2.3.3 External influences on business activities Flashcards
define globalisation
process by which business activities in different countries are becoming more and more connected to each other
link globalisation to the case study
- Tom’s Toys imports 70% of toys from outside UK
- Tom’s Toys is considering e-commerce
define international trade
companies in one country produce goods and services and sell them in other countries eg GG Toys Plc currently doing this, Tom’s Toys considering it
define production abroad
firms may decide to set up their own factories ad offices abroad. just GG Toys plc
list advantages of globalisation to the UK
- increased choice for customers
- lower prices
- cheaper labour
- large market for business
- economies of scale
- more jobs
disadvantages of globalisation to the UK
- lower profits (If prices have to be cut)
- lower sales (because of increased competition)
- business closures and loss of jobs
why might china not benefit from GG Toys plc locating its factory there
- exploitation of workers
- pollution
- culture
describe the pollution as a result of GG Toys moving production to china
developing countries often suffer the negative impacts of lots of production
describe the exploitation of workers as a result of GG Toys moving production to china
employees may be paid very low ages and have to work long hours in dangerous conditions
describe the culture as a result of GG Toys moving production to china
local culture is being affected by global branding
benefits to china of GG Toys plc moving production there
presence of multinationals in developing countries does create jobs and pay higher wage than local businesses
how can UK businesses compete with countries such as India and China
- provide innovative products and services
- keep prices low by increasing productivity
- create a brand
- efficient distribution so that goods can be delivered at right time
- move some activities abroad
- add value
- recruit right people
what is meant by recruiting the right people
- recruiting educated workers and investing in training will lead to highly skilled workforce who can compete in global environment
- recruiting low skilled immigrants leads to workforce gaining hard working individuals who do not demand very high wages
how does the government action of cutting corporation tax help to increase international competitiveness
helps business lower prices/ encourages inward investment
how does the government action of cutting income tax help to increase international competitiveness
productivity will increase as people work harder
how does the government action of investing in infrastructure help to increase international competitiveness
goods can be distributed more efficiently/quickly
how does the government action of investing in education and training help to increase international competitiveness
workforce become more skilled
how does the government action of grants to business help to increase international competitiveness
they’ll help businesses to invest for growth and innovate product offerings
define exchange rate
value of one currency in terms of another
describe a strengthening exchange rate
if pound increases in value said to strengthen, means pound will buy more of a foreign currency
define a weakening exchange rate
if pound decreases in value it’s said to weaken, means pound will buy less of a foreign currency
define imports
goods and services bought from other countries leads to money going out of UK
define exports
goods and services sold to other countries and lead to payments into the UK
describe SPICED
Strong Pound Imports Cheap Exports Dear
link and the weakening pound to Tom’s Toys
-pound fallen against Euro by 10 cents, weakening pound mean Tom’s Toys has to give more £’s to buy stock from EU suppliers, increases costs Tom’s toys doesn’t import all stock from EU, means only proportion of stock costs negatively impacted. approx 30-40% of Tom’s Toys costs are stock costs, means not all costs will increase as result of weakening pound
Tom’s Toys and the UK and non-EU countries
Tom’s Toys buy products from UK and non-EU. significant because means they could possibly buy more from these suppliers as way of avoiding increased costs caused by weakening pound
- they could higher prices to cope with costs
define a monopoly market
a market dominated by one seller; low number of firms, narrow choice of products, high prices. in law monopoly exists when business has market share of atleast 25%
define perfect competition market
a market in which there are large numbers of sellers; high number of firms, wide choice of products, low prices
how can GG Toys be better than their competitors
- lower prices
- provide better service
- produce higher quality of products
- use of e-commerce, more conveniet
what are the effects for GG Toys of operating in a competitive market
- customers may go elsewhere
- wider range of products for customers to choose from
- cut costs
- lose sales
how do you work out market share
(sales of business/ total sales in market) x100
how can competition increase
- new businesses entering the market
- selling new products
- cutting prices
- increasing advertising
how can competition decrease
- takeover or merger with competitor
- internal growth, if sales successfully increased at expense of competition this could cause them to fail
which market do the Government prefer
competition market as means more choice and fair prices for customers
how can monopolies benefit customers
if profits are reinvested to improve service, and economies of sales savings passed on in form of lower prices
describe anti-competitive behaviour by monopolies
monopolies not illegal, but anti-competitive behaviour may lead to an investigation by the CMA (Competitions Markets Authority). they have power to stop takeovers and mergers, as well as fine businesses
describe the changes in population
- UK become more ethnically diverse
- UK has ageing population
- both changes affect type of products being demanded. eg. polish supermarkets and retirement villages
describe the positives of unemployment
- more available workers
- will be able to employ workers more cheaply
describe the negatives of unemployment
- people will either stop buying toys or shop at cheaper alternative shops
- workers are demotivated by threat of job losses
describe how employment in Bowton increasing means that spending should increase, however, it is limited. why?
