OxfordAQA A-Level Business: Analysing the external environment to assess opportunities and threats (9725) – Revision Notes

These notes boil down section 3.3.4, Analysing the external environment to assess opportunities and threats, from the OxfordAQA International AS and A-level Business (9725) specification, Version 1.1 (International AS exams from May/June 2027, International A-level exams from May/June 2028). None of it is AS content (International A-level only); Unit 3: Business analysis examines it. If your exams are on the older 9625 specification, revise from that document. Full explanations and worked examples are in the study guide.

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The big idea

An external change matters only through its effect on this business. Every answer should follow one chain:

change → effect on costs or demand → functional area (marketing, operations, finance, HR) → strategic response → judgement (how big, how likely, how soon)

External environments differ between countries, and in a global economy a change in one country (a recession, a tariff, a currency move) reaches businesses in another.

PESTLE

Letter	Covers	Example opportunity	Example threat
Political	Government policy, trade, support	A new grant for energy-saving kit	A tariff in an export market
Economic	GDP, tax, exchange rates, inflation, unemployment, interest rates	Rising incomes	Higher borrowing costs
Social	Population, migration, workforce, culture, CSR	Growing demand from older buyers	Skills shortage
Technological	Digital, disruptive technology, AI	Online channels, lower unit costs	A cheaper rival business model
Legal	Competition, consumer, employment, environmental, health and safety law	Rules that keep out low-quality rivals	Higher compliance costs
Environmental	Climate change	Demand for low-carbon products	Extreme weather disrupting supply

Value: structured outward look; early warning; feeds the O and T of SWOT; useful before entering a new country. Limits: quickly dated; unranked list; categories overlap; future change is uncertain; gathering data costs time and money.

Political and legal: quick list

Law within a country affects (specific laws are not required):

• competition: bans on cartels and abuse of dominance; merger controls
• consumer protection: safety, labelling, advertising, refunds
• the labour market: pay floors, hours, dismissal, discrimination, employee rights
• environmental issues: emissions, waste, permits
• health and safety: risk assessment, training, equipment

Government policy to know:

• support for business: grants and subsidies; cheaper inputs, but conditions apply
• ease of doing business: speed and cost of registering, permits, tax filing, contract enforcement
• international trade agreements: lower barriers and common standards both ways
• protectionism: tariffs, quotas, trade regulations
• infrastructure: investment in and quality of transport, energy and digital networks

Economic formulas and methods

Task	Method
Foreign price to home currency	If £1 = X foreign units: home cost = foreign price ÷ X
Home price to foreign currency	If £1 = X foreign units: foreign price = home price × X
Percentage change	(new − old) ÷ old × 100
Change in a price index	(new index − old index) ÷ old index × 100
Real change in a value	(1 + % change in value) ÷ (1 + inflation rate) − 1
Annual interest	outstanding balance × interest rate
Annual repayment	capital repaid + interest on the balance
Price including sales tax	price before tax × (1 + tax rate)
Profit after corporation tax	profit before tax × (1 − tax rate)

Method in steps: exchange rate questions

1. Write the rate as “£1 = X foreign units”.
2. Converting a foreign cost into pounds? Divide by X. Converting a pound price into foreign currency? Multiply by X.
3. Do it at the old rate and the new rate.
4. Find the difference and the percentage change.
5. Say what it means: who gains, who loses, and what the business could do.

Method in steps: price index questions

1. Find the change in points.
2. Divide by the earlier index value, not by 100.
3. Compare with the business’s own price, cost or pay change to decide whether it has gained or lost in real terms.

Method in steps: interest questions

1. Use the outstanding balance, not the original loan.
2. Interest = balance × rate, at the old and the new rate.
3. Add any capital repayment to get the total payment.
4. Comment on profit, cash flow and whether planned investment is still affordable.

Must-know distinctions

• Appreciation vs depreciation. An appreciation makes exports dearer abroad and imports cheaper at home; a depreciation does the reverse.
• Volatility is unpredictability, not direction. It makes costing, pricing and planning harder even if the average rate is unchanged.
• Inflation vs deflation. A lower inflation rate still means prices are rising, only more slowly. Deflation means the index itself falls.
• Recession vs slower growth. Slower growth means GDP still rises; recession means it falls.
• Tariff vs quota vs trade regulation. A tariff is a tax on imports; a quota limits the quantity; a regulation sets standards, licences or paperwork.
• Income tax vs sales tax vs corporation tax. Income tax affects disposable income and take-home pay; sales tax affects the shelf price; corporation tax affects profit after tax and so funds for dividends and investment.
• Digital vs disruptive technology. Digital technology improves how firms work; disruptive technology replaces a product or business model.
• Shareholder vs stakeholder concept. Shareholder: the firm exists mainly to maximise owners’ returns. Stakeholder: the firm should balance the interests of everyone it affects.

