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ES194 - EBM > External Analysis > Flashcards

External Analysis Flashcards

1
Q

What does PEST stand for?

A

Political, Economic, Social, Technical

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2
Q

What are political aspects a firm needs to monitor?

A
  • Influence of current/future ruling political party
  • Potential for the Government as a customer/partner
  • Influence of different levels of Government
  • Influence of political lobby groups
  • Impact of legislation
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3
Q

What are Public Private Partnerships (PPP)?

A
  • A term used to cover a wide range of activities in which the public and private sectors work together - e.g. Private Finance Initiative (PFI)
  • Government seeks to move risk to the private sector
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4
Q

What are the different levels of government influence?

A
  • Central Government
  • Regional Government
  • Local Government
  • European Union (EU) Government
  • Supranational Government
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5
Q

What are the four elements of national/central government?

A

The Legislature (Parliament)
The Executive (Cabinet and Ministers)
Implementation of policy (Civil Service)
Judiciary

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6
Q

What are codes of conduct?

A
  • A voluntary agreement
  • Can help raise standards in an industry sector
  • More flexible than legislation
  • Can be quicker and cheaper than recourse to the law
  • Threat of new law if code breaks down
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7
Q

What are the two sources of UK laws?

A 
Common law: 
- Develops on the basis of judgements in the courts.
- Previous cases set precedent.
Statute law:
- Passed by Parliament
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8
Q

What are the two types of UK laws?

A

Civil law:
- One party can bring action for loss against another part
Criminal law:
- Government brings action against a party who is causing harm to society more generally

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9
Q

In what ways does the legal environment affect businesses?

A
  • Contractual relationships with customers / suppliers. overtime more rights to the consumer, more duties to the seller. Litigious society.
  • Owes duty of care to members of the public. Have to make sure advertisements do not cause offence
  • Increasingly complex employment legislation – unequal power between employer and employee. Law is trying to increase power of employee, but also puts up costs for global businesses and can make country unattractive, hence EU single market, single law
  • The laws of copyright and patent protect a firm’s investment in research – good for firms as can protect firm’s investment
  • The legal environment influences the production possibilities of an enterprise and hence the products that can be offered to consumers
    – directly on product design normally related to safety and indirectly through pollution in production processes, banning of cfcs.
  • Finally have touched in discussions on cartels etc.
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10
Q

What does the law of negligence relate to?

A

Duty of care to members of the public

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11
Q

What is dumping?

A

Where a company sells a product in a competitive market at a loss. Though the company loses money for each sale, the company hopes to force other competitors out of the market, after which the company would be free to raise prices for a greater profit.

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12
Q

What is price fixing?

A

where companies collude to set prices, effectively dismantling the free market

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13
Q

Two companies can make an agreement to stay out of each other’s way and reduce competition in the agreed-upon territories, what is this known as?

A

Dividing territories

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14
Q

What is limit pricing?

A

Where the price is set by a monopolist at a level intended to discourage entry into a market

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15
Q

What is tying?

A

Where products that aren’t naturally related must be purchased together

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16
Q

What is exclusive dealing?

A

Where a retailer or wholesaler is obliged by contract to only purchase from the contracted supplier

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17
Q

What can influence how attractive it is for a firm to do business in a particular country?

A
  • The stability and type of the political environment
  • Different ruling parties: In the UK the Conservative party has traditionally had policies more favourable to private business, whilst the Labour party has invested more in health and education.
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18
Q

What are the three sectors of economic structure?

A
  • Primary (Farming, mining etc)
  • Secondary (Manufacturing)
  • Services, growing sector
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19
Q

What is used to measure the relate size of the different sectors in an economy?

A
  • Share of Gross Domestic Product (GDP)

- Proportion of labour force employed

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20
Q

What does GDP measure?

A

The value of output produced within the domestic boundaries of the UK. Includes output of foreign owned firms that are located in the UK.

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21
Q

What is the difference between GDP and GNP?

A

Gross National Product (GNP) measures the final value of output or expenditure by UK owned factors of production whether they are located in the UK or overseas. GDP just UK

22
Q

What is FDI?

A

Foreign direct investment

23
Q

What is the circular flow of income?

A
  • Simple model of a closed economy
  • Firms and households are interdependent (e.g household income from providing labour to UK firms)
  • Withdrawals slow down the flow (savings, taxation, imports)
    Injections speed up the flow (exports, capital purchases, government spending
24
Q

The multiplier effect

A

The effect an event has on the economy, creates an initial wave, then waves of decreasing strength (ripple effect). E.g. new factory or office building creates job for construction. The workers spend money in local shops; food. Living and working local they have more disposable income so upgrade cars, etc.

25
Q

What is the accelerator effect?

A
  • A small change in consumer demand can lead to a big change in demand for industrial goods and services
  • E.g. a small reduction in air passengers produces a big reduction in new aircraft orders and hence engines
26
Q

What are the four stages of the business/economic cycle?

A

Economic:

  • Boom
  • Slowdown
  • Recession
  • Recovery
27
Q

When does an economic boom occur?

A

When national output is rising strongly at a rate faster than the trend rate of growth (or long-term growth rate) of about 2.75% per year.

28
Q

When does an economic slowdown occur?

A

When the rate of growth decelerates - but national output is still rising. If the economy continues to grow (albeit at a slower rate) without falling into outright recession, this is known as a soft-landing.

29
Q

When does an economic recession occur?

A

When there is a fall in the level of real national output (i.e. a period when the rate of economic growth is negative for 2 consecutive quarters). An economic slump is a prolonged and deep recession leading to a significant fall in output and average living standards.

