Component 3 Flashcards
What is change?
Change is an ongoing process and businesses cannot avoid having to deal with its consequences. Change in some businesses can be gradual, with small, incremental changes made to the way they operate year after year. However, increasingly there are factors that cause rapid change, totally altering the way a business operates in a relatively short period of time. This creates a far more challenging environment.
What are the major internal causes of change?
-the introduction of new technology
-a change in management structure or leadership style
-changes in the size of the business through organic growth or external growth When a business grows with the use of other businesses, e.g. through mergers and takeovers. E.g. Carphone Warehouse and Dixons.
What are the major external causes of change?
-developments in technology
-market changes (competitors, new markets or globalisation)
-changes in consumer tastes
-new legislation
-changes in the workforce
-changes in the economy
What is planned change?
Planned change is created internally and is structured and timetabled. Clear objectives for the change are established, timetables created and resources applied to creating the change. For example, a bicycle manufacturer may decide to offer a new range of electric bikes to launch in the next twelve months and will gear up its manufacturing and marketing campaigns accordingly.
what is unplanned change?
Unplanned change occurs in response to a shock to the business and is often unstructured and under-resourced. A shock could be external (exogenous), such as the financial crisis of 2007/2008 which caused a recession, or internal, such as a key worker suddenly leaving a business
What are the effects of change?
-Shorter product life cycles
-Diminished brand loyalty
-New products need to be developed
-Production methods will need to be changed
-Retraining the workforce
-Flexible workforce
-The need to comply with constantly changing legislation
What are the strategies managers need to put into place to combat change management?
-Employee preparation
-Increased research and development expenditure
-Additional capital investment
What are the benefits of change management?
-assess and understand the need for and the impact of change
-allocate resources, such as capital, and staffing the business to support the implementation of change
-manage and control the costs incurred with change
-reduce the time needed to implement change
-plan and implement an effective strategy to communicate change with all stakeholders, in particular the staff, which will help the business support staff through the change
-maintain or improve the performance of the business, e.g. improve productivity for manufacturing businesses or improve service for those businesses in the tertiary sector.
What are the indicators which help evaluate change management?
-delivery times
-production defects
-customer satisfaction surveys
-market share
-sales turnover
-profitability.
What is Jstoreys 4 different approach theory?
1.A total imposed package
2.Imposed piecemeal packages
3.Negotiated total packages
4.Negotiated piecemeal packages
What is meant by A total imposed package (Jstorey)?
This would be a whole package of changes and would simply be presented to the employees. The senior management team would work out the restructuring they feel is required and then impose this on the business and its workers. The advantage of this is that it will create rapid change and ensure that the vision for the direction of the business is clear, but if the organisational culture does not match this approach then there may be significant resistance to change
What is meant by imposed piecemeal initiatives (Jstorey)?
This is a more gradual approach. Change and restructuring of a business is still imposed by senior management, but in stages rather than all at once. This may give employees more time to adapt and may help alleviate resistance, but it will still need to be accompanied by changes in the organisational culture to encourage change. To help the introduction of the initiatives, the firm may offer incentive payments or perhaps other non-financial rewards for the successful implementation of the changes.
What is meant by negotiated total packages (Jstorey)?
The aim is to agree on the package of change through negotiation and consultation with the workforce. This may help significantly reduce the level of resistance to change though it may also act as a constraint on the extent of the change. This type of approach is growing more popular with trade unions keen to negotiate changes and ensure that their members benefit from change and are helped to cope with change.
What is meant by negotiated piecemeal packages (Jstorey)?
This is similar to the imposed piecemeal initiatives, but also has similarities with the negotiated total package approach. The gradual implementation of change will be negotiated at each stage. The change may be linked to incentive payments.
What are the 4 reasons why change is resisted (Kotter & Schlesinger)?
1.Self-interest – This arises from the perceived threat to job security or maybe suppliers fearing for future orders. Therefore, stakeholders tend to put themselves before the needs of the business.
2.Misinformation and misunderstanding – Stakeholders may not understand why change is needed because they have been misinformed about the strategy of the business. Some stakeholders may think that things are better the way they are.
3.Different assessment of the situation – This is where there is disagreement about what change is needed. Stakeholders have different views about what is needed for the best for the business.
4.Low tolerance and inertia – Many people suffer from reluctance to change. Many people need security, predictability and stability in their work.
What are the reasons for a managers resistance?
Manager resistance may be a result of a lack of experience or expertise, e.g. a fear of new markets and conditions due to a lack of experience or knowledge of that market or a lack of leadership skills to manage the change effectively.
What are the reasons for a workers resistance?
Worker resistance may be a result of their wish to preserve the existing routines, to protect pay and employment and to avoid threat to security and status, e.g. the threat of a change in a job role that may result in a demotion from a higher role, and threat to main group membership.
What are the reasons for a suppliers resistance?
Supplier resistance may be a result of reluctance to changes made by their customers, e.g. manufacturers who change to a JIT system may see relationships with suppliers break down over the demand for components when needed as it imposes higher costs on suppliers.
What are the reasons for a shareholders/owners resistance?
Shareholder/owner resistance may be a result of the fear that changes to strategy may increase risk, e.g. operating in a new market will be costly and damaging to dividends so shareholders will need some reassurance or persuading about the change.
What is Lewin’s 3 step process of change?
1.unfreezing
2.Change or transition
3.refreezing
What is meant by unfreezing (Lewin)?
This involves creating a motivation for change and creating a realisation amongst employees that change is necessary. They therefore have to ‘unfreeze’ from current approaches to work and be prepared to adapt to a new method of working. Employees have to be shown that change is necessary and then managers need to create a situation in which employees desire the change
What is meant by change or transition (Lewin)?
Lewin described the period of transition as a potentially difficult time as workers are now moving toward a new way of doing things. They are learning about the changes and need to be given time to understand and adapt to these changes. Support from management and supervisors is important in making the transition period work. Support can come in the form of training, education, and learning from and not being criticised for mistakes. Allowing workers to develop their own solutions and maintaining clear communication of the objectives and benefits of the change are also important in maintaining the transition
What is meant by refreezing (Lewin)?
This final stage in the change process is about establishing stability once the changes have been made. Workers have now accepted the change, and the new methods of working have become the new norm. Workers are settled in new structures and are comfortable with their routines. This refreezing clearly implies workers must not be forced into continual change, but allowed time to adapt. New methods need to become completely ingrained before further change occurs, otherwise any gains may be lost
What is risk in a business capacity?
Business risk is a circumstance or factor that may have a significant negative impact on the operations or profitability of a given business.
Business risk can result from internal conditions or external factors that may be present in the wider business world. Risk can also be expressed as “uncertainty”. It means the possibility of incurring losses due to problems and circumstances, expected or unexpected.
What are the types of quantifiable risk methods?
-Financial risk e.g. the probability that a major customer becomes bankrupt and does not pay money owed to a supplier.
-Operational risk e.g. the breakdown of key equipment or machinery.
-Strategic risk e.g. a new competitor coming on to the market.
-Compliance risk e.g. responding to the introduction of new health and safety legislation.
What are insurable risks?
-Theft
-Fidelity insurance
-Burglary
-Money in transit
-Fire
-Natural disaster
-vehicles
What are non-insurable risks?
-Shoplifting during trading hours
-Financial loss due to bad management
-Nuclear war/weapons
-Irrecoverable debts
What are internal risks?
-Employee error
-product failures
-Failure of equipment
-public relations failure
What are external risks?
-Natural disasters
-Legal challenges
-Supply chain problems
-economic factors
What is risk management?
