2.5 External Influences Flashcards
What are external influences
Are factors that happen outside the business . These include economic, legal and competitive influences.
How businesses manage these influences will effect their ability to succeed in their market
Name the economic influences which can effect a business
Taxation Government spending Inflation Interest rates Exchange rates Business cycle
What is a recession
How does it effect a business
Can cause a downfall in the economy
It causes decreased consumer spending , decreased business confidence and decreased profits and investment.
What is a boom
How does it effect a business
Is where consumer spending and business confidence to rise along with profit and investment.
Allows a business to increase prices whilst maintaining demand
What is taxation
Are taxes which can effect supply and demand of a product.
What is inflation
Is the sustained increase in the cost of living or general price leading to a fall in purchasing power
What is the relationship between businesses and economic influences
Businesses want to predict with certainty the economic environment where they operate. This is very difficult to do accurately but requires that an amount of cash or retained profit is put aside in case the economic environment worsens
What are the effects of inflation on a business
A firms costs will increase and damage profitability
A firm with long term loans will have higher interest rates to pay back if its not fixed
If inflation in the UK is higher than other countries, other countries will gain a competitive advantage
Define exchanges rates
Is the value of one currency expressed in terms of another
What is the effect of exchange rates on a business
Strong Pound makes Imports Cheaper Exports Dearer
Define interest rates
Is the amount charged by a lender per year for borrowing money, expressed as a percentage of the total money borrowed
What are the effects of interest rates on a business
Consumers are less likely to have money to spend as the cost of borrowing will increase , reducing demand
The amount of interest for borrowing will increase, increasing costs
A firm is less likely to invest as the opportunity cost of investment will be greater
Define the business cycle
What are its effects on a business
Is where the economy has a boom followed by a recession meaning demand changes.
Strongly dependent on the income elasticity of demand
Define legislation
Is a set of laws suggested by governments and passed by parliament
What are the types of legislation
Consumer protection laws Employee protection Environmental protection Competition policy Health and safety at work act
What is the consumer protection law
What do they involve
What is the effect on a business
Protect consumer rights when they buy a good or service
Involves : broken or damaged goods, unusable goods and goods that are not what was advetised
If under the act consumers can get a refund, increasing costs and damaging profitability
What is the employee protection law
What does it involve
Is designed to help and protect the worker
Involves : paternity/maternity leave, workers being paid when they are sick, fair wage and treated equally
What is the environmental protection law
What does it involve
Effect on the business ?
Attempts to control pollution in terms of waste that is disposed of in air, land or water
Involves : polluted air, noise pollution and chemical spills
Increases cost of production
What is the competition policy
Who is involved
Is a government policy which seeks to promote competition and efficiency in different markets and industries
The CMA tries to promote competition for the benefit of the consumer and to control market share
What is the health and safety at work act
Effect on the business
Is done to give all workers a place which is safe and comfortable to work in.
Increases costs as the business have to implement health and safety workers
What is the impact of legislation on business costs
Training staff
Protection equipment for staff
Cost of returns
Paying higher wages
What is the impact of legislation on Recruitment
Discrimination (sex, religion, disability) is illegal when recruiting
Equal pay and promotion opportunities must be equal
Define competition
Is where more than one seller seeks to sell goods or services to a customer
In which ways can competition effect a business
Nature of business ownership Nature of product or services produced Nature of the product range Pricing strategies used Marketing methods used
How will competition effect the nature of business ownership
Will have an impact on the decision to become a private limited company or a public limited company.
How will competition effect the nature of products or services provided
May cause a business to change what they sell.
For example smaller coffee shops sell Lattes because Costa do
How will competition effect the nature of the product range
Competition can change their product range in response to consumer demand.
Leads to constant innovation and change
How will competition effect pricing strategies used
Can force a firm to change their pricing strategy to attract customers and remain competitive.
May use competitive pricing to compete on non-price competition
How will competition effect marketing methods used
Competition means that marketing campaigns must be exciting and up to date , costly.
Important when there are many sellers with the same products
What is the impact on businesses of being in a competitive market
Forces prices down resulting in falling profit margins
Promotes the need to innovate
Increased marketing spends to gain a competitive advantage
Define Intangible assets
Are non-physical assets, such as brand names and patents
Define payables
Define receivables
Is money owed by the business to suppliers and utilities
Is money owed to the business by customers
Define Division of labour
Is the specialisation by an individual in specific tasks and skills
Define specialisation
Is the production of a limited range of goods
Explain the effect on businesses of changes in taxation (5)
Consumer spending changes Increased prices for consumers Increased costs and likely less profits Decreased investments due to less retained profits Changes in imports and exports
