External Factors Affecting Business Environment: A Case Study of Bakers Delight

Running Head: BUSINESS ENVIRONMENT
Business Environment
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Institutional Affiliation

BUSINESS ENVIRONMENT2
Introduction and background information
A firm conducts its operations while considering all that happens beyond the office walls that
will affect its internal functions. These factors that influence domestic transactions that originate
from outside the business are known as external factors. External factors eventually affect
organizational goals and strategies (Babatunde & Adebisi, 2012). Corporations have no control
over external factors that affect them. Therefore, their continued success in a changing external
business environment depends on the capability to adapt to the environment. The external
environment is also known as the operating environment (Botha, Kourie,& Snyman 2014) .
These factors include economic issues, political considerations, demographic issues and changes
in market conditions. External environment can be either positive or negative since it gives rise
to an equal measure of opportunities as it does risks for an organization.
For this report, I will use Bakers Delight, an Australian public company, as a case study to
examine external factors that affect a firm, the challenges they bring and suggestions on how to
solve these challenges. Bakers Delight is a bakery that is Australian-owned with branches in
Australia, New Zealand, and Canada. All its products are fit into three groups; bread sweets and
savories. The firm was founded in 1980 and now, years later, has more than 700 outlets around
the world. This sizeable firm attempted to go into business in the United States market but it was
unsuccessful, but it has tried again in 2016. The company is of considerable size. In the year
2017, total revenue of more than 86 million dollars was generated. This includes sales and other
incomes. In the same year, the company recorded having a total of 404 employees in Australia
only. Considering these facts, it is clear that the study of the company will comfortably be able to
aid in investigating on external factors that affect firms.

BUSINESS ENVIRONMENT3
Economic factors
Factors that influence firms externally are majorly economic, political and technological. The
economic environment constitutes the economic factors that influence the consumer's behavior
and the business's behavior. Some economic factors that affect business include interest rates,
inflation, exchange rates, taxes, recession and demand or supply. Interest rates are of concern to
industry since most businesses’ source of capital includes taking large loans (Gupta, 2013). This
money from loans enables the firm to further their operations.
If say Bakers Delight requires new equipment and new technology to advance their current
operations, and they opt to go for a large loan from a bank, but the interest rates have increased.
This will lead to a higher production cost since the higher interest rate is part of the cost of
production. To compensate for these higher production costs, Bakers Delight will increase the
price of the food it produces. This also affects the consumers with loans because they have to pay
more interest to their lenders thereby reducing their disposable income and consequently
decreasing the revenue set aside for consumption. Overall, the consumer level decreases. In case
of lowered interest rates, the cost of production reduces, prices may remain constant or cut, and
buyers have a disposable income to spend on the baked goods (Prajogo, 2016). Since the firm
cannot overcome the interest rates, the optimal solution is to take advantage of a rise in interest
rates by investing a part of their income in bonds, and this will be a source of income in later
years.
Raw materials and technology are mostly imported from overseas. In the case of Bakers Delight,
if the Australian dollar has more value than the exporter's currency, then importing becomes
cheap but the opposite is true. Therefore to avoid such a situation, we're introducing will be