Risk management is the process of understanding and minimising what might go wrong in an organisation. It involves the activities undertaken by a business, which are designed to control and minimise threats to the continuing efficiency, profitability and success of its operations
What is the risk management process?
-the identification and analysis of risks to which the organisation is exposed
-a measurement of the likelihood of the risks occurring
-an assessment of potential impacts on the business
-deciding what action can be taken to eliminate or reduce risk
What are the examples of preventative measures?
-training staff appropriately
-regular backup of IT systems
-putting robust quality control systems in place
-installing a sprinkler system.
What is a contingency plan?
A contingency plan is a plan of action to be followed in the event of an emergency or crisis which threatens to destroy or significantly disrupt the continued operation of normal business activities. The plan should restore to normal the business’ day-to-day functioning, or as near to normal as possible. All this needs to be done as fast as possible.
What is meant by a crisis management?
Crisis management involves how a business responds to an unforeseen event that threatens the business. There are many recent examples of major events affecting businesses’ capability to operate normally. These have varied from terrorist atrocities, natural disasters or extreme climate events, to failures of operational control. A well-run business will have plans in place to deal with the unexpected; reduce the impact of unforeseen events; and get back to normal as soon as possible.
What is the value of contingency planning? (benefit)
It is likely that an effective contingency plan will minimise the risk and limit the damage caused by a crisis. If damage to a business’s reputation can be minimised and profits/ dividends maintained, then undoubtedly it is of great value. The likely benefits of effective contingency planning that helps maintain staff morale and provides continuity of products or services cannot be underestimated. If it reduces the impact on customers and protects against potential
losses, then it is well worth the money.
What is the value of contingency planning? (drawback)
Nonetheless, it can be a very costly activity. Large multinational businesses involve huge numbers of very expensive staff in assessing risk and planning what to do if things go wrong. It is essentially a form of insurance. If nothing goes wrong, it might be seen as a complete waste of money. However, the growth in contingency planning, especially in large organisations, seems to suggest that businesses are keen to reduce their risks to as low a level as possible. In other words, they see the costs involved as being money well spent
What is a PEST analysis?
A PEST analysis examines the political, economic, social and technological environments that affect markets and businesses. It is recognised by decision makers that, in the longer term, the survival and success of a business is dependent upon adopting strategies appropriate to the external environment within which their business operates. It is not enough to have the right marketing mix or the best product portfolio without being aware of the external environment. It is also worth bearing in mind that the external environment is continually changing, and businesses have to adapt to such changes if they are to remain competitive.
What are the political factors to include?
-Instability
-National security
-Major trading partners
-Changes in government
-Pressure groups
What is meant by instability (political)?
One of the major objectives of government is to provide a stable economic and legal framework within which businesses can operate and grow and individuals thrive. Competition needs to be fair; the rule of law and clear property rights must apply. Businesses that venture into countries that are politically unstable are taking considerable risks
What is meant by national security (political)?
This is an increasingly important issue for many countries as terrorist attacks have become commonplace across the world. As governments seek to protect their citizens, they introduce measures that may well restrict the movement of goods, people and capital. Many businesses may suffer negative impacts as a result, especially when attempting to resolve skill shortages
What is meant by major trading partners (political)?
Whilst the UK has decided to remove itself from membership of the European Union, the 27 remaining countries are still a vital market for many UK businesses. The UK may not be the only country that decides to make such a move. Such uncertainty has the impact of disrupting financial markets and creating considerable uncertainty in the European Single Market and the Eurozone.
What is meant by changes in government (political)?
New governments may well have a more, or less, positive attitude towards business activity. For example, legislation may be put in place that lifts restrictions on businesses in terms of such matters as pollution or workers’ rights. This may result in cost increases for businesses and impact upon future profitability. Republican governments elected in the USA, for instance, have tended to be more probusiness than Democratic governments.
What is meant by pressure groups (political)?
The activity of such groups can have a significant impact upon political decision-making. Campaigns against the tobacco, alcohol and gambling industries have all had a significant impact upon bringing about changes in legislation. Businesses are required to put in place measures to comply with such legislation and this inevitably raises costs and lowers profits. Pressure groups are an increasingly significant factor in bringing about political change and businesses need to be fully aware of their activities
What is Fiscal policy?
Fiscal policy can be used to target political economic or social objectives so expenditure or increased taxation is sometimes targeted at specific industry sectors or alternatively subsidies can be paid to industries. The use of taxation and public (government) expenditure as a means of controlling the level of activity within the economy.
What are major direct taxes?
-Income Tax
-National Insurance
-Corporation Tax
-Capital Gains Tax
-Inheritance Tax
What are major indirect taxes?
-Value Added Tax (VAT)
-Excise Duties
-Customs Duties
-Council Tax
-Business Rates
What are the typical effects on business of changes in taxation?
Increasing or decreasing the level of consumer spending will inevitably have an impact on the majority of businesses. For example, if the government choose to lower the level of income tax this will stimulate consumer demand. On the other hand, a rise in council rates will have the opposite effect and reduce demand for goods and services. Prices can be impacted by a rise in VAT or Excise Duties. Businesses will try to pass such increases onto their customers
if they can, but this will depend upon the degree of competition they face in the marketplace. The brewing industry often complains about the level of taxes on beers and spirits, arguing that increases in taxes on these products is depressing demand
What are subsidies?
Subsidies are payments to producers. They have the effect of reducing costs and therefore increasing output. The main sources of subsidies in recent years have been payments from the EU to farmers (Common Agricultural Policy). These payments help support farmers, ensuring domestic production of food. Subsidies in various forms are also paid to green power generators helping provide a guaranteed price for their electricity. The argument supporting payment of these subsidies is that green energy helps reduce the amount of CO2 emissions from fossil fuel power stations and therefore helps protect the environment.
What is meant by government expenditure?
The government buys goods and services from UK businesses; this comes to over £100 billion a year. For some types of business the government may be the only or the key purchaser of the goods they produce. Examples include UK defence contractors, shipbuilders and some road builders. Government purchasing had been seen by many
businesses as a source of easy profits, but the culture has now changed with all government departments looking for cost savings and efficiencies. Competitive tendering and regular reviews of supply contracts are now the norm, putting pressure on traditional suppliers but offering opportunities for new entrants.
What are the objectives for raising interest rates?
-reducing the level of consumer spending
-reducing inflation
-slowing the level of economic growth (GDP)
-reducing the number of imports
-dampening down an economic boom
What are the implications of raising interest rates?
-many businesses may experience falling sales as consumers increase savings
-demand for products purchased on credit may decline significantly
-business cancelling or postponing investment plans
-businesses reduce borrowing
-increased value of sterling increasing the prices of exports while reducing import prices
What are the objectives for reducing interest rates?
-reducing levels of unemployment
-stimulating the level of production in the economy
-promoting exports sales by reducing the exchange rate of the pound
-increasing rates of economic growth in the economy
-assisting in recovering from a slump
What are the consequences of falling interest rates?
-demand and sales are likely to increase
-production is likely to be stimulated by increasing employment
-export sales of price sensitive products may increase whilst imports become less competitive
What are the 2 type of fiscals policy that the government can operate?
-To increase the level of economic activity – achieved by cutting rates of taxation; increasing government expenditure. This results in increased output and spending, less unemployment, possible increase in inflation and more imports
-To reduce the level of economic activity – achieved by increasing rates of taxation; cutting government expenditure. This results in lowered output, spending and employment, lower inflation and fewer imports
What categories can government expenditure be put into?
-Transfer payments
-The infrastructure
What is meant by transferring payments (G.E)?
This is expenditure on unemployment benefit, pensions and other social security payments. An increase in transfer payments often results in substantial increase in demand for basic goods, such as food, public transport and gas
What is meant by the infrastructure (G.E)?
