7 Analysing the strategic position of a business (A-level only) Flashcards
the economic environment is
the impact of economic factors on the behaviour on individuals, economic agents, government and firms
two examples of economic agents are
banks and the government
the government policies the government impose for the economy are
- price stability; for inflation to be kept at around 2%
- economic growth
- low unemployment
- balanced exports and imports
the government use money supply, credit and interest rates to influence the economy. this is called..
monetary policy
fiscal policy is when
the government use spending and tax to influence the economy
for example in a recession they may cut taxes
gdp is
the total value of goods and services produced in an economy within a year
economic growth is
the percentage increase in gdp for an economy in a year
causes of economic growth include
- consumption
- investments
- government spending
- exports
businesses will benefit from economic growth because…
- there will be new emergent gaps in the market
- increased gov and consumer spending
what does real gdp take into account
the change in prices in the economy
the four states the economy can be in are
- boom
- recession
- slump
- recovery
in a boom and recovery what happens
- high consumer and business confidence and spending
- positive economic growth
- low unemployment
- high inflation due to supply and demand imbalance - firms are unable to match demand
- imbalanced exports and imports - firms tend to import more than export to meet demand
in a recession and slump what happens
- low consumer and business confidence and spending
- negative economic growth
- high unemployment
- low inflation due to supply and demand balance - firms are able to match demand
- balanced exports and imports
gdp impact on opportunities and threats for business
- impact on confidence levels in businesses;
affecting investments, cost of credits - impact of confidence levels in consumers
- cost of production during both recession (low inflation/ expected wages) and boom (high inflation/ expected wages)
- recruitment during recession; lower expected wages
- competitiveness of markets (boom=loads of competition)
exchange rates are
the price of one currency in terms of another
exchange rates are determined by
- demand of a currency
which can be increased by more exports, high direct investments from foreign countries, and higher interest rates meaning more people are attracted to saving money in that currency - supply of a currency
which can be increased by imports meaning more currency is circulated abroad, low direct investment and low interest rates
opportunities and threats caused by currency appreciation (SPICED)
- more opportunities to invest abroad
- more workers are attracted to work in uk
- high competition from overseas as imports are cheaper
- foreign customer base may decline due to exports being expensive
opportunities and threats caused by currency depreciation (WPIDEC)
- less competition in the uk from foreign businesses
- uk businesses more competitive abroad due to cheap exports
- workers are not attracted to work in the uk
- imported raw materials are expensive so may have to look for different suppliers
inflation is
rise in average prices over time measured by the cpi
the Bank of England target for inflation is at
2% with a -/+1 difference
what does the inflation target allow for
-stability
- businesses to slightly increase prices but households to stay confident in spending as they can plan ahead
what are the two causes of inflation
- cost push inflation
where the production costs of a business go up like wages - demand and supply inflation
where supply cannot meet demand
when inflation is at its target the opportunities for businesses include
- confident consumers, increased spending
- businesses and individuals can plan their future finances
- debt value eroding over time
when inflation isn’t at its target the threats imposed for businesses include
- reduced confidence, decreased spending
- reduced business investments
- reduced international competitiveness
- wage/price spirals
- inflationary noise; where it is hard to decipher what is a ‘fair’ price is in a state of high inflation leading to inefficiency when making decisions
what is fiscal policy
use of tax and government spending to influence the economy
what does the government inject to the economy and withdraw from the economy
-inject gov spending
- withdraw taxation
the two types of taxation are
direct taxation- taxes on income like income tax
indirect taxtation- taxes on spending like VAT
a cut in direct tax poses which opportunities for businesses
- more workers wanting to enter the workforce
- more incentives for new businesses to enter the market
- motivated workforce
budget deficit is when….
it is ….. for the economy
government spending is more than taxation
expansionary
budget surplus is when….
it is… for the economy
government spending is less than taxation
contractionary
monetary policy is when
the government uses interest rates to influence the economy
what do interest rates dictate
how much people spend or borrow
opportunities for rising interest include
- inferior goods being added to product portfolio
- target a saver demographic
threats for rising interest include
- falling business and consumer confidence
-exports becoming unpopular
opportunities for falling interest include
- increased spending and investment
- opportunity to increase gearing
- export opportunities
threats for falling interest include
- increased competition
- consumers having too much debt
protectionism is when
domestic industries are shielded from international industries using economic measures
what type of economic measures can be used for protectionism
- quotas; limits on the amount of imported goods
- tariffs; additional taxes on imported goods
what is free trade
it is when there are no restrictions placed on transactions between two countries
arguments for free trade include
- allows for countries to specialise in certain industries allowing for countries to trade between specialisms
- increased world output
- increased competition; innovation, quality
-increased choice
arguments for protectionism
- protects skills in countries
- protects ‘infant industries’; industries that aren’t as developed
- protects employment
- increases sales in domestic country
threats of protectionism to businesses and the economy are..
