External Influences Flashcards
1
Q
Demand
A
The amount of a good or service that customers are willing and able to buy at any given price
2
Q
Supply
A
The amount of a good or service that sellers are willing and able to sell at any given price
3
Q
Equilibrium price
A
The situation in a market where demand is equal to supply
4
Q
Examples of determinants of demand
A
Wealth, advertising, taste and fashion, demographic changes, government action, the price of substitutes, the price of complements
5
Q
Price
A
The amount customers pay for a product
6
Q
Cost
A
The amount spent by a business through making the product
7
Q
Examples of determinants of supply
A
Price, costs, taxes, subsidies, price of other products
8
Q
When demand increases, price and quantity (1). As supply stays the same, the price has to (2) to avoid a (3)
A
- Increase
- Increase
- Shortage
9
Q
When supply increases, the price (1) and the quantity (2). As the demand stays the same, price has to (3) to avoid (4)
A
- Decreases
- Increases
- Decrease
- Excess supply
10
Q
Price elasticity
A
Price elasticity shows how responsive demand is to a change in price
11
Q
Elastic demand
A
Quantity demanded is sensitive to a change in price
12
Q
Inelastic demand
A
Quantity demanded is insensitive to a change in price
13
Q
Examples of inelastic products
A
Petrol, energy
14
Q
Reasons for inelasticity
A
No substitute, it is a necessity
15
Q
Examples of elastic products
A
Holidays, designer bags
16
Q
Reasons for elasticity
A
Lots of substitutes, luxury products
17
Q
Factors that might make demand for a product inelastic
A
The number of substitutes available
The degree of necessity
Whether the good is subject to habitual consumption
Peak and off-peak demand
18
Q
Excess (surplus)
A
When supply is greater than demand
19
Q
Shortage
A
When supply is less than demand
20
Q
How is equilibrium re-established when there is an excess?
A
The price is lowered
21
Q
How is equilibrium re-established when there is a shortage?
A
The price is increased
22
Q
Competition
A
Rivalry amongst sellers
23
Q
Market
A
Any situation where buyers and sellers are in contact in order to establish price
24
Q
Online market
A
Tangible products that you order and wait for
25
Digital market
Non-tangible products that you download and own instantly
26
Competitive market
A market in which there are a large number of sellers. Businesses in these markets compete mainly on price
27
Monopoly (in theory)
A market dominated by one seller
28
Monopoly (in reality)
The CMA describe a monopoly as any firm with more than 25% of the industry’s sales
29
Features of a monopoly
High prices, low quality, poor service
30
Examples of competitive markets
Farming, currency exchange services
31
Example of a monopoly
Tesco (~28% of the market)
32
Oligopoly
Exists where a market is dominated by a few firms
33
Features of an oligopoly
Products and prices are similar (prices are often high)
Businesses compete in non-price differences
It is sometimes suggested that oligopolistic collude
34
Monopolistic competition
A market structure with many competing firms each of whom supplies a slightly differentiated product
35
Features of monopolistic competition
Fair prices, may compete on non-price differences
36
Examples of oligopolies
Petrol, streaming services, airlines
37
Examples of monopolistic competition
Restaurants, clothes shops, pubs, hairdressers
38
Market size
The collective value of the goods or services that buyers purchase (measured in £)
39
Market growth
The percentage change in the size of the market, measured over a specific period
40
Market share
The percentage of total sales (by value) that a business has in a specified market
41
How might a business try to survive a shrinking market?