Governments improve the infrastructure through their spending on housing, roads and flood protection. Investment in these areas can increase the level of economic activity by boosting demand for the services of construction businesses whilst reducing costs for other businesses.
What is inflation and how is it measured?
-Inflation is the rate at which the general level of prices is rising.
-The Government measure inflation using regular pricing of a nominal ‘basket of goods.’ This basket of goods is meant to reflect the spending habits of the average person within the UK economy, and includes both goods and services. The target rate of inflation is known as The Consumer Price Index including owner occupiers (CPIH), other measures of inflation include RPI, RPIX and a measure of Factory Gate Prices.
What is cost push inflation?
Cost-push inflation occurs when firms have rising costs of production and they respond to these higher costs by increasing the prices they charge their customers. Examples would be an increase in the cost of raw materials, increasing cost of labour or increasing interest rates, and therefore the cost of capital increasing.
What is demand pull inflation?
Demand-pull inflation is caused by excessive demand in the economy for goods and services. This means there is too much money chasing too few goods and services. The main causes of increased demand are increased confidence amongst consumers, higher real incomes (incomes allowing for inflation), or higher disposable incomes (incomes after taxation).
What are the effects of the government raising interest rates as a way of combatting inflation?
-consumers are discouraged from spending their money by higher savings rates and are less likely to buy on credit as it is more expensive
-businesses reduce investment as borrowing becomes more expensive
-output and sales decline and the inflationary pressure reduces
How do high rates of inflation affect businesses?
-rising wages and raw materials costs may force businesses to accept lower profit margins or to raise prices
-businesses face menu costs as prices listed have to be frequently updated
-businesses face shoe leather costs (businesses frequently need to spend time and money trying to find out which supplier has the cheapest prices)
-overseas businesses (with lower inflation rates) may gain a competitive advantage
-some businesses will invest more as the real value of loans falls quickly
-other businesses will hold back on investment because interest rates are likely to rise
-people save more due to uncertainty and because interest rates are frequently raised, so demand falls
What is deflation, and what is a consequence of this?
Deflation (a general fall in price levels) can be a real problem if it takes hold in an economy. For individuals, it can lead to falls in wage levels and increasing real debt burdens (value of debts increases relative to value of assets and income). Both factors discourage expenditure.
What is meant by GDP?
Gross Domestic Product (GDP) measures the level of economic output in the UK. GDP is a measure of annual output of an economy. An increase in real GDP (real means allowing for inflation) has always been important. Without growth, people’s standard of living will not increase. Growth reduces the real level of government debt in relation to GDP and increases tax receipts. The underlying trend for growth in the UK economy has been around 2.25% a year, which, if sustained, doubles GDP every 25 years. However, since 2008 growth has averaged about half this rate.
What are the stages of the business cycle?
-Boom
-Downturn
-Recession
-Recovery
What happens during a boom?
-The boom period benefits most businesses and consumers.
-Unemployment is low
-Consumer demand is high
-Business profits are high
-Budget surplus for the government is higher, due to high tax revenue and lower expenditure on social security
-Business confidence is high
What happens during a downturn?
-There is less investment by businesses
-Business owners and managers become nervous about the future
-Higher inflation in a boom may have caused the Bank of England to increase interest rates, so people are spending less, and unemployment starts to creep up
-The economy may still be growing, but at a much lower rate
What happens during a recession?
-increasing unemployment
-falling demand from consumer
-falling investment by businesses
-a decline in the levels of inflation and interest rates
What happens during a recovery?
-Slow levels of economic growth
-cost of borrowing can be low
-investment by some businesses will start to increase
-New jobs are created
What are exchange rates?
An exchange rate is the value of one currency expressed in terms of another currency. The fact that different countries use different currencies means that there is an impact on businesses when the price of these currencies change in relation to one another. The price of a currency is largely determined by market forces; in other words, demand and supply.
What is the Impact of a rise in the value of the pound (appreciation)?
A rise in the value of the pound (appreciation) makes imports cheaper, reducing costs for businesses and consumers, and helps control inflation by lowering prices of imported goods. It also increases the purchasing power of UK residents abroad and makes foreign debt cheaper to repay. However, it reduces the competitiveness of UK exports by making them more expensive for foreign buyers, potentially leading to lower export revenues and job losses in export-dependent sectors. This can worsen the current account deficit, as higher imports and reduced exports negatively impact the trade balance
What is the Impact of a fall in the value of the pound (depreciation)?
A fall in the value of the pound (depreciation) makes UK exports more competitive and affordable for foreign buyers, boosting demand and potentially increasing export revenues and job creation. It also makes the UK a more attractive destination for foreign tourists while encouraging domestic consumers to purchase locally produced goods due to higher import costs. However, it raises the cost of imports, increasing business expenses and leading to higher prices for consumers, which can drive inflation. This rise in inflation may reduce real incomes, increasing the cost of living and putting pressure on businesses and households reliant on imported goods and materials
What is structural unemployment?
Structural unemployment appears when then there have been large changes in patterns of demand, or developments in technology, which have caused long-term unemployment in regions or industries. These changes mean that the structure of the industry or service has changed, and that jobs in their previous form are unlikely to return.
A good example would be the high levels of male unemployment in the South Wales valleys and regions of Yorkshire which had previously large coal mining and steel producing areas
What is cyclical unemployment?
Cyclical unemployment, as its name indicates, appears as part of the business cycle. As an economy enters a downturn, unemployment increases: this will peak during any subsequent recessionary period. This type of unemployment will fall during recovery and reach a minimum at the peak of the boom period.
What is frictional unemployment?
This perhaps is the least problematic of the three types of unemployment and occurs when there is a delay in finding a job after losing a previously held job. This unemployment is obviously less long-term than structural unemployment; it tends to be temporary. Nonetheless, the government still tries to reduce it by increasing the information available about vacancies that exist. This can be done through job centres and other employment recruitment services.
What are the impacts of unemployment on a business?
Unemployment can impact businesses both positively and negatively. On the positive side, it increases the availability of workers, providing businesses with a larger talent pool and potentially reducing labor costs due to lower wage pressures. Additionally, employee turnover may decrease as fewer job opportunities exist elsewhere. However, unemployment also reduces consumer spending power, as households with lower incomes cut back on non-essential purchases. This decline in demand can negatively affect businesses, particularly those in consumer-facing industries, leading to lower revenues and potentially stifling growth opportunities
What is meant by social factors? (PEST)
Social factors refer to changes in society that can have consequences for businesses. These include demographic changes, such as the UK’s increasing and ageing population; changing lifestyles; and changes in consumer tastes and fashions, such as the need for more environmentally friendly vehicles.
What does demographics measure?
-the size of the population
-the median age of the population – ageing population?
-migration
Why is the size if the population important?
This is of interest to businesses since, in general terms, if
the population increases, the size of their market will increase, and they will be able to sell more goods.
Why is the median age of the population important?
The baby boomers of the 50s and 60s are now entering or moving toward retirement. These people are generally a well-off section of society, the majority with their own homes and many with high value final salary pensions. Baby boomers can have large amounts of savings and disposable income which can be used for holidays, conservatories, new cars, etc
Why is migration important?
For example, young immigrants have added to the working population as they fill the skills gap in the UK and undertake those jobs, such as agricultural labouring, which the UK population has been reluctant to do
What are the lifestyle factors or decisions that can impact a business?
-An increase in the number of economically active women over the last half century means industries such as childcare are booming as a result.
-Society is becoming increasingly health conscious, increasing the demand for markets such as the fitness industry and healthy foods.
