1.5 - Understanding external influences on business

Question 1

Idenitfy 3 possible external influences on a business.

Answer 1

• The economic climate
• Technology developments
• Legislation

Question 2

What is a business stakeholder? Identify the 8 key stakeholders.

Answer 2

A business stakeholder is a person or organisation that has an interest in a business. Stakeholders have an interest in how the business operates and whether or not it is successful. These can include:

• Owners/ shareholders
• Managers
• Employees
• Suppliers
• Pressure groups
• The government
• Customers/consumers
• Local community

Question 3

Name the three main internal stakeholders; explaining their main objectives.

Answer 3

• Owners: Main goal is profit
• Employees: Main goal is job security and promotions, higher wages/salaries, good working conditions
• Managers: Main goal may be achieving bonuses, autonomy (freedom to make decsions/authority)

Question 4

Name the six main external stakeholders and explain their main objectives.

Answer 4

• Suppliers: To receive payments on time from the business, repeat purchase
• Customers: For the product to be provide value for money and have the product readily available, wide product range, that the goods are fit for purpose
• Shareholders: To receive dividends from their shares, return on their investment.
• Local community: No pollution, traffic congestion from the business, employment
• The government: To receive taxes from the business, produce goods and services and contribute to the economy
• Pressure groups: For the business to be ethical, they will attempt to influence business actions and government legislation.

Question 5

Why might there be conflict between the customers and the managers of a business?

Answer 5

• They have differing interests
• The manager wants to acheive their aims and objectives to achieve a bonus which might require a certain profit level to be met
• The customer wants lower prices so may come at the expense of profit targets

Question 6

Why might there be conflict between the shareholders and the employees of a business?

Answer 6

• They have differing interests
• The owner wants high profits and so requires wage/salary costs to be minimised
• The employee will want a higher salary which will be at the expense of higher profit levels

Question 7

Why might there be conflict between suppliers and the owners of a business?

Answer 7

• They have differing interests
• The owner wants high profits and so requires a low cost
• The supplier wants higher revenues and so wants to charge more

Question 8

What are the four main ways businesses use technology?

Answer 8

• E-commerce: Selling online
• Digital communication: Communicating digitally via email, QR codes
• Social media: Social media posts via sites such as Instagram, facebook
• Payment systems: Systems such as paypal and Apple pay, that guarantee security for the customer and enables the business to receive payments faster

Question 9

How does the use of technology affect the costs of a business?

Answer 9

In the short term costs may be higher as they pay for the system and its installation as well as staff training of the new system. In the long term though, as efficiency improves, average unit costs will be lower.

Question 10

How does the use of technology affect the sales of a business?

Answer 10

• The use of social media will increase brad awareness and as such increase sales
• The use payment systems such as Paypal and Apple pay incraeses customer conveneinnce as wellas security when paying online so will likely increase sales.
• Digital communication means more targeted advertising, eg emails to existing customers, QR codes to enable quick access to websites
• E-commerce allows the business to reach more potential customers and enable customers to shop conveniently 24/7

Question 11

How can the use of technology affect the marketing mix?

Answer 11

Product: Technology can make products more innovative, adding value and strengthening the quality

Price: Technology could enable lower costs as it makes production more efficient, this may enable the business to charge lower, more competitive prices

Promotion: Digital commuication can be chepaer and more effective as you can target the advertsing via social media platforms

Place: E-commerce minimses the need for a physical location which can reduce costs signifcantly. Payment systems mean locations can be mobile increasing convenience

Question 12

What are the benefits and drawbacks of E-Commerce for a business?

Answer 12

Benefits

• Reach more customers as you are online
• Enter new markets, potentially a global audience
• Use traffic data (site anlaystics) for market research

Drawbacks

• Costs to produce, maintain and update the website
• Customers can easily compare prices meaning they may choose other businesses over you, so you may need a more competitive pricing strategy

Question 13

When it comes to legislation, what is the purpose of the legislation and what are the three principles of consumer law?

Answer 13

Purpose: To protect the rights of consumers

• As described: The goods supplied must match any description or samples shown to you at the time of purchase.
• Fit for purpose: The goods should be fit for the purpose they are supplied for/specific purpose you made known to the retailer at time of purchase
• Of satisfactory quality: Goods shouldn’t be faulty or damaged when you receive them, and should last for a reasonable amount of time

Question 14

What are the positive and negative impacts of consumer legislation on business?