Enter another market
Sell more to existing customers
Be aware of customer needs and meet them
Find out why old customers no longer use your products
Use a variety of marketing techniques
Merge with a competitor
42
Barriers to entry
The factors that could prevent a firm from entering and competing in a market
43
Examples of barriers to entry
Large start-up costs
Having the marketing budget to break customer loyalty
The inability to gain economies of scale
The possibility that existing businesses will start a price war
Legal restrictions such as patents
44
Patent
The right to be the only user or producer of a specified product or process (lasts 7 years)
45
Economies of scale
As output increases, unit costs decrease
46
Barriers to exit
The factors that could prevent a firm from leaving a market, even if it wanted to
47
Examples of barriers to exit
The difficulty of selling off capital
High redundancy costs
Contracts with suppliers
Leases with landlords
48
Overheads
Costs that are not directly related to the production of the product (e.g rent)
49
Market power
The ability of a firm to influence or control the terms and conditions on which goods are bought and sold
50
Market dominance
A measure of market share compared to competitors
51
Merger
Where two companies join together to form a new larger business
52
Acquisition / takeover
Where control of another company is achieved by buying a majority or its shares
53
Benefits of external growth for the business
May gain new management with different skills and talents
Will result in an increase in revenue and therefore market share
May be able to meet customer needs more effectively with combination of resources
May experience economies of scale
Spreads the risk if the two firms are in different markets
54
Disadvantages of external growth
May suffer from diseconomies of scale due to size
May take on extra debt that the business could struggle to repay if the strategy isn’t successful
Could result in redundancies
Could result in higher prices
Could result in a dominant business dictating terms and conditions
55
Organic / internal growth
Involves expansion from within a business
56
Examples of organic growth
Opening new stores
Launching new products
Employing more workers
Increasing productive capacity
Investing in new technology
Launching existing products into new markets
Running as a franchise
Lower prices
57
Advantages of organic growth
Less risky than external growth as it tends to be cheaper (less likely to take on debt to fund expansion) and builds on the business’ strengths
Growth can be financed internally
Allows growth at a sensible rate
58
Disadvantages of organic growth
Growth can be slow as shareholders and bank loans have to be repaid, which means it is a problem for shareholders as they want to generate profit
Depends on the growth of the market - it can be difficult to encourage more sales in a market that is mature or shrinking
Hard to increase market share if the business is already a market leader
59
What does CMA stand for?
Competition and Markets Authority
60
What is the CMA’s aim?
To encourage / promote competition for the benefit of consumers
61
What does the CMA do?
Investigates mergers and acquisitions which could restrict competition
Investigates where there may be abuse of dominant positions
Brings criminal proceedings against individuals who commit the cartel offence
Enforces legislation to tackle practices that make it difficult for consumers to exercise choice
62
Cartel
When businesses agree to work together rather than compete
63
Examples of cartels
Market sharing = agreeing to divide a market so participants are sheltered from competition
Price fixing = when rival businesses agree what prices they are going to charge
Bid rigging = when rival businesses communicate before lodging their bids and agree amongst themselves who will win and at what price
64
What are sanctions that the CMA can apply?
The business can be fined up to 10% of its global turnover
Customers affected can sue the businesses that were anticompetitive
The individuals can be disqualified from being a company director
The CMA can fine individuals, such as the director, if they fail to provide information following the CMA’s request
65
Why do separate regulators exist?
For former nationalised industries such as gas, electricity, water, railways and telecoms. (They were previously in the public sector)
66
What are impacts of regulation in the UK?
More choice for customers
Better value for customers
More businesses operating within a given market
Better terms for suppliers
Less abuse of dominant positions (I.e refusal to supply)
Lead to fines, prosecution and suspension
67
What does STEEPLE stand for?
Social
Technological
Economical
Environmental
Political
Legal
Ethical
68
What is STEEPLE used for?
To scan the environment and anticipated advantages and threats
69
What is GDP (gross domestic product)?
The total value of output produced in the economy in a year. It measures the size of the economy.
70
Economic growth
The annual percentage change in GDP
71
What can the government do to facilitate growth?
Encourage investment in physical capital, by offering subsidies or lowering taxation
Improve infrastructure
Invest in education
72
What are the impacts of high GDP / growing economy?
People are likely to have high incomes and high standards of living
People are likely to be earning more and spending more
Businesses are likely to be hiring and investing more
73
Standard of living
The amount of goods and services that people are able to buy
74
How can GDP be measured?
Output, expenditure, income
75
What are the limitations of using GDP?
Hidden economy - unpaid work (e.g caring for an elderly relative) isn’t included
Inequality - doesn’t show how income is split across a population (e.g the rich getting richer could be causing a rising GDP)
76
Inflation
Persistent general tendency of prices in the economy to rise (not every item increases in price)
77
Disinflation
When prices have a tendency to increase but at a slower rate
78
Deflation
When prices have a tendency to decrease
79
Why do prices go up?
If the cost of producing and supplying a product increases
If demand increases
80
What does inflation cause?