-The behaviours of consumers, particularly young ones: there are more ways of purchasing and accessing goods and services but targeting these consumers with marketing campaigns are becoming increasingly problematic, as there is a need to focus on a wide spread of media.
-There may be cultural changes within a population.
-Social change and fashion changes: consumers are now willing to spend £3 for a take-away coffee, provided the right brand is on the cup.
-There has been changes in attitudes towards becoming more environmentally friendly.
-Businesses also now focus more on social impact, with increasing numbers of social enterprises being set up.
What is technological change?
Technological change describes the ongoing development of invention, innovation and sharing of technology or processes.
What does technological change include?
-automation
-e-commerce and m-commerce
-intranet and internet
-social media
-CAD/CAM and robotics
-handheld computers
-software packages e.g. DTP, spreadsheets and databases
-online businesses
-integrated software packages
-big data and data mining
-app technology (m-commerce)
What is meant by automation?
Automation once meant robots carrying out repetitive tasks in manufacturing industry. However, over the last 15 years the ability to combine different technologies within a process has resulted in widespread automation from the primary resource to the retailer
Where is automation likely to be seen?
-Retailers: for retailers, automation has become one of the key issues in business efficiency. Whether it is automated ordering or the more visible self-checkouts
-Banks: bank clerks are disappearing, to be replaced by machines.
-Warehousing: staff functions are being replaced by robots that can do more and more tasks. Robots are not yet capable of removing all goods from shelves but can transport and pack goods
-Online services: whole systems will be automated; mathematical analysis will determine which products are marketed, where they will be placed and what prices are charged
-Utilities (gas and electricity): smart meters will replace the need for manual meter reading; switching to the cheapest provider may become automatic
How has ICT had an impact on internet marketing?
Internet sales are increasing year on year. Businesses that have already entered this lucrative market have seen share values rocket, as well as sales. Think of supermarkets such as Tesco who offer their full range online, or even an online retailer such as Amazon. Did you know that Amazon started at an online bookstore and expanded from there?
How has ICT had an impact on Web-based customer relationships ?
It is becoming more and more typical for businesses in financial industries to have entirely web-based customer relationships. Banking is done online, bills are paid, direct debits set up and cancelled, loans and overdrafts are arranged without a single visit to a branch: everything is done over the internet. Technologies and features such as live chat capabilities are an advancement in customer service.
How has ICT had an impact on B2B ?
B2B involves the finding of commercial buyers for businesses output, and the sourcing of components and raw materials for businesses production, via the internet.
How has ICT had an impact on Manufacturing resource planning (MRP2) ?
This system is used by manufacturing businesses to plan all aspects of business activity. The MRP2 system takes forecasts and turns them into a series of objectives and targets for each function or department in an organisation. This system, when running efficiently, can replace an entire layer of management who have previously been employed to run the planning and budgeting processes. MRP2 allows the maximum possible use of ‘what if?’ questions. Senior managers can judge the impacts of otherwise untestable scenarios on the organisation. This ability to use computer modelling reduces costly errors.
How has ICT had an impact on Electronic point of sale systems (EPOS) ?
The reading of bar codes at checkouts is the tip of the iceberg of EPOS systems. Beneath this we have a stock database that controls stockholding and ordering for retailers; warehouse stockholding for manufacturers and supply from businesses in the supply chain. Used most efficiently, retailers can use EPOS to determine promotions, selling space allocations and staff requirements. Manufacturers can use EPOS systems to reduce stockholding and working capital, thus ensuring that suppliers supply only as and when required
What is an ethical business?
An ethical business is one that considers the needs of all stakeholders when making business decisions. An ethical business, when setting objectives and considering strategy, takes into consideration its social responsibilities. Ethical businesses consider the moral rights and wrongs of any strategic decisions that are made
What should businesses take into consideration when it comes to employees? (Ethics)
Businesses should treat employees as their most valuable asset. This means taking care of their health and safety, ensuring high conditions of work and also paying a living wage. Their ethical responsibilities should not stop with their own employees. Those working for suppliers are equally as important. It cannot be regarded as ethical if a business claims to pay its own employees a living wage if workers further down the supply chain, in perhaps a less developed country, earn the equivalent of 40p an hour.
What should businesses take into consideration when it comes to suppliers? (Ethics)
Suppliers should also be treated fairly. This means sticking to agreed contracts and not forcing renegotiation upon suppliers. It means sharing burdens of developing, supplying products, paying on time and not putting pressure upon suppliers’ cash flow. Fair Trade is a well-known organisation which ensures fair play to suppliers in all stages of the supply chain.
What should businesses take into consideration when it comes to customers? (Ethics)
Above all, customers want a quality product or service at a fair price. Businesses which act unethically fail to fulfil this moral commitment to customers. For example, the PPI scandal was a double failure on the part of many of the major banks in the UK. Not only was the insurance cover provided through PPI often irrelevant to customer needs, it was massively overpriced. The end result has been billions of pounds of compensation payments to customers who were mis-sold PPI
What is animal welfare?
Animal welfare is a major issue for those retailers with claims to be ethical. Grocers look down the supply chain to ensure the welfare of animals, and can focus their marketing on how well supplying farmers treat their livestock. The demand for ‘free range’ products is a good example of how retailers have responded to their customers’ concerns. Clothing retailers too have responded to animal rights issues in relation to the raw materials they use. PETA (People for Ethical Treatment of Animals) has ensured that the argument has progressed well beyond fur skin coats, covering treatment of other animals used in the clothing supply chain
What is Corporate social responsibility?
This is the concept that businesses have a responsibility that goes beyond making profits for their shareholders. Businesses need to monitor and take responsibility for the impact they have on both social welfare and the environment
What may social and environmental audits (SEAs) address?
-How well do we ensure human rights?
-Do we use suppliers who use child labour?
-Do we discriminate when recruiting?
-Do we pay the correct level of remuneration for the job?
-How many women do we have in senior positions?
-Do we support any charities in the locality of our factories?
-Have we broken any laws?
-Do we compete fairly?
-Do we comply with all health and safety legislation?
-Is our advertising truthful?
-Have we caused any pollution?
What are the downsides of acting ethically?
-Costs are likely to rise. For example, paying a ‘living wage’, as opposed to complying with the minimum wage legislation, will increase labour costs. Building improved canteen facilities or providing sports facilities for employees would prove to be very costly
-Revenues are likely to fall. For example, a toy retailer that refuses to target children with blanket advertising prior to Christmas will no doubt lose sales to their competitors. A construction company that declines to offer a bribe to a Third World government official when tendering for a contract may well not be considered for that project
What are the upsides of acting ethically?
-Some customers are attracted to those businesses that adopt an ethical approach. Restaurants and coffee shops that source their ingredients from ethical suppliers appeal to a growing number of customers. Using ‘ethics’ at the heart of their marketing campaigns can boost sales in certain instances. The growth of the Fair Trade movement is evidence of such a trend
-Acting ethically can improve public relations (PR) and have a positive impact on the image that a business portrays. No business wants to have its name splashed all over the newspapers for mistreating its employees or using low quality ingredients that may be harmful to consumers. The discovery of horsemeat in burgers supplied by a number of UK supermarkets is a crisis they could have well done without. Checking supply chains carefully is not only ethical, but can also prevent significant loss of revenue and reputation
What is meant by company law?
When a business is incorporated, it exists as a separate legal entity. That is, it is separate from shareholders. The act of setting up a Limited Company (LTD or PLC) is incorporation. An incorporated business is responsible for its own debts and liabilities. The shareholders and, as a general rule, directors cannot be forced to pay them (unless fraudulent activity has occurred). Failure to comply with company law can lead to company directors being fined, struck off or even to the compulsory liquidation (winding up) of the company
What is employment legislation?
