9.1 NATURE OF BUSINESS - influences in the business environment Flashcards
External and internal influences
External: Factors which the business has very little control over.
EXAMPLES: ECONOMIC, FINANCIAL, LEGAL TAXATION, POLITICAL.
Internal: Factors which the business has some degree of control over.
EXAMPLES: PRODUCT, LOCATION, RESOURCES.
External influences: ECONOMIC
- Economic cycles ‘booms’ (high) ‘busts’ (low)
- Economic forces influence a business capacity to compete and customer’s willingness and ability to spend.
PEAK (BOOM)
- Employment levels are RISING
- Customer spending is INCREASING
- Customer confidence is STRONG
- Investments in a business is INCREASING
- Profits are HIGH
- Businesses will look at EXPANDING
- Demands of goods are HIGH
- Inflation (increase in prices) are HIGH
THROUGH (BUST)
- Opposite of PEAK
RECOVERY
- INCREASING consumer SPENDING
- Business expectations increasingly POSITIVE
- INCREASING business INVESTMENTS
- Sales and profits RISING
- Unemployment FALLING
RECESSION
- Opposite of RECOVERY
Economic levels FLUCTUATE
External influences: FINANCIAL
DEREGULATION (increases efficiency and improving competition) continues to undergo change. has resulted in a more FLEXIBLE, market orientated approach across the financial sector.
ADVANTAGES OF DEBT & EQUITY FINANCING: Debt: - Keep full ownership - Long and short term options - No obligations after paying debt
Equity: Money that comes from private funds of the owner.
- Less risk than debt
- No paying back funds
- Gain credibility through investor networks
- Fixed payments for better budgeting.
DISADVANTAGES OF DEBT & EQUITY FINANCING:
Debt:
- Must pay back
- Cash flow issues
Equity:
- Investors return could be more than debt payment
- Investors get some ownership
- Must consult investors for decision
External influences: GEOGRAPHICAL
The 3 major geographical factors that affect business activity are;
- Australia’s geographic location within Asia-Pacific region:
- Changing demographic factors
- Process of globalization
AUSTRALIAN GEOGRAPHIC LOCATION:
- Australia is located in the ASIA PACIFIC REGION.
- China
- Japan
- South Korea
- USA (Donald Trump getting rid of trading agreement)
- Provides expansion opportunities.
DEMOGRAPHICS:
- Refers to population
- Changes in demographic can lead to demand levels
- Change in population has a huge impact on businesses through economic growth.
GLOBALIZATION:
- Increased competition –> reduced pricing of goods
Free trade agreements –> no tax (tariff)
External influences: SOCIAL INFLUENCES
Demands for welfare from society.
EXAMPLES: ORGANIC FOODS, RECYCLING, SUSTAINABLE PRODUCTS.
External influences: LEGAL INFLUENCES
All levels of government impose legal responsibilities on businesses and these laws govern every aspect of a businesses life.
Legislation in businesses include;
- Laws on taxation
- Industrial relations
- Work health and safety
- Equal employment opportunity
- Anti-discrimination
- Protection of the environment
External influences: POLITICAL INFLUENCES
- Have a significant impact on businesses through confidence.
- FREE TRADE (policy that does not restrict imports or exports. ) has a significant impact on businesses.
POLITICAL ISSUES AFFECTING A BUSINESS;
- Environmental management
- Social reforms
- Labour market reforms
- Taxation
External influences: INSTITUTIONAL INFLUENCES
Government
INSTITUTION: Organisations in our society who play a significant role in influencing societal issues e.g. government, regulation bodies, parliament, education, churches etc.
GOVERNMENT (FEDERAL): Obligations include: - GST and payment of taxes. - Employee superannuation - Observance of customs regulations - Legislation that would affect business operations.
GOVERNMENT (STATE) Obligations include: - Provision of employee entitlements - Payment of payroll taxes - Abiding by relevant state legislation - Abiding by pollution controls
GOVERNMENT (LOCAL):
Have control over following business activities:
- Approving new development and alteration
- Fire regulations
- Parking regulations
- Size, location and shape of business signs
External influences: INSTITUTIONAL INFLUENCES
Regulatory bodies
Monitor and review actions of businesses and consumers in relation to certain issues and the appropriate legislation.
This is to ensure that businesses conduct themselves fairly in relation to the consumer, community and competitors
External influences: INSTITUTIONAL INFLUENCES
other
Affect how businesses operate in Australia
EXAMPLES:
TRADE UNIONS: Raise new demands on behalf of employees
E.g. negotiate wages and working conditions and help settle disputes
EMPLOYER ASSOCIATIONS :Represents interest of employers.
E.g. formulate policies in line with union activities and promote industry, trade and commerce
External influences: TECHNOLOGICAL INSTITUTIONAL
Technology has made the business more:
- Efficient
- Introduce new products
- Increased productivity in the workplace
E.g. opal cards, pay pass, self-service, social media, shopping online, internet banking, video conferencing, automated answering for business phone calls
External influences: COMPETITIVE SITUATION
Competitive situation can:
- Provide consumer with more choices, a range of qualities and variety of prices
- Stimulate greater efficiency in production and usually results in better quality product at lowest cost to business.
Each business aims to have a SUSTAINABLE competitive advantage over its competition in order to capture a larger portion of the market.
FACTORS INFLUENCING C.S
- Ease of entry.
- Marketing strategies.
- Foreign competition.
- Number of competitors.
External influences: MARKETS
HOW HAVE MARKETS CHANGED OVER TIME:
- GLOBALISATION has increased: introduction of FREE TRADE and movement of goods and services
- E-COMMERCE has helped with GLOBALIZATION PROCESS; reduction in retail trade
- FINANCIAL MARKETS have become more GLOBAL. After 1983, Australia deregulated Australian financial market, ALLOWING FOREIGN banks in Australia e.g. ING, HSBC, ARAB BANK
Internal influences: PRODUCTS
Owner chooses products they want to sell, and services they want to offer.
The main product influences on a business are;
- The type of goods and services produced
- Type of business
- The size of the business
Internal influences: LOCATION
GOOD location = high sales and profits.
LOCATION FACTORS:
VISIBILITY:
Is business is not visible –> customers wont take effort to find place –> customer flow will not be achieved.
COST:
- BUSY location = more expensive
PROXIMITY TO SUPPLIERS :
- Further apart = more difficult for communicating and coordination.
PROXIMITY TO CUSTOMERS:
- Location for RETAIL must be convenient for potential customers and central to customer’s location to lead to SUCCESS.
- Location for NON-RETAIL (manufacturers) is about position and convenience.
- Being close to transport facilities, allows shipping goods to customers and receiving easier.
PROXIMITY TO SUPPORT SERVICES:
- Being close to activities needed to assist in core operations of a business.