Demand pull = when demand is greater than supply, businesses must raise prices
Cost push = when costs increase, businesses must increase prices to cover the costs
81
What is used to measure inflation?
CPI (consumer price index)
82
Impacts of high inflation
Inflations makes UK exports uncompetitive
Inflation can reduce investment
Inflation creates uncertainty
83
Exchange rate
The value of one currency in terms of another
84
Import
A transaction involving money leaving the economy
85
Export
A transaction involving money entering the economy
86
Responding to a fluctuating £ in the short term
Do nothing and accept lower mark-up
Cut other costs such as advertising
Employ zero-hours workers
87
Responding to a fluctuating £ in the long term
Increase prices
Change to domestic suppliers
Focus on selling abroad
88
Interest rates
The reward for saving and the cost of borrowing expressed as a percentage of the money saved or borrowed
89
Who sets interest rates?
The Bank of England (the MPC (monetary policy committee))
90
Impacts of low interest rates for businesses
Customers are likely to be spending more -> increase in sales
More likely to take out a loan to fund expansion
Lower loan repayments
91
Impacts of low interest rates for borrowers
Less interest to pay back on loans -> more likely to spend more as they have more disposable income
92
Impacts of low interest rates for savers
Receive a lower reward for saving -> more likely to spend more as they have less incentive to save
93
Impacts of high interest rates for businesses
Customers are likely to be spending less -> decrease in sales
Less likely to take out a loan to fund expansion
Higher loan repayments
94
Impacts of high interest rates for borrowers
More interest to pay back on loans -> more likely to spend less
95
Impacts of high interest rates for savers
Receive a higher reward for saving -> more likely to spend less and save more as they have a higher incentive to save
96
If interest rates are high, will the pound be strong/weak? Why?
Increase in UK interest rates
Higher return on UK savings accounts
‘Hot money flows’ increase due to higher interest rates
Increased demand for the £
Appreciation in the value for the £
97
If interest rates are low, will the pound be strong/weak? Why?
Decrease in UK interest rates
Lower returns on UK savings accounts
‘Hot money flows’ decrease
Decreased demand for the £
Depreciation in the value for the £
98
Unemployment
A situation in which people who are willing and able to find work are not able to find employment
99
Why does the government want a low level of unemployment?
Unemployment is a waste of human resources
Unemployment means that social problems and benefits have to be paid for, which could be spent in other areas such as healthcare and education
A low level of unemployment leads to more tax revenue and less welfare payments being paid out
Unemployment is bad for the individual and could lead to drug/alcohol problems which will not help the individual get back into work
100
Balance of trade
The difference between the value of exports and imports
101
Trade surplus
When exports exceed imports
102
Trade deficit
When imports exceed exports
103
Balance of trade equation
Exports - imports
104
How can exports be increased and imports be decreased?
Trade barriers
Good quality / unique products
Low / stable inflation
Weak pound
Policies to encourage start-ups (especially with export potential)
Promote passport to export programme
Subsidies (e.g to farmers)
105
Indirect taxes
Taxes in expenditure / spending. They are paid to tax authorities, not by the consumer, but indirectly by the suppliers of the goods/services
106
Direct taxes
Taxes on income and profits, paid directly by the bearer to the tax authorities
107
Income tax
A tax taken out of a person’s income. In the UK, income tax (i.e those earning more pay earn a higher proportion of their income tax)
108
National insurance
This is taken as a contribution towards the state pension and treatment under the NHS (employer also contributes)
109
VAT (value added tax)
It is charged on the sale of goods and services in the UK.
It is a type if ‘consumption tax’ because it is charged on items that people buy.
It is an ‘indirect tax’ because it is collected by businesses on behalf of the government.
110
How is VAT collected via customers?
Businesses charge their customers VAT, but must then pay this to HMRC when they file their VAT return
111
How does a business benefit from being VAT registered?
They can reclaim the VAT from the HMRC so their selling price can remain competitive
They can claim VAT on certain items purchased prior to the date of VAT registration
If they charge more for their goods and services, they can see a higher cash flow
If your input tax (tax you pay on goods and services) is higher than your output tax (tax you charge (VAT)), you can claim it back through the HMRC
112
What is the standard rate of VAT?