- much of work is part time and low paid, and so disposable income will be low
- no figures to indicate how much employment has increased by
- businesses who sell luxury or on-necessity goods may not benefit
describe how employment in Bowton is beneficial for the government
- higher rates of income tax
- less welfare payments
how does Bowton council and the local area benefit from the grants given for town regeneration
-encourages new businesses to open up
-new businesses will create jobs
-new businesses will pay corporation tax
-more visitors attracted to town centre
-new employees encouraged to move to area
these all lead to increased demand for products and services on offer currently in Bowton
what does the success benefit to the council depend on
- how many jobs are created as result of new business opening
- whether or not there was increase in income tax generated from job creation
- whether new jobs meant reduction in spending on benefits
define inflation
when prices of goods and services are generally rising
why are prices rising
- if excess demand in economy, businesses will increase prices
- if costs increasing business will increase prices
explain 2 ways in which a rise in UK interest rates might affect GG Toys plc
- toy ales decrease
- increases cost of borrowing they have
describe income tax
tax on a person’s income. in Bowton, central government will collect more income tax if employment increases
describe national insurance
deducted to support NHS and state pensions. in Bowton, central government will collect more national insurance if employment increases. sole traders + partnerships pay this and income tax
describe corporation tax
tax that limited companies pay. in Bowton, central government will collect more corporation tax from GG Toys plc if they make higher profits
describe business rates
tax paid by businesses on the property that they use. in Bowton, local council will collect more tax via business rates if more businesses open
describe council tax
tax paid by home owners/ tenants on property that they live in. In Bowton local council collect more council tax if rates increase
describe VAT
tax on spending, currently charged are 20% on most goods and services we buy
how do interest rates affect businesses
- cost to business of borrowing money
- cost to customer of borrowing money
- the reward for saving
how interest rates determined
- set by Bank of England
- every month they have a meeting to decide what interest they’ll charge to lend money to other banks
- if BofE increases interest rates then generally other banks will increase their rates to businesses and other borrowers
impacts of poor profitability
staff morale- fear losing their jobs
shareholders- reduced dividends
management- reduced bonuses
share price- vulnerable to takeovers as share price falls
board of directors/business- lack of profit to reinvest
describe reinvesting profit in relation to Tom’s Toys
might not be able to launch e-commerce and so may lose more profit and lose customers
describe change suppliers in relation to GG Toys plc
for example go forward with moving to china for manufacturing in order to reduce expenses
impacts of high interest rates on consumers
consumer cost increases, becomes more expensive for consumers to borrow money to purchase things. they reduce amount of money they spend, especially on expensive or luxury items
impacts of high interest rates on savers
if they save money they get better return on their savings, so spend less money and more likely to save instead of spend
impacts of high interest rates on borrowers
their loan repayments may increase, reduces amount of money spend on expensive/luxury items
impacts of high interest rates of homeowners
their mortgage repayments may increase, reduces amount of money spend on expensive/luxury items
impacts of high interest rates on businesses
loans to expand cost more, so less likely to buy new equipment . less people buying their goods/services, less customers means less profit
define the European Union
a political and economic union of 28 member states that are located primarily in Europe
define the Eurozone
group of countries in the EU that share the same currency
list advantages of being in the EU
- access to single market
- greater access to more potential employees
- increase in market size
define the single market
based on the ‘four freedoms’; free movement of goods, services, people and capital
define tariffs
tax paid on imports
define quota
limit on total quantity of product that can be supplied to a market
describe opportunities for Tom’s Toys of the UK leaving the EU
- it will encourage more domestic trade
- new trade deals might be made with non-EU countries
how might Tom’s Toy be negatively affected by the UK leaving the EU
- have to pay import tariffs, increasing costs
- EU countries will have to pay import tariffs on Tom’s Toys, decreasing price competitiveness
describe common standards as a benefit of EU membership
throughout EU common standards on safety, quality and labelling products. means business no longer has to make different products for different countries it trades within EU. customers will know Tom’s Toys’ toys are safe
describe grants and subsidies as a benefit of EU membership
EU pays grants and subsidies to businesses in poorer areas of Europe could mean Tom’s Toys or GG Toys move to poorer area they’ll receive money to help them
describe environmental standards as a problem of EU membership
EU introduced new standards on water quality, waste recycling and pollution. can add costs to businesses and may cause redundancies as firms try to pay for improvements. Tom’s Toys/ GG Toys have to get rid of waste in certain way, more costly
describe minimum wage as a problem of EU membership
part of social charter which guarantees certain wage levels for workers. if business has to increase wages then cost will rise and profit fall
describe social charter as a problem of EU membership
measures to protect workers in EU from unfair working practices. workers might get maternity leave so more workers needed
describe reduced uncertainty as an advantage of using the euro
will not be possible for exchange rate to change after a deal has been arranged. A change in exchange rate could make deal less profitable, though it could make it more profitable
describe disadvantages of using the euro
if UK starts to use euro, interest rate will be set by ECB to help businesses in Eurozone. if main problem i eurozone countries othr than UK is demand too low, ECB would reduce interest rates, would rise demand in all eurozone countries including UK . if demand in UK too high cut in interest rate would only make UK problems worse
how does business activity impact the environment
- air, noise, water pollution
- spoiling landscape
- congestion
- using up non-renewable resources
what concerns might newspapers have raised regarding businesses that manufacture in china and sell in the UK
- air pollution from factories
- CO2 emissions
- impact on human health both in China and the UK
define Negative externalities/ external costs
negative externalities occur when production and/or consumption impose external costs on third parties
describe the environmental effects of GG Toys
- environmental concerns affect reputation, revenue and profits and GG Toys plc
- in response, GG Toys could consider moving production back to UK, would improve reputation as business who cares about environment, as well as reduce shipping times/ transport delays
how could GG Toys plc be more sustainable
- use recycled materials to create toys
- use recycled materials to create packaging
- move production back to Bowton
- cut back on use of plastic by reducing amount of packaging used
- power factory with renewable energy source
