2.5 External Influences Flashcards
list external influences of a business
- government
- world events
- consumer tastes
- economy
- pressure groups
- population changes
- socail factors
- environmental factors
- legislation and regualtion
how does inflation affect business
- increased costs
- uncertianity- due to fluctuation business decisons can be hard to make
- borrowing and lending - interest rates rise to mathc
- consumer reaction
- international competitvness
impact of deflation
assocaiated with a fall in demand as they continue to wait for lowest price = postpone investments and increase redudancies
BUT if due to result of falling UK import prices can benefit due to reuslt of strong pound = goods cheaper
impact of exhange rates
determined by market forces and, supply and demnd conditions
eg: value of £ falls , exporters will benefit becasue price of exports falls and demand increases BUT importers will have higher costs
appreciates OR depreciates
= impact on exports and imports as casue uncertainty = difficult to preduct demand for exports and cost of imports
impact on interst rates
- price of borrowing or saving money
changes are liekly to affect the overheads of a business
rise =
pay higher interest payments on borrowing,
save money has higher benfits,
will icnrease cost of exisiitng variable rate borrowing = choose to pay off exisitng loans rather than increasing investment = reduce cost
fall in demand
fall in exports
effects of taxation
consumer spending
prices (VAT)
business costs
importing and exporting
the effect of changes in government expenditure on businesses
if gov increases spending to more than it rasies in taxes, total spending in the economyh will rise BUT can also lead to inflation
depends on the industry
The business cycle
BOOM
GDP is growing fast
economy is doing well
existing firms will be expanding
new firms entering = jobs creates
wages rise and profits rise
BUT prices may be rising
the business cycle
Downturn
economy is still growing but at a slower rate,
demand for goods ans services flatter/begin to fall
unemployemnt starts to rise
wages increases will slow donw
firms stop expanding
profits may fall
prices may start to rise
the business cycle
recession/depression
GDP starts to fall
demand will fall for non essential goods
unemployment rises sharply
business confidence is low
brankrupcies rise
prices may fall
the business cycle
recovery
GDP starts to rise again
business and consumers regian confidence
economic actviity is on the increase
demand starts to eise
unemployment begins to fall
prices start to rise
the need for legislation in business
possible that businesses could neglect the needs of certain stake holders
= government provides legal frameowrk for business to operate in and ensure vunerable groups are protected
(too much legisaltion = discourage enterprise and deter foregin investment = reduce growth in income, job creation and customer choice
consumer issues infleunced by legislation
- product quality (= improve business procedures or face prosicution)
- product safety (= increase in costs of a firm)
- price and payment methods
- consumer rights (= businesses have customer service & pressure to become more market orientated)
- promotion and advertising
- trading and age restrictions
employee protection
- employment contract: legally binding agreememnt between employer and the employee
- discrimination: legal discrimination- choicing person most qualified NOT “unfair discrimination “
- unfair dismissal: Employment Relations Act, cant dismiss baased on trying to join a trade union, pregnany etc
=higher labour costs (naitonal minium wage)
=changes in working practices
=loss of flexibility
=penalties
environmental protection
- pollution
- destruction of wildlife habitats
- traffic congestion
- resource depletion
= pro environmental products gain from growing reguulation BUT companies who are high polluters and who faced competion from other businesses which dont face similar problems
=can be used as a marketing tool
=energy svaing measures can lead to a business having lower costs than before due to previous inefficiences BUT can also lead to higher costs
= staff will beed to be recruited and trained to dela with increasing government regualtions
=impact on how product is made
competition policy
need to monitor activites of monopolies and markets that are dominated as some business can exploit consumers using anti competive practices or restrctive practicies to reduce competiion
- increasing prices
- restriciting consumer choice (manufacturer might reefuse to supply a retailer if retailer stocks rival products)
- raise barriers to entry (huge amount of money spent on money on advertising or temporarily lower its price= diffcult for new business to establish)
- market sharing between dominant firms , choice is restircted = price rise
how does competition affect policy
+designed to promote competition
+market barriers are outlawed = easier for new firms to break into market
+ competitive enviornemnt will benefit the economy (encourage innovation + efficciency = develop new products , reduce cots and make progress overseas)
- constraits business activites
health and safety + effects
to provide a safe and healthy workplace
* providing and maintaining adequate saftery equipment
* ensuring workers have enough space to do their jobs
* maintaing reasonable work place temperatures
* providing protection from violence
= costs (training, information, instruction and supervision)
= penalties
= good health and safety record can improve image of the business = easier to attract and retain high quality staff
= reduced absences due to reduced injuries
determinants of competitiveness
- number and realtive size of bussinesses in the market
- extent of barriers to entry (eg: costs to set up, knowledge of industry needed) (business is high barrier markets need to emphasise on non price element of marketing mix, promtion and place)
- extent to which products can be differentaited
- communication with customers
- innvoation
- product range- pressure on rivals to do the same
- marketing
types of markets
- global markets
- national markets
- regional markets
- local markets
operating in large markets
vital for businesses to monitor the activites of rivals
(pricing strategies, product ranges, promtionl and production methods used)
= businesses copying rivals
operating in small markets
main problems is wether volume of sales will be sufficient to gneerate the desired rate of return
fear that a stronger rival will enter the market
larger coporations have greater resources, can afford marketing + costs are likely to be lower due to EOC = charge lower prices