Standard rate = 20%
Reduced rate = 5% (charged on sanitary products, energy saving measures and children’s car seats)
Zero rate = 0% (applied to most food, books, newspapers and children’s clothes)
Some products are exempt from VAT
113
What are tax on products referred to as?
Duties and excises
114
Corporation tax
A tax on the profits made by companies (eg LTDs and PLCs, not sole traders and partnerships)
115
Stamp duty
A tax paid when you buy a property
116
Are these taxes direct or indirect?
1. VAT
2. National insurance
3. Corporation tax
4. Tax on products
5. Income tax
6. Stamp duty
1. Indirect
2. Direct
3. Direct
4. Indirect
5. Direct
6. Indirect
117
What is the purpose of taxation?
- taxation raises large amounts of revenue for the government to spend on public services such as education and healthcare (government spending accounts for 40% of GDP)
- to control economic activity (ie through stamp duty to control house prices)
- to influence expenditure on certain items
118
Subsidy
A sum of money granted by the government to help an industry or business to increase supply of particular goods
119
What is a subsidy also known as?
A grant
120
Benefits of subsidies
Lowering prices and controlling inflation
Preventing the long term decline of industries
Provides a greater supply of goods
Reduces costs and therefore the price of products
More firms will enter the market
Moderate supply and demand
Encourage the consumption of goods with positive externalities
To boost demand during recessions
Helps business survival during the start up period
121
Monetary policy
Manipulation of the level of demand in the economy using the rate of interest.
122
Who controls the monetary policy?
The Monetary Policy Committee (MPC) in the Bank of England
123
Fiscal policy
Economic policy used to influence the level of spending in an economy. It is conducted through the government through taxation and public spending
124
Multiplier effect
The effect of changes in economic activity in one sector on other sectors.
125
Supply-side policies
Aim to improve the economy’s overall productive capacity
126
The business / economic cycle
The observed pattern of increases and decreases in economic growth (measured by % change in GDP) over time
127
Why are recessions / slumps not bad for all businesses?
Businesses, such as discount supermarkets, that sell inferior goods supply more of them as demand increases.
128
How might a business respond to a recession / slump?
Increase promotion
Cut backs on production
Less stock holding
Redundancies
129
How can demand-side policies be used during a recession / slump?
The MPC can lower interest rates to encourage spending to enter recovery
Fiscal policy -> decrease tax, increase government spending
130
Why might inflation be above target (particularly during a boom)? How can this be controlled? Who can control this?
During a boom, there is higher demand due to higher incomes and more output.
Higher demand causes a rise in inflation (demand pull)
The MPC can raise interest rates to reduce spending to control inflation
131
Explain how a business can use the business cycle to its advantage.
Business premises are cheaper, so businesses buy them to sell later to make a profit or to use.
Demand for inferior goods increases, so businesses supply more of them.
Assets are likely to be cheaper for businesses to buy and use or sell during recovery or boom to make a profit.
Shares are cheaper for businesses to buy during a recession to sell to make a profit during recovery.
Employees are easier to find and cheaper to employ as people need a job during a recession.
132
Computer hardware
Includes the physical parts of a computer
133
Computer software
(Commonly known as programs or apps) consists of all the instructions that tell the hardware how to perform a task
134
Advantages of using computer hardware and software
Systems are usually faster and more efficient
Communication is easier
Costs may be reduced in the long term due to efficiencies
Remote working is possible
Reduces the need for physical storage space
Offers convenience for customers
May offer employees the opportunity to learn new skills
135
Disadvantages of using computer hardware and software
High initial cost
May lead to job losses
It is not always reliable
Staff will need to be trained (cost implication)
The business will need to spend time and money developing processes to keep data safe
May cause demotivating as workers resist change in the workplace
136
Benefits of ethical behaviour
Attract new and better quality employees
Encourage investment (there is less risk investing in a business with a good reputation - likely to have a higher return of investment)
Attract new customers to the business (customers will want to buy from a business that makes them feel good about themselves)
Result in increased sales and profits
137
Disadvantages of ethical trading
Increased costs
Less competitive on price
Could lead to less output (i.e staff can’t work beyond a certain number of hours)
Lower shareholder returns
Difficulty in finding suppliers
138
Demographics
The characteristics of human population groups
139
Examples of demographics
Birth/death rate
Gender split
Size of population
140
Examples of other kinds of demographics
Attitudes
Beliefs
Habits
141
Examples of changing attitudes, beliefs and habits
Social habits (ie eating out more or less)
Changes on employment patterns (ie the increase in part-time working)
The changing roles of women (ie more women being in the workforce)
Education (ie from 2015, young people have been required to stay in some form of education)
The grey pound (ie retired people having a greater wealth through the combination of property, pensions and savings)
Increased flexible working including working from home
142
National minimum wage
The minimum pay per hour workers of school leaving age are entitled to by law and is reviewed yearly by the government. The rate for each year group is different
143
National living wage
A new minimum wage for those aged 23 and over
144
Impacts of not complying with laws related to pay
The fine the business receives
The cost of reimbursement to staff
Legal fees
145
Benefits of complying with minimum wage
Retention of current staff
Many people wanting to work for the business - leading to easier recruitment
146
Consumer rights act
Goods must fit their description
Goods and services must be of satisfactory quality
Goods must be fit for the purpose specified
147
What rights does a customer have within 30 days?
