3.7.4 Analysing the external environment to assess opportunities and threats: political and legal change

Question 1

Explain what EU and UK competition law does.

Answer 1

• EU and UK laws exist in order to try to prevent the exploitation of monopoly power.
• Prevent companies agreeing to work together to the detriment of consumers by operating a cartel, agreeing with supposed rivals to hold supply down in order to keep prices artificially high.
• Monitor the behaviour of any business with a strong enough position within its market to potentially be able to abuse its power eg. investigations into supermarkets paying a fair price to farmers.
• Ensure that takeovers and mergers do not break the rule of thumb, which is that 25% should be the ceiling on any firm’s share of a UK market.

Question 2

What are the effects of competition law?

Answer 2

CMA get involved in any potential takeovers or mergers that will have an impact on the UK consumers. The EU also have the powers to look into anything affecting the EU consumers.
This would impact of strategic decision as they may not be able to do takeovers % mergers, may force them to enter new markets, with or without a joint venture

Question 3

Why is labour law important?

Answer 3

• Employment law is designed to prevent the exploitation of employees by businesses. Therefore, the major areas covered include pay, working conditions such as entitlement to leave and holidays, physical working conditions and the right to trade union representation.
• The key area of the law governing payment is the need for employers to pay at least the national minimum wage
• Legislation also exists to prevent discrimination in the workplace

Question 4

What are the effects of labour law?

Answer 4

• Tightening employment laws may make firms adapt their operations strategies to reduce their reliance on UK-based HR. Strategic options could include offshoring certain operations to countries where wage rates are lower
• Many employment laws have been influenced by EU attempts to create a ‘level playing field’ among European countries. This ensures that competition between EU members cannot be based on one country offering poor labour conditions

Question 5

Explain the importance of environmental law.

Answer 5

Environmental laws exist to try to minimise the negative impacts of business on the natural environment eg. preventing pollution, products packaging and recycling legislation. The environment agency is responsible for enforcing most environmental legislation within the UK
It operates at arms length from politicians, yet is funded by government-funded.

Question 6

Explain the effects of environmental law

Answer 6

Additional costs
First movers benefit from a ‘greener image’ which allowed them to tap niche markets of environmentally conscious consumers. Nowadays, many of the effects of complying with environmental legislation centre on how reducing material and energy use can form part of a lean production programme to reduce costs

Question 7

Explain the two most significant taxes to a business.

Answer 7

• The two most significant taxes are Value Added Tax (VAT) and Corporation Tax. A businesses with a turnover above £81,000 must register for VAT with the HMRC. A VAT registered business can claim back VAT that they have bought.
• Corporation tax is a tax on profit. A limited company must pay tax on its profits, currently at a rate of 20%. Profits generated in certain ways, including successful R&D, new patents or theatre, film or TV production are exempt from corporation tax.

Question 8

Explain the effects of laws of governing tax

Answer 8

The major effect of the VAT system is to create more work for accountants. Ensuring VAT is recorded, handed over to HMRC and claimed back on items purchased keeps accounting departments busy all year round.

Question 9

State ways enterprises can get help

Answer 9

• Enterprise allowance
• Funding for lending
• The enterprise finance guarantee

Question 10

Explain enterprise allowance and how that helps enterprises

Answer 10

• Get a business mentor to help develop ideas and start trading
• Get a weekly allowance of 26 weeks
• Apply for a loan to help with start up costs
• The loan has to be paid back, the allowance doesn’t
• Any money you get doesn’t affect your housing benefits, tax credits, income tax, universal credit, or access to work grant

Question 11

Explain funding for lending and how that helps enterprises

Answer 11

The bank and HM Treasury launched the scheme in 2012
Designed to incentivise banks and building societies to boost their lending
Provides funding to banks and building societies for an extended period, with both the price and quantity of funding linked to their lending performance
Aimed at small and medium sized enterprises

Question 12

Explain the enterprise finance guarantee and how that helps enterprises

Answer 12

• A guarantee scheme to facilitate lending to viable businesses that have previously been turned down
• Can provide finance between £1000 and £1.2million
• Pay back between 3 months and 10 years for term lending and between 3 months and 3 years for overdrafts

Question 13

What is regulation?

Answer 13

the enforcement of principles of rules that result from the passing of a low or a series of laws

Question 14

Explain self-regulation

Answer 14

some industries have been given the power to regulate themselves such as ASA and CAP

Question 15

Explain why regulation exists

Answer 15

• Regulation is designed to create free and fair competition within markets
• Controlling prices prevents prices rising too high, and often sets the current ratio of inflation
• Restricting ROCE prevents firms from earning excessive profits and prices could increase as companies become less concerned in keeping costs low
• Unbundled access (where new entrants of the market are offered access to facilities of the incumbent that are hard to duplicate) provides a source of extra income, and means that new firms don’t have to pay high fixed costs