A293 - External Environment Flashcards
What is perfect competition?
A market where a business has a lot of competitors
What are the features of competition? (5)
1) Many firm
2) Similar products
3) Low prices
4) Advertising + customer service important
5) Lower costs
How can a business increase competitiveness? (4)
1) New firms
2) Selling new products
3) Cutting prices
4) Increasing advertising
How can a business decrease competition in their market? (4)
1) Takeover/merger
2) Internal growth
3) Patent
4) Collusion - agreeing on prices
Why do businesses benefit from reduced competition?
Higher market share, more profit, less advertising, less need for quality
How can Holden respond to increasing competition?
Meet needs of customers better - superior product/price
Incentives
Market research - Kapok?
What is business ethics?
What is morally right or wrong for a business to do e.g. HR, sourcing of materials, production
What are advantages of good ethics? (3)
1) Customers willing to pay more
2) May increase sales
3) Good reputation
What are disadvantages of good ethics? (3)
1) Increase costs
2) May lose profits
3) Damaging if claim to be ethical but not
What is Fair Trade?
Trade between companies in developed countries and producers in developing countries in which fair prices are paid to producers
What are the benefits of using Fair Trade? (5)
1) Can charge more
2) Increased sales
3) Employees attracted to business
4) Looks good to investors
5) Reputation
What are negatives of using Fair Trade? (3)
1) More expensive
2) Reduced profit
3) If increase RRP - less customers
What is a social benefit?
Where something good comes to society from business activity e.g. employment, tax revenue - inward investment
What is a social cost?
Where a problem in society is caused by business activity e.g. pollution, redundancies
Why should Holden move to Bowton? (6)
1) Less tariffs
2) Less transportation (costs)
3) Better for environment
4) Lower fabric costs
5) Help UK recover
6) More ethical?
Why should Holden not move to Bowton? (4)
1) Chinese redundancies - expensive
2) Not helping Ch economy - ethics
3) Initial expense
4) May have to change supplier
What are sustainable materials?
Materials that can be obtained without diminishing ability to provide in the future
Why should Holden use Kapok? (4)
1) Better for environment - investors
2) Fair Trade - improve image
3) Can charge more
4) Catch up to competition - proven to work
Why should Holden not use Kapok? (5)
1) More expensive - recovering economy, luxury
2) Absorb or increase RRP?
3) More transport
4) Exchange rates
5) New supply chain
How does the government help with environmental problems? (6)
1) Taxation
2) Rules + regulations
3) Adverts + education
4) Carbon permits
5) Recycling
6) Grants + lower tax on biofuels
Why should green-belt areas be reduced? (3)
1) More businesses - unemployment
2) Economy improves
3) Inward investment
Why should green-belt areas not be reduced? (3)
1) Environment - bad long-term
2) Protest groups - businesses fail
3) Reduction in property values
Should Bowton reduce green-belt areas?
Yes - more likely to be positive
- More wealth - improve Bowton
How could Holden be sustainable if they build a new factory?
Recycled materials + build brand image, - expensive or low quality
Brown field + Support of Bowton, - not ideal
How could Holden be sustainable if they rent in Bowton?
Green energy + less electricity from fossil fuels, - expensive
Recycled packaging + less raw materials USP, - quality
How could Holden be sustainable if they stay in China?
Improve waste disposal + reduce pollution, - expensive
Reduce packaging + cheaper, - limit to effectiveness
What is GDP?
Gross Domestic Product - total value of country’s output in a year
What is economic growth?
Businesses produce and sell more, employment + consumer income rises
What is recession?
Fall in GDP - demand falls, less production, less jobs + income, luxury businesses fail
What is the boom and bust cycle?
Boom, downturn, recession, recovery, boom…
What does the recession mean for Holden?
Spend less on luxury, lower SR, can’t pay costs, failure?
What are interest rates?
The cost of borrowing money or reward for saving money (£ rate = amount borrowed * rate% / 100)
What does an increase in interest rates mean?
Costs more to borrow
Rewards for saving
What is inflation?
General rise in price
What happens when inflation is too high?
Increase interest rates - reduce demand so businesses sell less and have to lower prices
What happens when inflation is too low?