Repair
Exchange
Refund
148
What rights does a customer have after 30 days?
Repair
Exchange
Partial refund
149
How long does a customer have to complain about goods?
Up to 6 years of the product is expected to last that long
150
Impacts of failing to comply with the Consumer Rights Act
May be prone to fines if they’re within reason
Reimbursement (replace/repair/refund)
Poor reputation
Compensation
Wasting time
151
How can a business endeavour to avoid breaching the Consumer Rights Act?
Abide by the rules of the law
Offer staff training for better quality products
Change or check description to ensure accuracy
Quality control/assurance
Testing if it’s fit for purpose
152
Intellectual property
Intangible property that’s the results of creativity (ie a song melody)
153
Trademark
A company can register a trademark for its business name, slogans, logos and other items that essentially brand the product or company / indicate the source of the good
154
Copywright
Legal protection against copying from authors, composers, artists (automatic, doesn’t need to apply)
155
Factors of a trademark
Needs to be registered
Needs to be renewed every 10 years
Needs to be used
It’s an identifier
156
Factors of copywright
Automatic protection
Can last up to 70+ years after death
Doesn’t need to be used
Protects work for being used without authorisation
157
Contract law
Sets out the basic framework of rights and obligations for a contract
158
Contract
A legally binding agreement between two or more parties
159
Purpose of the contract law
To provide a framework so that individuals can freely contract
160
The Weights and Measures Act
Makes it an offence to give ‘short measures’ or an incorrect indication of the amount of a product on sale
161
Purpose of weights and measures act
To ensure that customers get what they expect
162
Data Protection Act
Ensures personal data on groups (eg customers and employees) is stored safely. Any personal information held by a business must be used for lawful purposes, for a limited time.
163
Purpose of the Data Protection Act
To ensure that peoples’ personal information can remain private and used responsibly
164
Health and Safety Act
Aims to protect people from the risk of injury or ill health and provide employees with a safe working environment and to protect them from potential hazards.
165
Smoking in the workplace
In the UK, smoking isn’t allowed in any enclosed workplace, public building or on public transport.
166
Purpose of laws regarding smoking in the workplace
To protect employees and the public from the harmful effects of second-hand smoke.
167
What happens if a business breaks the contract law?
They can be sued for any damage caused
168
What happens if a business breaks the weights and measures act?
The maximum penalty is £400
169
What happens if a business breaks the data protection act?
UK maximum fine is £500,000
170
What happens if a business breaks the health and safety act?
Fines and disqualification
171
What happens if a business breaks laws regarding smoking in the workplace?
Up to £2,500 fine if they don’t stop people smoking in the workplace
Up to £1,000 if they fail to display ‘no smoking’ signs
Workers can be fined up to £200 for smoking in the workplace
172
Planning permission
A law which requires approval from a local authority before construction can take place
173
When is planning permission needed?
If you want to:
-build something new
-make a major change to your building (eg building an extension)
-change the use of your building
174
Why does planning permission exist?
To deter inappropriate developments and to be fair to stakeholders including the local community
175
What happens if a business fails to gain planning permission and their retrospective application fails?
They will be forced to demolish the building at their own cost
176
Anti-money laundering (AML)
Activities financial institutions perform to achieve compliance with legal requirements to actively monitor and report suspicious activities
177
What should financial professionals look out for when complying with AML?