-Health and safety legislation
-Employment rights (terms and conditions, holidays, working weeks etc.)
-Anti-discrimination legislation
-Age discrimination
-Racial or belief-based discrimination
-Sex discrimination
-Sexual orientation discrimination
What is health and safety legislation?
Under the Health and Safety at Work legislation, employers have a duty to take all reasonable care to ensure the wellbeing and safety of their employees. Employers have a legal responsibility to ensure that working environments are safe and that employees are able to understand and are trained to deal with the risks involved in their jobs. Employees also have responsibilities, such as taking reasonable care and ensuring that they abide by health and safety rules – e.g. wearing hard hats on building sites
What are employee rights?
This is the key legislation concerned with establishing workers’ rights in regard to their terms and conditions of employment. Employees have to be provided with a written contract of employment within two months of starting employment. The contract must state levels of pay, holiday entitlement, rights for maternity pay, pension rights, disciplinary procedures and length of notice period
What is age discrimination?
It is illegal in the workplace to make decisions based on the age of employees when considering recruitment, employment terms and conditions, promotions, transfers, training and dismissal. The retirement age of 65 was abolished in 2011: retirement age is now when the employee choses to take retirement. An employer can only
retire a worker in particular circumstances, e.g. not being physically up the tasks involved in the job
What is racial discrimination?
It is illegal to discriminate on grounds of colour, race, nationality or ethnic/national origin when considering recruitment, employment terms and conditions, promotions and transfers, training and dismissal. Employers are liable for acts of discrimination committed by their employees in the course of their employment, unless the
employer can show that they took reasonable actions to prevent the discrimination occurring
What is sex discrimination?
It is illegal for employers to discriminate on the basis of a person’s sex, or because they are married or in a civil partnership or if they have gone through, are going through or intend to go through, gender reassignment. Sexual discrimination legislation also makes it illegal for employers to discriminate between men and women in
terms of their pay and conditions where they are doing either the same or similar work (like work) or work of equal value
What is sexual orientation discrimination?
It is illegal to discriminate because of sexual orientation or ‘perceived’ sexual orientation. This includes orientation towards someone of the same sex (lesbian/ gay), opposite sex (heterosexual) or both (bisexual)
What is meant by consumer protection?
-When consumers purchase goods or services, a contract is formed between the consumer, the retailer and the producer of those goods or services. Legislation clarifies the nature of the contract and how suppliers of goods and services are required to behave.
-Legislation, for example, makes it a criminal offence to give untrue or misleading descriptions of goods in regard to their content, size, weight and price. As a result of this legislation, manufacturers and retailers have to take a great deal of care about information presented on their packaging or within advertisements and any other form of promotional material.
-Goods must also be of merchantable quality – fit for their intended purpose and be as described. This means that the goods must be capable of doing what they were designed to do and what the purchaser would reasonably expect them to be able to do
What is competition policy?
-Competition policy in the UK is focused on controlling the abuse of market power of big business. Since businesses in a monopoly or a near-monopoly position hold a dominant market position, they can have control over price or amount produced within the market.
-The behaviour of existing monopolies (potentially any business with over 25% market share) is monitored by the Competitions and Markets Authority (CMA).
-It also monitors potential mergers or take-overs of large businesses and may investigate prior to allowing any to go ahead. Another role of the CMA is to investigate situations where companies may be acting together, forming an illegal cartel which limits the competition within an industry. Businesses, if they have a choice, will not compete on price, and by creating a dominant market position by working with other large businesses they can limit price competition. This is known as collusion, which is illegal
What is intellectual property law?
Intellectual property law covers the legal rights of individual and companies in regard to designs, inventions and artistic works. There are three main areas:
-Trademark Legislation
-Patent Law
-Copyright Law
What is trademark legislation?
Trademark legislation covers designs and artwork, such a labelling, brand logo design and product design. Trademarks and other aspects of design can be registered, and protected from copying. A copy can infringe a trademark without being an exact copy, but instead similar enough to cause confusion in consumers.
What is Patent law?
Patent Law covers inventions and gives rights to the inventor or patent owner for a limited period to stop others from making, using or selling an invention without the permission of the inventor or owner. Patent periods can vary in time but are normally for 20 years. Patents need to be registered by the UK Intellectual Property Office. The registration process can be relatively expensive for a small business because of the number of checks that need to be carried
out to ensure that the method, process or object being patented is new. Infringement of patents involves an illegal copy of a patented method, process or object has been produced and offered for sale. Businesses found guilty of infringement have to pay damages and a court injunction to prevent further infringements occurring
What is copyright law?
Copyright law gives the creators of literary, dramatic, musical and artistic works, sound recordings, broadcasts and films, rights to control the ways in which their material may be used. The law means that it is an offence to do any of the following without the consent of the owner
What must data from customers or clients be?
-used fairly and lawfully
-used for limited, specifically stated purposes
-used in a way that is adequate, relevant and not excessive
-accurate
-kept for no longer than is absolutely necessary
-handled according to people’s data protection rights
-kept safe and secure
What is the impact of legislation on businesses?
-Regulates business operations: Legislation covers areas like employment, health and safety, environmental protection, and consumer rights
-Promotes fairness and ethics: Ensures fair treatment of employees and customers, improving reputation and customer loyalty
-Compliance costs: Businesses may face higher costs for health and safety measures, wages, or adopting sustainable practices
-Legal penalties: Non-compliance can result in fines, legal action, or reputational damage
-Reduced flexibility: Some legislation may limit business practices, reducing the ability to quickly adapt
-Long-term benefits: Proper adherence can attract investment, create a stable business environment, and provide competitive advantages
What are the advantages of environmental awareness?
-improved business and brand reputation – environmental friendliness can be a highly effective marketing tool
-recruitment of employees who commit themselves to ethical company objectives
-greater customer loyalty from growing number of ethical consumers
What has been the role of government?
-The Climate Change Levy – this is a tax on energy use by non-domestic users. The tax is designed to provide an incentive to reduce energy consumption.
-The Landfill Tax – this was the UKs first environmental tax (1996), and is a charge on waste going to landfills. Landfill sites in the UK are almost full. Trying to open new ones would meet with fierce opposition.
-The Environment Agency is the government body that monitors and controls pollution. It was set up in 1995 (Environment Act)and it has had a significant role in helping to reduce emissions into the air, cleaning up our rivers and generally ensuring that UK businesses comply with the numerous pieces of legislation introduced by the EU and UK Government.
How do pressure groups fight their case?
-Lobbying is now accepted as a one of the most effective ways for pressure groups achieving their set objectives. Lobbying involves meeting with, and discussing issues and concerns with decision makers such as government ministers MPs and senior management in large companies.
-Direct action against businesses is becoming more popular. There have been several examples in recent years of businesses being forced to make policy reversals as a result of pressure group action.
-To gain as much publicity as possible – the gaining of positive media attention is all-important. The interest of the media often raises public awareness of the issues and can bring the public onto the pressure group’s side.
-Legal action is another alternative – pressure groups often fight their case through the courts, questioning the legality of proposed actions.
Why do we trade?
Trade is essential for countries and businesses as it allows them to access resources they do not have or cannot produce efficiently. Through specialization and comparative advantage, nations can focus on producing what they do best and trade for goods they are less efficient at making. This increases the variety of goods and services available, boosts economic growth, and creates employment opportunities. Trade also encourages innovation, facilitates the transfer of technology and knowledge, and helps businesses achieve economies of scale by accessing larger international markets. Additionally, it promotes global cooperation, fostering better relations between countries and reducing the likelihood of conflict. Overall, trade drives prosperity by enhancing efficiency and creating opportunities for growth.
