ch4 Flashcards
How is Monopoly defined?
a market dominated by a single businesses
How is Oligopoly defined?
a market dominate by a few large businesses
How is PESTLE Analysis defined?
analysis of the external political, economic. social, technological, legal and environmental factor affecting a business
What is PESTLE analysis?
-The impact of external forces on a business can be both positive and negative, but also substantial.
-Businesses need to consider the wider economic environment when making investment and other important decisions, such as product design or expansion
One approach is to use PESTLE analysis which involves identifying the Political (P), Economic (E), Social (S), Technological (T), Legal (L) and Environmental (E) factors that might influence business activity and performance
What is the Political factor in PESTLE analysis?
-Some part of the world are politically volatile and special attention has to be paid if business venture politically unstable countries
-However, political factors can also influence business in stable, democratic countries.
What is the Economic factor in PESTLE analysis?
-The general state of the economy can have a huge impact on business activity.
Some examples may include:
-Falling unemployment might help to increase demand for many business
Stable prices creates more certainty, which should encourage businesses to invest for the future
-A strengthening exchange rate could make exporting more difficult, in contrast imports become cheaper
-During recession businesses with products that are price elastic will have a big impact to their demand
What is the Social factor in PESTLE analysis?
-Over time there are likely to be changes in the way society operates, Although social and cultural changes tend to be gradual,
they can still have an impact:
1-In the UK, more people are going to university, This could increase the quality of human resources which would benefit business
2-The population in many countries is ageing, This could affect demand patterns and create new opportunities for some businesses
3-increasing migration might increase the size of potential workforce, making recruitment easier and may boost demand
People are more health-consciousness
example
( more demand for those selling health food or running fitness centres)
What is the Legal factor in PESTLE analysis?
the government provides the legal framework in which businesses operate. However , it also directs legislation at business to protect vulnerable groups that might otherwise get get exploited.
EU legislation affect tax laws changing VAT etc.
Calls to ban the advertising of alcohol on television which could negatively impact the beverage industry
The government in the UK often state that it wants to reduce the amount of ‘red tape’ in business. This might benefit a wide range of businesses
What is the Environmental factor in PESTLE analysis?
People are increasingly protective of the environment, for instance because the threats posed by global warming. people are also concerned about the threats to wildlife and natural habitats that business sometimes pose
People are more inclined to buy ‘green’ goods.
This provides opportunities for business that specialise in such products
New wats of generating power using renewable sources rather than by burning hydrocarbons are providing new opportunities
The trend towards recycling is gather pace in the UK. By using recycled resources, businesses can cut their costs.
What are some features of a Competitive market?
-Large number of buyers and sellers.
Low barriers to entry
-Market can dictate pricing e.g. if a firms tries to charge more than its rival it is likely to lose nearly all of its business
-Free flow of information about the nature of products, prices, methods of production etc.
What are some features of Uncompetitive Markets?
-Dominated by single or small number of suppliers
–Monopoly or oligopoly such as Thames Water who are the only providers only Tap Water in London
-High barriers to entry ( infrastructure costs
Consumers have limited impact on prices ) independence occurs in Oligopolies as the actions of one business will affect another so prices tend to stay the same.
-business are likely to engage in non-price competition such has advertising and promotion
How can the Competitive Environment change overtime?
Governments try to encourage competitiveness in markets.
Increased competitiveness is good for consumers as it drives down prices.
This is through:
- Drive to reduce costs in a business to maintain/increase margins
- Development of new procedures (manufacture, materials, training)
- Development of new products
Governments can help by reducing regulation that can act as a barrier to entry, or force companies to make changes to allow others to enter market.
What is the impact does changes in the competitive environment have on Businesses?
New Entrants
- Competition ts stronger due to increased suppliers
- New methods of selling/delivery can make the competition more appealing
New Products –>
- Forces businesses to consider their own offering and adjust their portfolio.
- They may need to innovate existing products, or reduce the price to maintain market share
Consolidation –>
- This occurs when the number of businesses in a market reduces either through closure or mergers and acquisitions
- Larger organisations can pose a threat to smaller ones through dominant market position or the benefits of economies of scale.
Failure to respond effectively to the changing competitive environment could adversely affect the performance of a business environment, at worst certain change may threaten the business’s survival
What is Porter’s Five Forces Model?
An analysis tool looking at the nature and the strength of the competitive environment in which a business operates.
the success of the business will be governed by the strength of those forces. If the are in your favour, then a business would make above average returns
What are Porter’s Five Forces?
The bargaining power of suppliers
The bargaining power of buyers
Threats of New Entrants
Substitutes
Rivalry among existing firms