Inconsistencies, discrepancies and suspicious amounts of money
178
What is the purpose of AML?
To make it a legal requirement for financial professionals to report suspicious activity and gain more information on the criminal activities.
179
Consequences of failing to comply with AML
License being revoked
Fines
Damaged reputation
180
Anti bribery act
It is illegal to give or accept bribes
181
The clean air act
Aims to protect people from a number of harmful pollutants that can cause illnesses such as asthma and lung disease.
It controls domestic and industrial emissions by introducing smokeless zones.
182
Impacts of poor air quality
Health issues (increased illnesses, increased death)
Climate change
Economic cost (people not in work and claiming sick pay)
183
The climate change act
Sets out emission reduction targets that the UK must comply with legally
184
Types of environmental problems / pollution that businesses cause
Air pollution (chemicals from factories)
Water pollution (chemicals / oil leaks and plastic)
Land pollution (deforestation)
Fossil fuels
Use of single-use plastics
Visual pollution
Noise pollution
Congestion
185
Why do businesses need to consider the environmental issues caused by the waste from their products?
Avoid boycotts
Investment from shareholders
Morally correct thing to do given scale of contribution
Good PR
First mover advantage
186
Sustainability
Preventing negative impacts from economic systems and production on the earth and its environment
187
How can a business behave in a sustainable manner?
Using video-conferencing for meetings
Recycling schemes
By reducing packaging
By choosing local suppliers / sustainable supplies
By disposing of chemicals in the correct manner
Eliminating processes that create harmful by-products
Water and energy saving measures
By using alternative / renewable sources of energy
Buying products from sustainable suppliers
188
Political factors
The potential political risks and decisions that businesses need to consider
189
European Union
The economic and political union of most European states aimed at reducing trade barriers and harmonising economic policy
190
How many members of the EU are there?
27
191
Examples of countries in the EU
Germany
France
Greece
Italy
Spain
192
4 facts about the EU
1. Countries pay membership dues (% of their GDP)
2. Countries vote on laws
3. Citizens of the countries are EU citizens - they can work and travel freely between the countries
4. The free movement of goods, services, capital and people is allowed as part of the European single market (free trade)
193
What is the difference between the EU and the Eurozone
The Eurozone is a collection of countries that use Euros as their currency (can be in the EU but not in the Eurozone, can be in the Eurozone but not in the EU)
194
Free trade
Trade without tariffs or quotas being imposed when products are traded
195
Single market
A market in which there is a single (ie common) set of laws and regulations relating to the movement of products, people and money. (All businesses have to abide by these)
196
Tariffs
A duty (tax) paid on imports
197
Quota
A limit on the total quantity of a product that can be supplied to a market
198
Why do countries enforce tariffs?
To increase tax revenue
To protect domestic businesses from competition abroad (more expensive to import)
199
Problems with tariffs
Imports are more expensive for customers and businesses
Countries retaliate (making exports more expensive and reducing exports)
If tariffs are put on products, countries will choose to buy elsewhere
200
What has changed since the UK voted to leave the EU in 2016?
Loss of access to the single market
New free trade deal with the EU (tariffs on services, but not on products)
Can create own laws
More control of borders
More paperwork and checks
201
What are the impacts of paperwork and checks on UK importers?
Delays - exporters have to check products and do paperwork
Increased prices for importers from the UK - time consuming for exporters, so they increase prices
Increased costs for UK customers
202
What are the impacts of paperwork and checks on UK exporters?
Paperwork and checks are time consuming
Foreign buyers experience delays with orders
More expensive for UK exporters
Prices increase
Job losses and reducing product range - expensive to check large amounts of products
Potentially moving work in the EU
203
Reasons to stay out of the EU
Domestic trade - no paperwork and checks on domestic trade, so it is more competitive than foreign (EU) imports
Regulations - the UK does not have to follow all EU laws and can make its own
New trade deals - the UK can negotiate better deals with non-EU members (eg lower tariffs), which it couldn’t do when it was in the EU
204
Reasons to rejoin the EU
Recruitment - workers can move freely between EU countries (easier recruitment)
Imports - quicker and cheaper to import (no tariffs or paperwork and checks)
Exports - quicker and cheaper (no paperwork and checks)
205
What happens to demand when tariffs are added?
