3.7.4 Political / Legal / Economic Change Flashcards
What does the political environment cover and what are their actions designed for
Political environment cover the actions taken by national and international authorities and their actions are designed to maximise economic activity whilst protecting businesses, individual and the environment
Factors influenced by political environment
Regulating marketing Enterprise Environmental issue National infrastructure International trade
What do UK and EU political decisions aim to do and what may it include
Aim to 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 created by government to encourage enterprise ?
Enterprise allowance
Funding for Lending
Enterprise finance guarantee (epg)
What May infrastructure include and how may businesses be benefitted from it
Infrastructure includes transportation, utilities, communication and energy
Benefits:
Speeding up communication
Makings transportation goods faster and easier
Allowing access to new markets
Attraction new business to the UK - potential customer and suppliers
Recent infrastructure spending in the UK includes the High speed rail line connecting south to north
Aim of regulators and its focuses
Aims to support businesses with compliance and conducting business in an appropriate ways.
Regulators focus on:
- promoting free competition between businesses
- regulation of specific industries, such as the financial conduct authority (FCA)
- regulators of privatised monopolies (e.g British Gas)
- self regulation - businesses agreeing and operating code of conduct
What opportunities can be developed from the uk setting policies for a business on the environment
Businesses can specialise in environmental products e.g renewable energies, recycling and developers of old ‘brownfield’ sites
Increased exports brings ……
Revenue and employment opportunities
International trade initiatives include:
‘Open to export’ initiative
UK trade and investment
The world trade organisation
What does increased international trade do for a business
Makes it easier for UK businesses to sell their products, particularly high quality specialist products
What does the legal environment cover
Covers the laws that govern how our society operates.
Factors influenced by the legal environment
Environment
Labour
Competition
Why is competition legislation put in place and what does it set out to do
Put in place to protect the interests of consumers and businesses.
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 anti competitive mergers and acquisitions
Examples of uk legislations governing competition
Competition act 1998
Enterprise act 2002
Enterprise and regulatory reform act 2013
What do labour laws aim to prevent? What issues do they legislate for? How have trade unions been affected through these legislations
Aims to prevent exploitation of workers at an individual 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 - as result trade union membership has fallen considerably
Aims of environment legislation? And what are businesses blogged to do
Aims to internalise any negative externalities associated with business activity. Therefor businesses are made to pay for the full cost of production such as the cost to clean up or repair damage caused by pollution.
What do specific environmental legislations include?
The environmental protection act 1990
The environmental act 1995
How may a businesses decision making be hindered through political and legal change
Political and legal change can impose costly change on businesses which might have to adapt their processes in order to meet legal standards. If a business fails to implement the necessary changes it may limit competitiveness, damage the business reputation and worse. E.g could lead to bad publicity and a loss of trust in a business that has been fined for breaking the law
What is GDP
A measure of a country’s total output of goods and services over a period of time
What is a boom
High rates of economic growth and production
Features of boom
High profits
Low unemployment
High inflation
Shortages in supply
Impact on strategic and functional decisions when there is a boom
- Firms make strategic decisions to expand into new markets through market development
- functional decisions to expand workforce and increase recruitment
- Businesses seek opportunities for efficiencies and costs reductions as a result of economies of scale.
What is a recession
Output starts to fall and growth declines
Features of a recession
- production declines as demand falls
- government use policies to stimulate growth
- consumer/business confidence starts fall
Impact on strategic and functional decisions when there is a recession
- expansion plans are ‘shelved’
- market penetration strategies become more appealing as they are less risk.
- businesses stockpile products
- functions try to increase efficiency and cut costs - such as flexible working implemented
What is a slump
Prolonged period of economic decline
Features of a slump
- high levels of unemployment
- high rates of business failure/closure
- low levels of interest rates
- low levels of spending and investment
Impact on strategic and functional decisions when there is a slump
- businesses adopt strategy of rationalising
- functional decisions may include redundancies,scale down of production and reduction in capacity
- businesses reduce price and focus on their more profitable product lines
- business may decide to cease trading or leave certain markets
What is meant recovery
Economy starts to pick up after a period of decline
Features of a recovery
Increasing consumer confidence
Businesses start to invest/take on new employees
Spare capacity is used up
Impact on strategic and functional decisions when there is a recovery
- new business start-ups emerge
- business investment rise - product development strategy
- business 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
How may exchange rates affect business decision making when importing
- May switch international suppliers when the exchange rate is less favourable
- stockpile raw material and products when currency is strong
How may exchange rate affect business decisions when they are exporting
- Lower prices to limit the impact of a strong currency
- increase promotion to foreign markets when currency is weak
Consequences of high inflation for a business
- may have to increase prices to pass on costs to consumers or decide to absorb the cost themselves
- may look to reduce internal costs to protect profits
- price rises may fuel further inflation
How may low inflation benefit a business
- Businesses feel confident in a stable economic environment
- Businesses May look to invest and grow
Consequences of deflation for a business
- May struggle to pay debts / assets may have to be sold to pay off debts if deflation persists
- Low demand may lead to redundancies and rationalisation
Why may businesses want a steady rate of inflation
Business will want a steady rate of inflation to manage the rise in costs without having to increase their prices sharply, which could have a negative impact on demand. High inflation may cause a fall in demand as households will cut down on purchases of non essential items