Lower interest rates - people spend more, increasing demand so businesses can charge more. This stimulates the economy
What would happen to Holden if interest rates rose?
Borrowing expensive - mortgage increased, customers save, luxury product demand falls
What could Holden do if interest rates rose?
Increase SR
- Adverts
- Increase price
- Decrease price/absorb costs
- Lower costs
Why are interest rates currently low?
To combat the recession - business payments minimised, people more likely to spend - more tax to Bowton
Why are low interest rates good for Holden?
More SR and profit - expansion, relocate, ethical investment, charge less to beat competition
What could Holden do about the rising price of latex?
Alternative supplier
Increase selling price
Absorb costs
What are the advantages and disadvantages of using an alternative supplier?
+ Lower costs
+ Keep same selling price
- Quality - brand image
- Reliability
What are the advantages and disadvantages of increasing selling price?
+ Maintain profit
+ Simple
- Luxury competitive environment - price elasticity
- Recovering economy - sell less
What are the advantages and disadvantages of absorbing the costs?
+ Same selling price
+ Same sales, quality
- Lower profit - less dividends
- Consider how much difference
What is the fiscal policy?
UK policy on spending and tax
- Money spent of public services
- More tax on social costs e.g. cigarettes
What is the multiplier effect?
Funding one thing can help whole country e.g. roads, builders, tax and disposable income, more spent, help economy
What could increased tax mean for businesses?
Income = less disposable
Corporation = less spending money
Air travel = higher costs
Tax = inward investement
Why does Bowton want to encourage firms to locate there?
Reduce unemployment - employees or construction
Disposable income - demand for local products - tax
Should businesses be given grants?
Spending cuts = can’t afford it
Reduce unemployment - less benefits paid + increased tax revenue etc - self-financing
What is globalisation?
When a business is connected in several countries
What are the benefits to the UK of globalisation? (5)
1) Larger export markets
2) More employment from foreign businesses
3) Lower business costs
4) More consumer choice
5) Economies of scale
What are the disadvantages to the UK of globalisation? (3)
1) More competition
2) Lower profits/sales
3) Unemployment in UK
What are the ethical advantages of globalisation? (2)
1) Raised standard of living
2) More job opportunities
What are the ethical disadvantages of globalisation? (4)
1) Worker exploitation
2) Local culture affected
3) More transportation = CO2
4) Pollution - less legislation
How could Sierra Leone benefit from Holden’s globalisation?
Jobs, income, improved standard of living, economy improves
What will Holden be affected by in globalisation?
Exchange rates
Inflation in other countries
Tariffs
What is the EU?
Family of democratic European countries that removes barriers to trade to member countries e.g. tariffs
What are the advantages of the EU? (3)
1) Single market - more customers
2) Free movement of workers - more/cheap labour
3) No trade barriers - cheaper+easier
Why is foreign competition increasing?
Developing countries = lower labour costs, do same as UK and are very skilled - better products
Internet = foreign business take markets
What would an increase in import taxes mean for Holden currently?
Increase prices of stock sold in EU = reduce demand = less profit
What is unfair competition?
Using unethical means to achieve a competitive advantage e.g. child labour
Why does the government believe competition is good?
Greater choice
Better value - efficiency = lower prices / more services
What do increasing wage rates in China mean for Holden?
Increased costs = less profit
- Increase selling price (only if no substitute, Holden superior or competition also increasing prices)
- Reduce other costs - quality
- Minimise labour - machinery
- Relocate to emerging economy
What is exchange rate?
The value of one currency in terms of another
£1 = Le6789
What happens if exchange rates rise?
More SLL per £, so buy more or cheaper, could reduce RRP, stimulate demand, beat competition
SPICED?
Strong Pound Imports Cheaper Exports Dearer
What does a strong pound mean?
Charging same £ is higher in $ etc so less demand
What is the Eurozone?
Euro using countries
Interest rates set by European Central Bank (ECB)
No exchange costs, easier price comparison
What are the positives of using retailers? (3)
1) Cost effective to reach large market - don’t need additional staff/buildings to sell abroad
2) People trust retailers, can touch products
3) Retailers do promotion
What are the negatives of using retailers? (3)
1) Less control of price end customer pays
2) Can be difficult to get contract
3) Retailers have power - can insist on quality or price
