Analysing External Environment Flashcards
What are 4 key areas of focus?
Competition Law
Labour Law
Environmental Legislation
Governmental Policy
What do I need to know for political and legal change?
Need to understand the impacts of different types of legislation
What must businesses adhere to?
To ensure a fair and sustainable trading environment
What are 3 Scope and effects of competition law?
Anti-competitive agreements
Abuse of dominant market position
Merger control
What are anti-competitive agreements?
Stops any collusion or arrangements e.g price fixing, discounts, sharing suppliers or markets
What is abuse of dominant market position?
Any businesses with 40%+ market share would be considered dominant. Businesses can’t abuse that power
What is merger control?
Any mergers or acquisitions will be reviewed to ensure they don’t have a significant impact on reducing competition
Who governs competition law?
The CMA and FCA
What does CMA stand for?
Competition and Markets Authority
What does FCA stand for?
Financial Conduct Authority
What is a benefit for suppliers of competition legislation?
Encourages suppliers to differentiate
What is a benefit for consumers of competition legislation?
Range of price points
What is an example of employment law?
The Equality Act 2010
What are 2 aims of employment legislation?
To protect individuals from unfair treatment
To advance equality of opportunity
What is the national minimum wage’s purpose?
Covers young people and apprentices
What is the national living wage’s purpose?
Older workers - liveable amount
What is SWOT?
Strengths
Weaknesses
Opportunities
Threats
What is PESTLE?
a tool that is used to assess/analyse external factors of a business.
Why do core competences make the business more competitive?
Hard for competitors to copy
What is the idea of Elkington’s TBL?
That businesses are responsible to all their stakeholders and to the planet
What is the circular flow diagram?
A model that shows how an economy functions. It illustrates how money moves from producers (businesses) to consumers in a endless loop.
What is GDP?
Gross Domestic Product
What does GDP mean?
Measures all of the economic activity of companies, governments and people in a country
What is GDP Growth caused by?
3 points
Capital investment
Technological Advances
Population Growth
What are 3 measures of UK GDP?
Income
Expenditure
Output
What does income mean in terms of GDP?
Value of income generated mostly in terms of profits and wages
What does expenditure mean in terms of GDP?
Value of goods and services bought by households and government investment
What does output mean in terms of GDP?
Total value of the goods and services produced by all sectors
What is a benefit to the government by rising GDP?
Can increase public spending on public services
What are 2 limitations of GDP?
Unequality
Hidden economy
What 3 impacts does economic growth have on business decision making?
Sales
Profits
Employment
Why does sales have an impact on business decision making?
2 points
Increase in ‘real’ income leads to higher retail sales
Higher growth in income elastic non-food items
Why does profits have an impact on business decision making?
2 points
Greater demand and sales stimulating profit levels
Increased prices to meet demand boosting profit margins
Why does employment have an impact on business decision making?
2 points
Higher demand leads to overtime and job creation
Can lead to skills shortages and impact on costs
What is the trend against the UK pound and US dollar in the last 5 years?
Quite varied
What does the weaker pound make British exports?
More competivity priced and attracts foreign investors and also boosts tourism by making it more affordable for international travellers.
What does it mean if the pound is strong?
This tends to mean we are less likely to have European countries buying our products because it costs more money for them
What does it mean for exports and imports , if the UK pound goes weak?
Exports go up
Imports go down - more expensive for us
What can we do with elastic goods if the pound goes weaker?
Export more and price remains the same
What happens to price of foreign raw materials if the pound goes weaker?
It increases so costs increase
What can an increase in foreign raw materials impact?
3 things
Quality
Reputation
Brand
How are free exchange rates (floating) determined by?
Market supply and demand
What is the exchange rate uncertainity?
Exchange rates can change daily, causing uncertainty for export and import businesses due to knock on fluctuations in price achieved from sales.
What is the role of the Government in supporting UK businesses?
3 points
To ensure competition is fair
Financial support
Reducing barriers to trade
What does the government offer in terms of enterprise?
Example of a scheme?
125+ enterprise schemes to support businesses
Local Enterprise Partnerships - LEPs
What is inflation?
General increase in prices within the economy
What is inflation caused by?
High levels of demand and low interest rates
What is CPIH?
The most comprehensive measure of inflation
What does demand-pull inflation refer to?
Instances when demand for goods and services exceeds the available supply of those goods and services in the economy
When does cost-push inflation occur?
When overall prices increase due to increase in cost of wages and raw materials.
What is consumer price index?
A price index, the price of a weighted average market basket of consumer goods and services purchased by households
What is hyperinflation used to describe??
Situations where the prices of all goods and services rise incontrollably over a defined time period.
What is deflation?
Reduction of general level of prices in an economy
What are 2 other impacts of inflation?
Consumers become far more aware of spending and look back to cut costs
Exports cost more and become less competitive
What does free trade promote?
The unrestricted flow of goods and services across borders
What do free trade agreements such as the EU aim to reduce and promote?
Reduce trade barriers and promote market access
What does protectionism seek to shield?
Domestic industries from foreign competition by imposing trade barriers
How does the government seek to shield industries from competition?
Tariffs
What are tariffs?
Taxes on imported goods or non tariff barriers such as quotas
What is fiscal policy?
The use of taxation and government spending to influence inflation, unemployment and economic stability
List a direct taxation and a indirect taxation??
Income tax is direct and VAT is indirect
What is fiscal policy aimed at?
2 points
Encouraging consumer spending
Paying for government expenditure
How is fiscal policy set?
By the government to try and control consumer and business spending
How is monetary policy set?
Set by the Bank of England to control the cost and supply of money as well as interest rates
How is growth encouraged during a recession? 2 points
By lowering interest rates and introducing QE
What is QE? Quantitative easing
When Bank of England pumps hundreds of billions of pounds into the economy
What does QE aim to do?
To support the economy by encouraging people to save less and spend more
How does the Bank of England pumps hundreds of billions of pounds into the economy?
By buying government bonds
What does buying bonds enable the bank to do?
To keep interest rates low because they know they will get a good return
What are 2 strategies businesses can do to survive a stagnated growth period?
Diversification
Focus on Marketing
What is a value-added tax?
A consumption tax on the value added at each stage of a product’s production and distribution.
Why is VAT added on?
Because it generates a stable source of revenue as it based on consumption rather than income
When corporation tax is frozen at a certain percentage, how does this help a business?
Helps a business to invest into the business
When income tax is frozen at a certain percentage, how does this help build the economy?
Can hope for people to have more disposable income and this influences spending
Who controls interest rates?
Bank of England
When the Bank puts up interest rates, what does this encourage businesses and people to do?
To save
What does the UK have in terms of population?
Aging population
Why has population increased from 58.8m in 2000 to 67-69m in 2024?
Due to net migration, aging population, globalisation
What can net migration bring to the UK?
People with new ideas and culture
How big is the UK’s ecommerce market?
3rd largest
What 3 impacts does an aging population have on businesses?
Requires more health support
People staying in jobs for longer
Changes in demand
Why does urbanisation have an impact on businesses?
Many people live in urban areas as it is easier to access employment, healthcare etc