Answer 14

Positive impacts:

• If businesses comply (follow the law) then they avoid legal action which can be costly
• Being a responisble business that looks after their customers can contribute to a positive brand image and better relationships with all key stakeholders

Negative impacts:

• If a business is found to break the law then this can lead to negative publicity and damage the brand
• Having to know the law can be costly; a business may have to pay lawyers to ensure they follow the law
• There may be compliance costs, where a business has to change its practice to be in compliance with a certain aspect of the law, eg change their packaging or ingredients

Question 15

When it comes to legislation, what is the purpose and what are the three principles of employment law?

Answer 15

Purpose: To protect the rights of employees

• Recruitment: no discrimination in this process on age, race, gender, religion etc.
• The national minimum wage: The minimum amount workers are required to be payed.
• Health and safety: A right to work in places where risks to their health and safety are controlled properly and employers who are responsible.

Question 16

What are the positive and negative impacts of employment legislation on business?

Answer 16

Positive impacts:

• If businesses comply (follow the law) then they avoid legal action which can be costly
• Being a responisble business that looks after their employees can contribute to a positive brand image and better relationships with all key stakeholders
• As a responsible employer they may attract a better range of candidates for positions
• More motivated employees, lower staff turnover and lower recruitment costs

Negative impacts:

• If a business is found to break the law then this can lead to negative publicity and damage the brand as a business and employer
• Having to know the law can be costly; a business may have to pay lawyers to ensure they follow the law, legal action if they break the law, eg being sued
• There may be compliance costs, where a business has to change its practice to be in compliance with a certain aspect of the law, eg change their pay conditions or upgrade the working environment
• Lower staff morale, higher staff turnover and more expensive recruitment costs

Question 17

How does a change in unemployment affect a business?

Answer 17

• An increase in unemployment would lead to less disposable incomes for consumers. This means businesses will have to provide cheaper products to meet the customer needs
• There will be a wider-range of people to recruit as there are more people out ofwork who are seeking employment
• Luxury good retailers will experience a decluine in sales as people switch to chepare alternatives as they ahve less dispoable income, or are nervous about potentially losing theirr job so will spend less.

Question 18

How does a change in consumer income affect a business?

Answer 18

• Lower consumer income will mean there are less purchases of luxury products (More needs rather than wants) as there is less disposable income
• Businesses will have to adapt to provide products that meet lower costs and may reduce quality as a lower one is demanded
• However some businesses can benefit in times of a slowdown, e.g. Aldi/Lidl as consumers switch to cheaper products.

Question 19

How can a rise in inflation affect a business?

Answer 19

If prices are rising rapidly costs rise which is a problem for businesses as it reduces profit and therefore prices may be increased to compensate which may in turn lead to a drop in sales.

Question 20

How would a strong pound affect importers and exporters?

Answer 20

• A stronger pound means businesses will pay less for supplies from foreign countries; their imports will be cheaper so their variable costs will be lower.
• The pound being stronger means it has more worth. So for people abroad it is more expensive to purchase British products as they need more of their currency to pay for it. So for exporters it will be harder to sell their products abroad.

Question 21

How would a weaker pound affect importers and exporters?

Answer 21

• A weaker pound means businesses will pay more for supplies from foreign countries; their imports will be more expensive so their variable costs will rise.
• The pound being weaker means it has less worth. So for people abroad it is now more affordable to purchase British products as they need less of their currency to pay for it. So for exporters it will be easier to sell their products abroad.

Question 22

How can a change in government taxation affect a business?

Answer 22

• If the government increase taxation such as income tax; sole traders and partnerships will experience a rise in costs and less profit unless they pass the rising costs on to the consumers.
• If the government increases corporation tax then private and public limited companies will need to pay higher levels which will impact their profits, unless they raise prices or cut costs elsewhere.
• Taxation though is used to fund important sevices such as the NHS, roads and waste removal for example, all of these are utilised by businesses, so taxtaion revenue being cut by the government could mean businesses have less services that they can use to help run their business.

Question 23

How can a rise in interest rates affect a business?

Answer 23

A rise in interest rates would mean that the cost of borrowing will rise and as such businesses may be less likely to expand.

Customer spending will fall because it is more expensive to borrow, so people will spend less.