- risk of retaliation
- rise in cost for imported goods
- damaged exports
globalisation is
the worlds economies becoming more interdependent and integrated
evidence of globalisation…
- more international trade
- rise in global brands
causes of globalisation include
better
-transport
-communication
- technology
- payment systems
-living standards
- reduced protectionism
- more MNC’s
importance of globalisation to
finance
marketing
operations
hr
- increased revenue from oversea sales
- decreased costs from falling imports
- cheaper due to better tech
- better transport systems
- global supply chains
- more people to employ from
threats of globalisation to businesses
- bad publicity in regards to CSR
- domestic country impact (unemployment)
- contagion (because everything is so integrated when one economy goes down so does everyone else)
- higher competition
- hard to manage MNCs
what is an emerging economy
country going through a process of economic development
opportunities for businesses in an emerging economy
- young population for employment or for a customer base
- first mover advantage
- outsourcing opportunities
- higher demand for international goods due to rise in middle classes
threats for businesses in an emerging economy
- legal protection on products is bad
- loads of red tape
- many low cost high quality competitors already in the country
what is the competitive environment
nature of the market a business operates in, in terms of the relationship between suppliers and customers
porters 5 forces analyses…
the nature of competition within a market, helping firms to set a viable strategy
what are the five forces for porter
- threat of new entrants
- threat of substitutes
- power of suppliers
- power of buyers
- intensity of rivalry
in terms of porters five forces, if you have a good choice of suppliers you have…
more power over your suppliers and you are more competitive
in terms of porters five forces, if you have less people buying from your business you have…
low power over your buyers and are less competitive
in terms of porters five forces, if you have high barriers to entry you have
a low threat of new entrants and are more competitive
the political environment is
the decisions and actions that are taken in relation to the governance of a sovereign nation
what are the government policies
- education and training
- transport policies
- health policies
- public order
- welfare policies
what impact does the government policy of education and training have on businesses
- impacts the skill level of the workforce, increasing international competitiveness
what impact does the government policy of transport policies have on businesses
- impact on cost of production
and mobility of labour force and customers
what impact does the government policy of public order have on businesses
- impact on night time economy
what impact does the government policy of health policies have on businesses
- health of employees and consumers
what impact does the government policy of welfare have on businesses
- customer ability to spend
- grants for businesses
what is the importance of political stability
- faith in government to maintain law and order
- allows public sector businesses to run
- political instability can lead to economic instability
what is the European Union
a single market compromising of 28 members who cooperate on a legal, economic and political basis
what are the benefits to businesses of being in the European Union
- free trade
- free movement of people
- free access to specialist suppliers
what are the drawbacks to businesses of being in the European Union
- have to adhere to regulations
- increases competition
- increased costs to see to EU businesses
what is enterprise policy
the decisions and actions taken by the government to protect SME’s
SME’s are important to the UK economy because
- they account for 60% of private sector employment
- they account for almost 50% of private sector turnover
- increase in competition and innovation
enterprise policy aims to
- encourage entrepreneurs
- support them with advice
- give them access to finance
what are regulators
organisations that monitor specific markets to ensure businesses are acting the best interests of consumers
what actions can regulators take
- monitoring and reporting
- setting standards for improvement
- advising
what impact do regulators have on businesses
- impact on health and safety, price, training standards
- legislation
- can give advice
what is infrastructure
the physical systems that enable the flow of people, goods and services, energy, water and information in the country
government policy on infrastructure aims to
modernise, improve and update infrastructure regularly
- provide funding for infrastructure
environmental policies are
the governments actions to managing the earths natural resources
environmental policies are implemented through
- flood system managements
- litter and waste disposal
- farming and fishing policies
international trade is a measure of
the total value of imports and exports in a country
benefits of a competitive environment include
more choice
better quality
lower price
competition law prevents
- predatory pricing
- price fixing
- unfair trading terms
- limiting output
- mergers that might affect competition
competition law is overseen by the
CMA
employment law is concerned with
the rights of employees and groups like trade unions
employment law examples
- equality act
- health and safety laws
- minimum wage
the social environment refers to the
beliefs, customs, culture, concerns and common behaviours present in a particular community
changes in the uk’s social environment include
- aging population
- younger people living with parents for longer
- increasingly secular
- increasing ethnic diversity
what is urbanisation
migration from rural areas to towns and cities
what are the four points of the blamed scorecard
- financial perspective
- learning and growth perspective
- customer perspective
-internal business process perspective
