3.7.4 Flashcards
The political environment covers
the actions taken by national and international authorities. Their actions are designed to maximise economic activity, whilst protecting businesses, individuals and the environment.
factors influenced by the political environment
regulating markets
enterprise
environmental issue
national infrastructure
international trade
UK and EU political decisions are aimed at encouraging an enterprise friendly environment for businesses. This includes:
making finance accessible for small businesses
providing funding for research and development
support on establishing new businesses
guidance on running a new business.
Specific policies and schemes include:
Enterprise Allowance, Funding for Lending, and Enterprise Finance Guarantee (EFG).
infrastructure includes
transportation, utilities, communication and energy.
Government spending on infrastructure may benefit businesses by:
speeding up communication
making transportation of goods faster and cheaper
allowing access to new markets
attracting new business to the UK - potential customers and suppliers.
Recent infrastructure plans in the UK include
the investment in a high-speed rail line connecting the south and north (HS2).
The UK and EU have established a range of regulators. Their aim is to
support businesses with compliance and conducting business in an appropriate way.
In particular regulators focus on:
- promoting free competition between businesses
- regulation of specific industries, such as the Financial Conduct Authority (FCA)
- regulators of privatised monopolies (such as
British Gas) - self-regulation - businesses agreeing and operating a code of conduct.
regulation can sometimes limit what
the actions of a business and slow down the speed at which strategies can be implemented. However,
regulation also creates a stable
environment for businesses to operate in.
environment opportunities
Similar to regulation, the government may develop policies to protect the environment. This can create a number of opportunities for businesses that specialise in environmental products, for example, renewable energies, recycling
The UK government implements a number of policies to support UK
exporters
increased exports =
revenue and employment opportunities
international trade initiatives include
- ‘Open to Export’ initiative
- UK Trade and Investment (UKTI)
- the World Trade Organization (WTO).
Increased international trade makes it easier for UK businesses to
sell their products, particularly high-quality specialist products.
The legal environment covers
the laws that govern how our society operates. Businesses must abide by legislation set out by the UK government and the EU.
factors influenced by the legal environment
environment
labour
competition
Competition legislation is put in place to
protect the interests of consumers and businesses.
legislation aims to control
cartel activity - businesses working together to manipulate the market and limit competition abuse of market power - such as imposing unfair conditions on small suppliers
anti-competitive practices - such as anticompetitive mergers and acquisitions.
Examples of UK legislation governing competition include
Competition Act 1998, the Enterprise Act 2002
labour laws aim to prevent
exploitation of workers at an individual level and at a collective level. They legislate for issues such as pay, working conditions and grievances.
Legislation also governs the powers of
trade unions and has diminished those powers over the past 30 years. Consequently, trade union membership has fallen considerably.
Labour laws include
- Trade Union Act 1984
- the National Minimum Wage
- Equality Act 2010
Environmental legislation aims to
internalise any negative externalities associated with business activity. Therefore, businesses are made to pay for the full cost of production, such as the cost to clean up or repair damage caused by pollution.
environmental legislation examples
the Environmental Protection Act 1990
* the Environment Act 1995.
Political and legal change can impose
costly change on businesses which might have to adapt their products and processes in order to meet legal standards.
Where a business fails to implement the necessary changes, this could limit
competitiveness, damage the business’s reputation or worse. For example, it could lead to bad publicity and loss of trust in a business that has been fined for breaking the law.
political and legal change can create
opportunities for some businesses
the economic environment includes a range of economic variable such as
GDP, inflation, unemployment and consumer confidence
what is GDP
a measure of a country’s total output of goods and services over a period of time. GDP changes over time are represented by the business cycle.
boom
high rates of economic growth and production
recession
output starts to fall, growth declines
slump
prolonged period of economic decline
recovery
economy starts to pick up after a period of decline
features of boom
high profits
low unemployment
high inflation
shortages in supply.
features of recession
- production declines as demand falls
- governments use policies to stimulate growth
- consumer/business
confidence starts to fall.
features of slump
- high levels of unemployment
- high rates of business failure/closure
- low interest rates
- low levels of spending and investment.
features of recovery
- increasing consumer
confidence - businesses start to invest/take on new employees
- spare capacity is used up.
impact of a boom
- Firms make strategic decision to expand into new markets through market development.
- Functional decision to expand workforcel increase recruitment.
- Businesses seek opportunities for efficiencies and cost reductions as a result of economies of scale.
impact of recession
- Expansion plans are
‘shelved’. - Market penetration
Strategies become more attractive as they are low risk. - Businesses stockpile products.
- Functions try to increase efficiency and cut costs - such as flexible working implemented.
impact of slump
- Businesses adopt a strategy of rationalisation.
- Functional decisions may include redundancies, scale down of production and reduction in capacity.
- Businesses reduce prices and focus on their most profitable product lines.
- Businesses may decide to cease trading or leave certain markets.
impact of recovery
- New business - start-ups emerge.
- Business investment rises - product development strategy.
- Businesses take on new employees and increase contracts to meet growth in demand.
- Functional decisions focus on ways to increase productivity
- training, growth in production, increased marketing activity.
