Impact of External Factors on Industry Growth, Risk and Profitability

Macroeconomic trends have an impact on the industry. The economic factors affecting an industry's growth risk and profitability include:

  • GDP

  • Interest rates

  • Credit availability

  • Inflation

Governmental Influences: The government can impact any industry with its regulation and taxes. It can introduce norms and quotas that can affect the cost of manufacturing. It can also allow for subsidies or waivers that can help an industry immensely by lowering costs and increasing profits. Governments regulate controlling bodies and therefore the industry indirectly in many cases. In certain other instances the government behaves as a customer -- as it is in the case of the army or government staffs.

Technology: Technology is a major factor that can change the very face of the industry. New technological innovations can impact an industry dramatically. Pagers, which were in a stage of high demand, all but vanished with the onset of the easy to use mobile sets. The advent of digital cameras, desktops/laptops are all examples of existing industries changing thanks to technological innovations.

Demographic Factors: Demographic factors play an important role in what purchase decisions are made. A young population in the age group 25-45 is most likely to look at housing aggressively. An ageing demographic will seek retirement homes or health facilities rather than housing. This impacts these respective industries.

Social Influences:People's living habits, social norms and practices impact the purchases they make. Previously women were not a key part of the workforce, but World War II changed all that.

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