What are the key factors behind the real reasons of trade?
-Consumer expectations – People now see what consumers in other countries have and want it for themselves. This is particularly the case in developing nations where wage levels are increasing
-Efforts of the World Trade Organisation to remove barriers to trade
-Technological changes such as the Internet and satellite communication systems
-The falling costs of transporting goods and the increased use of containerisation
-Cross-border deregulation – Trading blocs create an international trading community making trading across borders easier, e.g. European Union (EU) and the North American Free Trade Agreement (NAFTA)
What is free trade?
Free trade means international trade conducted without the existence of barriers to trade, such as tariffs and quotas.
What is free trade area?
A free trade area is one where there are no tariffs or
taxes or quotas on goods and/or services from one
country entering another. The members of a free trade area do not have a common external tariff on goods entering the area
What is a single market?
A single market is like a free trade area in that there are
no tariffs, quotas or taxes on trade but also where there
is free movement of goods, services, capital and people,
and a common external tariff on goods entering the single
market
What are the advantages of the expansion of free
trade?
-Allows economies of scale to occur, reducing costs and increasing productive efficiency
-Increases choice for consumers
-Increases competition, improving quality and reducing prices
-Increases chances of transfer of technology and other skills, helping with development
-Trading with other countries increases political stability
-Encourages innovation – lack of free trade often leads to domestic markets being dominated by a few businesses who avoid competition themselves. Competition provides a powerful incentive to innovate
-Leads to dilution of monopoly power in domestic markets and reduces potential for exploiting customers
For developing countries:
-Brings employment and higher real wages
-Encourages inward investment and the move to manufacturing employment from agriculture. This, in turn,
leads to up-skilling of the workforce and the growth of local supplier businesses
What is protectionism?
Protectionism is an economic policy of restraining trade between countries through the imposition of barriers to
trade, such as tariffs or quotas. In spite of all the advantages that free trade between nations offers, some countries actively pursue a policy of protectionism for a variety of reasons.
What are the reasons why protectionism exists?
-To protect domestic industries
-To protect domestic employment
-To prevent dumping
What is meant by protecting domestic industries?
Industries just starting up (infant industries) may face much higher costs than foreign competitors. A new low-volume domestic producer will find it impossible to compete on price against an
established foreign high-volume producer. Only by protecting the new industry as it grows and develops can it compete in the future.
However, industries protected by trade barriers lack the competitive pressure to become efficient. Specific subsidies, training grants and tax concessions are likely to be better ways of creating new industries
What is meant by protecting domestic employment?
Preventing those imports which consumers are likely to purchase can create, or at least, preserve jobs. However, consumers are likely to have less choice and pay higher prices. Foreign countries could retaliate by imposing trade restrictions on exports.
What is meant by preventing dumping?
This is the practice of selling goods at less than cost price by foreign producers in another country’s domestic market. A foreign producer may deliberately price at a loss to drive domestic producers out of
business. Once they have achieved this it can raise prices and enjoy monopoly profits. However, preventing dumping stops consumers from being able to gain from buying cheaper foreign good
What are the methods of protectionism?
-Tariffs
-Quotas
-Voluntary export restraint (VER)
-Non-competitive purchasing by governments
-Embargos
What are Tariffs?
These are a tax on imported goods and are sometimes referred to as customs duties. They can be used by a government to raise revenue to finance expenditure. However, most often they are used in a
deliberate attempt to restrict imports. By imposing a tax on a good, it is likely that the final price to the consumer will rise. A rise in the price of the good will lead to a fall in demand and the volume of imports will fall. A tariff should therefore help domestic producers as some consumers will switch consumption from the more expensive imported goods to domestically produced substitutes
What are Quotas?
A quota is a physical limit on the quantity of a good imported. This will increase the share of the market available for domestic producers. It will also raise the price of the protected product.
What are Voluntary export restraint (VER)?
This is a type of quota put in place by exporters. VERs are often created because the exporting countries would prefer to impose their own restrictions rather than risk sustaining worse terms from tariffs or quotas.
What are Non-competitive purchasing by governments?
This involves a government only buying from domestic producers, even if this means paying higher prices.
What are Embargos?
This involves complete or partial prohibition of commerce and trade with a particular country in order to isolate it.
What are the possible advantages to businesses moving overseas?
-Higher earnings – margins in overseas markets may exceed those found at home.
-Spreading of risks – this especially related to fluctuations in demand in the home market caused by the business cycle.
-New potential markets – Saturation of home market may have occurred. A business may have the finance to expand, but be unable to do so because of competition, or because of lack of new customers in the domestic existing market.
-Cashing in on the brand – new markets mean greater return on investment in expansion of a brand identity.
-Benefits of economies of scale – producing larger production runs helps to cut costs.
What are the problems in dealing with international markets?
-Exchange rate factors. Fluctuations can cause lost orders or pressure on pricing and therefore profits.
-Different technological and health and safety standards. These can create extra costs and prevent access to markets.
-Administrative difficulties such as customs paperwork.
-Distribution problems. Who is going to wholesale or retail the goods?
Factors that could challenge business entry into new international markets that are different to their home / domestic market?
Economic:
-change rate fluctuations
-different levels of income
-economic uncertainty.
Cultural / Social:
-language barriers
-unknown purchasing habits
-different social structures
-different tastes, wants, expectations.
Technological:
-different standards and systems
-product adaption required.
Legal:
-different regulations
-legal standards vary
-high levels of bureaucracy.
Competition and marketing:
-established competition
-advertising needed to raise awareness
-distribution network needs to be established
What is globalisation?
Globalisation is the process that enables product, financial and investment markets to operate across the globe. The interconnection of business throughout the world has grown massively in the last 60 years
What is globalisation a result of?
-The deregulation of markets
-Political changes
-The removal of barriers to trade
-The lowering of transportation costs
-Improved communication systems.
What are the 5 factors that have contributed to globalisation?
-communication technologies
-liberalisation of trade (trade barriers)
-Internet
-cost of transportation
-consumer tastes
How have communication technologies contributed towards globalisation?
-The development of satellite communication, mobile networks, and digital platforms has made real-time communication possible worldwide
-Telecommunications: The introduction of mobile phones, video conferencing, and instant messaging allows businesses to operate globally with ease
-Digitalisation: Cloud computing and automation have enabled multinational corporations (MNCs) to coordinate operations across different time zones efficiently
How has liberation of trade communication technologies contributed towards globalisation?
-The removal or reduction of trade barriers such as tariffs, quotas, and import restrictions has facilitated international trade
-Free Trade Agreements (FTAs): Organisations like the World Trade Organization (WTO) and regional trade blocs (e.g., the European Union, NAFTA) have promoted free trade by eliminating restrictions
-Foreign Direct Investment (FDI): Countries have attracted investment from multinational companies by relaxing regulations and providing incentives like tax breaks
How has the internet contributed towards globalisation?
-E-commerce Growth: Companies such as Amazon, Alibaba, and eBay enable consumers to purchase goods from anywhere in the world.
-Global Workforce: The internet allows for remote working and outsourcing of services to different countries, benefiting both developed and developing economies
How has the cost of transportation contributed towards globalisation?
-Reductions in transportation costs have made it cheaper and more efficient to move goods, services, and people globally
-Containerisation: The standardisation of shipping containers has improved efficiency and reduced costs in global trade
-Air Freight & Low-Cost Airlines: Increased competition and improved fuel efficiency have made international travel and transport more affordable
-Infrastructure Developments: Investments in high-speed rail, modern ports, and highways have facilitated faster and cheaper transportation
How have consumer tastes contributed towards globalisation?