Social, technological and environmental: quick points

• Age structure: older populations shift demand to health, care and leisure; fewer young workers.
• Migration: bigger, more varied labour pool and new markets; emigration can drain skills.
• Workforce size and composition: affects recruitment, shift patterns and pay.
• Education and training: supports high-skill strategies; gaps raise training costs.
• Cultural issues: adapt products, promotion and management style between countries.
• CSR: for (reputation, loyalty, recruitment, investor support, lower long-term risk); against (cost, hard to measure, short-term profit, risk of claims not matching conduct). Pressures come from customers, pressure groups, media, staff, investors and government.
• AI: lower costs and faster decisions; job changes, retraining, errors, bias and data concerns.
• Climate change: physical disruption, pressure to cut emissions, demand for low-carbon goods.

Response toolkit by function

Function	Typical responses to an external change
Marketing	Reprice, launch a cheaper or greener range, target new segments, switch markets
Operations	Change suppliers or inputs, relocate, automate, adjust capacity
Finance	Fix interest or exchange rates in advance, protect cash, delay or bring forward investment
Human resources	Recruit from new groups, retrain, change pay or working patterns
Strategy	Enter or leave a market, invest inside a tariff wall, use a trade agreement, reposition

A strong answer picks the response that fits the firm’s resources and the likely size and duration of the change.

Quick self-test

1. Name the six PESTLE factors.
2. The rate moves from £1 = ₹108 to £1 = ₹100. Has the pound appreciated or depreciated?
3. A component costs ₹27,000. Find its cost in pounds at both rates in question 2, and the percentage change.
4. A firm sells a product for £60. The rate moves from £1 = CHF1.10 to £1 = CHF1.04. Find the Swiss franc price before and after, and the percentage change.
5. A price index rises from 140 to 147. What is the inflation rate?
6. A price index falls from 102.0 to 100.98. What has happened to prices?
7. A firm has £500,000 outstanding on a loan. The interest rate rises from 4% to 5.5%. Find the change in annual interest.
8. A product costs £24 before a 20% sales tax. What is the price with tax?
9. Give two ways the law can affect the labour market.
10. State one reason a business might decide against CSR.
11. What makes a technology “disruptive”?
12. Unemployment falls sharply. Give one effect on the HR function.

Answers

1. Political, economic, social, technological, legal, environmental.
2. Depreciated: £1 now buys fewer rupees.
3. 27,000 ÷ 108 = £250; 27,000 ÷ 100 = £270; (270 − 250) ÷ 250 × 100 = 8% rise.
4. 60 × 1.10 = CHF66.00; 60 × 1.04 = CHF62.40; a fall of 3.60 ÷ 66 × 100 = 5.45%, cheaper for Swiss buyers.
5. (147 − 140) ÷ 140 × 100 = 5%.
6. (100.98 − 102.0) ÷ 102.0 × 100 = −1%: 1% deflation.
7. 500,000 × 0.04 = £20,000; 500,000 × 0.055 = £27,500; £7,500 more.
8. 24 × 1.20 = £28.80.
9. Any two: minimum pay, maximum working hours, fair dismissal rules, protection from discrimination, paid leave.
10. Any one: it costs money and cuts short-term profit; benefits are hard to measure; shareholders may want higher returns instead.
11. It creates a new product or business model that displaces established ones, often starting as a cheaper, simpler offer.
12. Any one: harder to recruit; pressure to raise pay; more training of existing staff; more reason to automate.

Where marks are usually lost

• Converting the wrong way: dividing when the rate has to be multiplied, or the reverse.
• Treating a rise in index points as the percentage inflation rate.
• Calculating interest on the original loan when an outstanding balance is given.
• Forgetting to add capital repayments when the question asks for the total annual payment.
• Saying “lower inflation means prices are falling”.
• Naming a PESTLE factor without explaining whether it is an opportunity or a threat for the business in the case.
• Writing about specific laws or government budgets, which the specification says are not required.
• Treating CSR as automatically good without weighing its cost against its benefits.
• Analysing an external change without saying how the business could respond.
• Ending an evaluation without judging which factor matters most and why.

Official syllabus

OxfordAQA International AS and A-level Business (9725) specification, Version 1.1, for International AS exams May/June 2027 onwards and International A-level exams May/June 2028 onwards. Published by OxfordAQA.