30
Q

When does an economic recovery occur?

A

when real national output picks up from the trough reached at the low point of the recession. The pace of recovery depends in part on how quickly aggregate demand starts to rise after the economic downturn. And, the extent to which producers ra::ise output and rebuild their stock levels in anticipation of a rise in demand.

31
Q

Characteristics of an economic boom:

A
  • Rising employment and real wages
  • High demand for imported goods & services
  • Government tax revenues will be rising quickly
  • Company profits and investment increase
  • Increased utilisation rate of existing resources
  • Danger of demand-pull and cost-push inflation if the economy overheats
32
Q

Characteristics of an economic recession:

A
  • Declining aggregate demand for UK output
  • Contracting employment / rising unemployment
  • Sharp fall in business confidence & profits and a decrease in capital investment spending
  • De-stocking and heavy price discounting
  • Reduced inflationary pressure and falling demand for imports
  • Increased government borrowing, lower interest rates from central bank
33
Q

What are the implications of the economic cycle for UK firms?

A
  • Recovery and boom periods generally create more disposable income which consumers spend on more goods and services.
  • Differentiated products and services would expect to have higher demand in a recovery or boom but it depends on the Price Elasticity.
  • The opposite tends be true for low cost products and services, with more demand in slowdowns and recessions.
  • If the UK cycle is slowing down or in recession can products and services be exported to countries experiencing recovery or booms?
34
Q

Fiscal Policy

A

Concentrates on stimulating the economy through changes in government income and expenditure. They work by the government injecting income into firms and households or by withdrawing it?

35
Q

Monetary Policy

A

Influences circular flow of income by changes in the supply of money & interest rates

36
Q

What does the central bank (Bank of England) do as part of its role in the management of the national economy?

A
  • Regulates the volume of currency in circulation within the economy
  • Intervenes to influence the exchange rate for sterling.
  • Bank of England has a supervisory role over private banks
  • European Central Bank is the central bank for EU
37
Q

What is Quantitative easing?

A

An extreme form of monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply

38
Q

When is quantitative easing considered?

A

When short-term interest rates are at or approaching zero, and does not involve the printing of new banknotes.

39
Q

What are the drawbacks of quantitative easing?

A
  • If central banks increase the money supply too quickly, it can cause inflation. This happens when there is increased money but only a fixed amount of goods available for sale when the money supply increases.
  • A central bank is an independent organization and they can’t force the banks to lend this money to individuals and businesses. If this money does not end up in the hands of consumers, the lending to the banks will not impact the money supply, and therefore will be ineffective at stimulating the economy. - Can cause a depreciation in the value of the home country’s currency.
40
Q

Inflation means…

A

either:

  • the general level of prices in the economy is rising
  • an increase in money supply
41
Q

What are common measures of inflation?

A

CPI (consumer prices index) and RPI(retail prices index)

42
Q

What causes demand pull inflation?

A

When there is too much money chasing an inadequate supply of goods and services

43
Q

What causes cost-push inflation?

A

Increases in production costs

44
Q

What are the implications of price inflation for UK firms?

A
  • Makes it more difficult for firms to plan & compete as costs rise
  • Increases pressure to improve productivity or reduce profit margins to avoid price increases for customers
45
Q

What are the implications of interest rates for UK firms?

A
  • High rates increase borrowing costs but may be linked to a stronger economy and high sales demand
  • Low rates decrease borrowing costs, encouraging investment, but can be linked to a recession with low demand
  • Overseas competitors maybe able to borrow money at lower interest rates, posing a threat
46
Q

What are the implications of exchange rates for UK firms?

A
  • A high, or strong, £ makes exports more difficult and imports of competitor products cheaper but typically linked to a stronger economy and high sales demand
  • A low, or weak, £ makes exports easier but imports of materials more expensive and can be linked to a recession with low sales
47
Q

What are the three types of unemployment?

A

Frictional Unemployment – related to normal level of ‘job turnover’. Takes time to find a new job.

Structural Unemployment – jobs available but mismatch with skills of the unemployed. Shortage of graduate engineers in UK.

Cyclical Unemployment – not enough jobs available in a recession. Linked to economic cycle.

48
Q

What are the implications of unemployment for UK?

A
  • Low unemployment makes it more difficult & expensive to recruit and puts upward pressure on wages.
  • High unemployment makes it easier to recruit, reduces pressure on wages but may reduce sales levels.
  • Engineering is affected by a skills shortage and structural unemployment.
49
Q

The rise and fall of economic activity level depends on…

A

the dynamic interaction of investment spending, government spending, export revenue, savings, taxation and import expenditure.

50
Q

Give some examples of social factors in PEST

A
  • Changing trends in values, life styles, leisure, health
  • Demographic & population trends
  • Lobby groups, e.g. environmental
  • Education levels
51
Q

What are the effects of social change on business?

A

Many goods and services are no longer considered socially and culturally relevant – e.g. formal clothing, or horses (for personal transport rather than sport/leisure activities)

New opportunities emerge for businesses – e.g. Halal butchers, delivery options arising from internet shopping

Two way effect - businesses and new technology affect social and cultural environment (e.g. microwave oven)

52
Q

What are some effects of cultural changes on aspects of business planning and operations?

A
  • Understanding processes of buyer behaviour
  • Distribution channel decisions are partly a reflection of cultural attitudes
  • Advertising messages do not always translate easily between different cultures
  • Methods of procuring resources can vary between cultures

ES194 - EBM (4 decks)

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