-Global consumer culture has emerged due to increased exposure to international brands, lifestyles, and trends.
-Brand Globalisation: Companies like McDonald’s, Nike, and Apple have standardised products to cater to global markets
-Media and Advertising: Social media and streaming platforms promote a shared global culture, influencing consumer behaviour worldwide
-Rise of Middle-Class Consumers: Economic development in emerging markets has created new demand for global products and services
What are the opportunities of globalisation on businesses?
-Access to New Markets: Companies can expand operations internationally, increasing sales and revenue
-Economies of Scale: Operating in multiple countries allows businesses to reduce production costs by increasing output
-Outsourcing and Offshoring: Lower labour and manufacturing costs in developing countries enable businesses to maximise profits
-Mergers and Acquisitions: Globalisation has encouraged partnerships between firms, leading to stronger market positions
What are the threats of globalisation on the businesses?
-Entry of Multinational Corporations (MNCs): Companies now face competition from international firms that operate in multiple markets
-Price Pressures: Global competition forces businesses to reduce costs, improve efficiency, and enhance product quality
Innovation and Differentiation: Businesses must innovate continuously to stay ahead, leading to improvements in technology and product development
What are the effects of globalisation on stakeholders?
Employees
✅ Job Creation: Global expansion leads to more employment opportunities in different countries.
❌ Job Losses: Automation and outsourcing may result in redundancies, especially in developed nations.
❌ Wage Pressures: Increased global competition can lead to downward pressure on wages in some industries.
Consumers
✅ Greater Choice: Consumers benefit from a wider range of products and services.
✅ Lower Prices: Increased competition leads to lower costs and better affordability.
❌ Standardisation: Some global brands may reduce cultural diversity in consumer products.
Suppliers
✅ Larger Markets: Suppliers benefit from international demand and long-term contracts.
❌ Price Pressure: Big corporations may negotiate lower prices, squeezing smaller suppliers.
Governments
✅ Economic Growth: Global businesses contribute to GDP growth, employment, and tax revenues.
❌ Tax Avoidance: Some multinational corporations use tax havens to reduce tax payments.
Local Communities
✅ Investment in Infrastructure: Foreign businesses may improve transport, communication, and utilities.
❌ Environmental Concerns: Globalisation can lead to pollution, deforestation, and overuse of natural resources.
What are the developing strategies in the global market?
-External growth
-Global branding
-Identifying target markets
-Gloacalisation
How is external growth a strategy used to achieve global growth?
Merging with or acquiring a foreign business is a common strategy for external growth, usually involving the full purchase of a target company. This provides immediate market access, with the option to rebrand or retain the original name (e.g., Santander acquiring Abbey Bank, Walmart acquiring ASDA). A key challenge is deciding how much of the parent company’s practices to implement, as seen with Walmart’s mixed success in introducing greeters in the UK and failure in Germany. This form of horizontal integration requires significant investment and thorough research. While it can help businesses expand when domestic markets are saturated, it carries high risks.
How is global branding used to achieve global growth?
Businesses that have established a strong brand identity in their domestic market are sometimes able to introduce
their product or service into other countries based on the recognition of their brand in other parts the world. Strong brand identity in a domestic market can help businesses expand globally, as seen with McDonald’s, which has successfully entered markets worldwide through franchising and direct ownership. However, even global brands must continuously invest in advertising and promotional campaigns to maintain their presence. Social media plays a crucial role in modern branding, with platforms like Twitter and Google providing strategic advertising opportunities. Global brand managers have adapted their marketing strategies to leverage these digital platforms for maximum reach and engagement.
How is identifying target markets used to achieve global branding?
Targeting specific market segments with product adaptations and focused advertising is crucial for business success and global expansion. New product launches rarely target the mass market but instead focus on niche audiences. For example, Kia entered the UK market by appealing to cost-conscious buyers, while Toyota targeted younger consumers in the U.S. in the 1960s. Product use can also vary by market, such as Marmite being a spread in the UK but a cooking ingredient in India. In-depth market research is essential for identifying target segments, though expensive and not always successful, but failing to conduct it increases business risks.
How is glocalisation used to achieve global branding?
Many businesses use a common global marketing strategy, but its inflexibility has led to the rise of glocalisation—adapting products to local tastes while maintaining a global brand. McDonald’s exemplifies this by keeping its core menu worldwide but offering local variations, such as the Chicken Katsu Burger in Japan and McCurrywurst in Germany. This market-oriented approach boosts sales by catering to regional preferences. While global branding remains crucial, businesses must continuously invest in market research to stay competitive, as failing to adapt to consumer preferences can lead to reduced success in foreign markets.
What is a multinational company?
Multinationals are businesses operating in a number of countries, whether extracting resources, manufacturing, retailing or a combination of these activities. Successful British multinationals include BP, HSBC, Tesco, and Vodafone. There is a large number of foreign-owned multinationals manufacturing in the UK, including Toyota, Ford, LG, Sony and Panasonic. Many more are operating in finance and retailing. Multinationals have, in many ways, started to dominate the global economy. Many of the biggest have a level of turnover larger than the GDP of some medium sized countries. This means that they have a huge amount of power and influence.
What are the advantages of a multinational in the UK?
-Provide employment and create better living standards
-Investment leads to infrastructure development
-Pay taxes to the government
-Introduce new technology and working methods
-Increased customer choice
-Increased growth in the UK economy – many businesses from supplying multinationals in their locality
What are the disadvantages of a multinational in the UK?
-Multinational companies can severely impact local industries because they increase competition in the economy. They can cause both small and large British businesses to go out of the business, leading to increased unemployment.
-Multinationals have been accused of destroying local culture. Having recognisable ‘superbrands’ will inevitably lead to a loss of localised products and a shift in habits.
-They may have negative environmental impacts, such as pollution, noise, congestion and destruction
of the environment.
Who are the winners from globalisation?
-Consumers who have greater choice and much cheaper goods. Increased competition also improves quality.
-Developing countries which increase their wealth by producing goods for export. Most recently, China and India have been the big
winners. Other countries that have benefited include Brazil, South Korea and Taiwan.
-Developed (Western) economies have experienced low inflation because of the falling prices of imports (the so-called China effect).
-Businesses who trade internationally
How do businesses who trade internationally benefit from this?
-They can reduce their costs and increase profits by producing in low-cost countries.
-They have a greater spread of risk. The impact of the decline in one market can be lessened by continued trade in other markets.
-Massive economies of scale occur. Selling to a number of countries increases the scale of production; average costs fall, making them more competitive.
-New markets bring new sales opportunities. By selling in new markets sales can increase quickly: this has been especially important when the home market is saturated.
-Opportunities of partnerships with overseas businesses. For example, within the airline industry British Airways (BA) has relationships with American, Australian and Far Eastern airlines. This improves the service that they are able to offer to customers.
-The opportunities available for employees of developing countries are now far greater. Skilled and educated workers can now compete in a global marketplace for high-paying positions.
Who are the losers from globalisation?
-Unskilled workers in western economies who have found their real wages falling or their jobs being ‘relocated’ to low-cost economies.
-Previously viable businesses who have been outcompeted by low-cost competition from overseas.
-Workers in developing countries who have been exploited, working excessively long hours for very low wages in unacceptable conditions.
-The environment where the excessive development of land has led to deforestation and flooding. The huge
increase in the transportation of goods contributes to global warming.
What is the EU?
The European Union (EU) is a political and economic grouping that currently has 28 member countries. These countries have given up part of their sovereignty in exchange for political, business, economic and monetary membership of the world’s largest free trade area. This loss of sovereignty means that the EU (through the Commission, Parliament and Council of Ministers) sets many laws and regulations that control large parts of business activity, economic policies and trade throughout the European Union.
