseas competitors, overseas markets, offshoring, exchange rates, patent, copyright, trademarks, online sales, corporate social responsibility (CSR)