What would there be in the single European market?
-Free trade in terms of goods and services and factors of production - land, labour and capital.
-Common technical standards (such as metric units and safety), harmonisation of taxes (such as VAT), a reduction in the number of customs posts and the ending of duty-free sales.
-A common external tariff on imports of goods and services from outside (that is, countries wishing to sell goods to any of the EU countries would have to pay an import tax, which would be the same amount for any EU country).
* Common policies on industrial social affairs, defence and health.
* A single European currency (the euro).
What are the main features of the single market?
-No barriers to trade between member states.
This means no quotas (limits on number, value or quantities) on imports and exports.
-No tariffs (taxes on imports and exports) on goods and services traded within the single market.
-Free transfer of resources from one country to another.
These resources include capital and labour.
-Consistent standards from one country to another (a good, service or professional qualification that is valid for sale or for use in one member state, is free to be sold or used in all member states) .
-Common external tariff on imports into the EU.
What are the advantages of the single market for businesses?
-Increased levels of demand results from access to a larger marketplace.
-Lower costs through increased economies of scale.
Larger markets results in larger scale production, lowering average costs of output.
-Freeing of capital markets. Businesses will be able to access the best finance and capital-raising deals throughout Europe.
-Greater employer access to labour markets – workers from all member states are potential employees.
-Growing wealth in poorer parts of the single market could drive future demand.
-Single market legislation has deregulated markets, increasing opportunities for competitive businesses to enter these markets.
What are the advantages of the single market for consumers and workers?
-Increased wealth as trade and competition increases.
Lower prices means higher ‘real income’, and increased economic activity leads to more employment.
-Increased consumer choice. There is access to all manufacturers and service providers. Why not take out a mortgage or loan with a German bank if the interest rates offered are lower?
-Greater employment opportunities.
For those with ‘marketable skills’ – employment anywhere in Europe is available to anyone living in one of the 28 member states
-EU competition law has increased choice and forced down prices.
Why is the single market not yet complete?
-Protection of industries for political or economic reasons. Protectionism is still being practised throughout Europe. Subsidies are paid by governments to uneconomic and non-competitive industries.
-Problems with harmonisation of standards. Harmonisation means the bringing together of different standards that exist within Europe. This is a difficult and complex task, made more so by countries fighting to protect their national interests.
-Cost implications. For many industries, there are high costs to be met in trying to achieve the harmonised standards set by Europe.
What is the single euro currency?
The single currency, known as the euro (€), came into existence on 1 January 1999. Initially, the € existed in tandem with the currencies of the member states (this means that member currencies were still being used for everyday transactions and purchases, but commercial goods and services could be priced in euros). In Jan 2001, the euro was issued for everyday use by consumers in member states and for a while each country had two currencies (its own and the euro). As soon as people got used to using the new currency, the euro (€) fully replaced member currencies; after six months it was used for all forms of exchange
What is the Eurozone?
Those countries that adopted the euro as their currency are collectively known as the Eurozone. This means, for
example, that a French business can pay for supplies from any Eurozone country without having to exchange any
currency to do so, saving both time and money
Disadvantages to the UK not entering the Eurozone?
-Every time a UK business wishes to change £s into euros it has to pay commission to a bank. Its competitors within the Eurozone do not have this additional cost and therefore have a cost advantage over their UK competitors.
-When exchange rates fluctuate, there is always an element of risk involved for businesses. The uncertainty created means that UK businesses could lose out if the exchange rate fluctuated and they had to pay more for their supplies than originally anticipated. Eurozone countries dealing with each other have no such uncertainty
Drawbacks to the UK on the expansion of the EU?
-Greater competition is likely to appear in some industries, such as tourism, as holidays in some of the new member states are cheaper than holidays in the UK.
-The UK’s agricultural industry may be threatened by a surge of cheap imports from the new member states – the productive
potential of Poland, for example, is extremely large.
- Jobs may be lost in the UK economy where labour is relatively expensive as the competition from the east increases.
-There are even more languages that need to be taken into account.
-There are more currencies to deal with as the newly joined countries do not adopt the euro immediately.
-There are greater distances to transport goods as the countries likely to join the EU are in Eastern Europe.
-UK businesses are under pressure to develop strategies to sell their products in 27 diverse countries.
Benefits on UK businesses of not being a member of the EU?
-As the UK would not be tied to EU trade rules this allows the UK government to set up new trade deals with other trading blocs or countries which may be more beneficial to UK businesses.
-The pound (£) is weaker due to business uncertainty therefore goods bought from the UK in pounds seem relatively cheap to foreign markets. As a result, this is likely to benefit businesses in the UK focused on exporting.
-As the UK will be in a position to impose tariffs and quotas from any trading nation, rather than operating to EU regulations, this may benefit UK businesses by restricting or increasing the price of what may otherwise be cheap imports. This is likely to improve the position of UK goods within the market.
Drawbacks on UK businesses of not being a member of the EU?
-However, tariffs and quotas may be imposed on UK goods being exported to the EU where free trade would have previously been in place. This can reduce demand for UK goods and as a result lead to a
reduction in revenue for UK businesses.
-Reduction in available labour can also be a problem for UK industries, such as hospitality, which rely on a large quantity of unskilled labour. Whereas these staff may have previously been taken up by an immigrating population from the EU, the removal of free movement of labour between the EU and UK would cause a staff shortage in such industries. This could result in either a reduction in the quality of work being carried out or an increase in the cost of employing staff, as higher wages need to be paid in order to attract UK workers with the same skills to these positions.
-No free movement of capital may be an issue for UK businesses. As EU businesses were previously allowed to invest in UK businesses without penalty, this may not necessarily be the case after Brexit. This may reduce investment in the UK and as a result reduce the ability to carry out research and development. If this leaves UK business in a weaker strategic position this could become a long-term disadvantage for UK businesses.
Implications of the UK not being apart of the Eurozone?
-It is more difficult trading with EU countries as currencies have to be exchanged, which costs money in commission.
-It makes planning difficult for companies exporting and importing to the EU as the exchange rates fluctuate on a daily basis.
-Non-EU companies, such as Toyota and Nissan, have warned that they will move to another country that is in the Eurozone if the UK does not join the Euro.
-European businesses are less likely to deal with UK businesses due to transaction costs and exchange rate fluctuations.
-Prices are not as transparent as they have to be converted from sterling to Euros, so prices can be higher in the UK than in Eurozone countries.
-UK interest rates are set by the Bank of England not the European Central Bank – they reflect the UK’s economy and not that of all of the EU.
-Businesses can benefit from a fluctuating exchange rate – a strong pound means imports are cheaper.
-The Euro may become the working currency of businesses in the UK despite us not being members – many large retailers and banks already quote prices in sterling and Euros. UK businesses would gain the advantages of being Eurozone members without actually joining.
Implications for UK businesses if the UK were to join the Eurozone?
-There would be no need to exchange money when dealing with EU countries – exporting and importing would be made easier and cheaper.
-Businesses exporting to or importing from EU countries would find planning much easier as they would not have to take into account exchange rate fluctuations.
-European businesses are more likely to trade with UK companies as there are no currency conversions necessary.
-There would be more competition as there is price transparency throughout the Eurozone – prices would have to be cheaper.
-Interest rates would be set by the European Central Bank –problems in one country could affect the economies of all the other countries.
-It has been estimated that it would cost £36bn to change over from using sterling to the Euro (converting machines taking money, cash tills, changing price lists and so on) – this is nearly the amount spent on education in the UK in a year.
-Businesses would no longer benefit from favourable changes in currency (for example, a strong pound favours importers).