Demand for the product decreases as the cost increases (the price stays the same)
206
How does uncertainty impact businesses?
Investment stalemate - businesses choose to save money in case it is needed i the future, rather than investing it. (Uncertainty on return of investment)
Reduced customer confidence - customers resist buying luxury goods as they are unsure about whether prices will rise or tariffs being added so they choose to save their money.
Weak pound - reduced investment in the UK (less hot money), so demand for the pound decreases and so it weakens
207
Benefits of political stability
Increased business investment
Increased customer confidence
Strong pound
208
Renationalisation
When the government chooses to regain control of a private sector business.
The business goes from being in the private sector to the public sector.
209
Political factors affecting businesses
Leaving the EU
Competition policy changes (ie the creation of the CMA)
Privatisation
Legislation changes
Economic policy (ie the decision to reduce government spending during recession)
Employment policy (ie how much the government intervenes in the job market)
Political manifesto announcement (ie the energy price caps)
210
Reasons for international trade
Variety
Economic efficiency
Growth
International co-operation
Specialisation
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Globalisation
A process by which countries and economies have become more interconnected
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Which factors have facilitated globalisation?
Trade liberalisation (ie reduction in trade restrictions (tariffs and quotas))
Ease of transportation and improvement in transport infrastructure
The Internet
E-commerce
Communication technologies such as smartphones
The rise of multinationals
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Multinationals (MNC)
A business that has activities and operations in more than one country
MNCs are very powerful, in some cases some MNC’s revenue is higher than a country’s GDP
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Why are so many companies keen on becoming MNCs?
Economies of scale can be obtained as production increases
Ability to take advantage of a lack of legal constraints
They can enter new markets where less competition exists
Ability to take advantage of lower wages
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What does LEDC stand for?
Less economically developed country
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What does MEDC stand for?
More economically developed country
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Positive effects of MNCs in LEDCs/MEDCs
Provides employment opportunities in LEDCs
Employment equips local people with skills
Leads to investment in local infrastructure
Leads to utilisation of local resources to supply factories
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Negative effects of MNCs in LEDCs/MEDCs
Employment often in exchange for low wages
Jobs are low skill (no long term future)
Working practices can be unsafe
Child labour is often used which can mean that the child misses out on education
Profit often goes back to domestic country where the multinational is based
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Opportunities that globalisation presents to a business
New markets, possibly with high disposable incomes
Opportunity to move production into countries with lower labour costs
Investment opportunities in infrastructure and production (ie new factories)
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Threat that globalisation presents to a business
Lower labour costs may damage reputation
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Why are some businesses more affected than others by globalisation?
Their brand and associated products are more appealing to consumers across the globe
Some products may only be appealing to consumers in a limited number of countries, perhaps for cultural reasons
Some businesses may only provide services, so can only sell in a certain area
Businesses whose products appeal to the middle class may also be more affected
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Strategy
A plan of action
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Global strategy
A plan of action on a worldwide scale
(ie the plans an organisation has developed to target growth beyond its borders)
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Brand
A distinctive product offering created by the use of a logo, symbol, name, design, packaging, or combination thereof
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Global brand
A brand that is recognised throughout much of the world
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With a rise in the number and value of global brands, what threats does this present to local and national businesses?
Local and national businesses may be driven out as customers buy from the global brands instead
May result in downward price pressure as global brands may offer products more cheaply
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How can the presence of global brands invigorate (revitalise/refresh) local markets/businesses?
Global brands need to buy from local suppliers
The presence of a global brand will attract more customers that will then visit nearby shops - increasing footfall
Global brands can be used by local businesses as inspiration for new ideas
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What are some of the challenges of globalisation?
Increased competition
Understanding differences in customer’s ethical / moral standpoints
Costs of expansion
Adapting to different cultures and customer behaviour
Mastering marketing
Communication
The physical distance (can make transporting goods difficult)
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International trade
This refers to selling across borders
(ie the exchange of goods and services between countries)
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How is trading internationally different to being a multinational?
Trading internationally does not mean that the business has operations in other countries, whereas a multinational is a business that has activities and operations in more than one country.
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Why do countries trade internationally?
**For variety** (enables countries to obtain products that they cannot make themselves or could only produce at a vast resource cost)
**For economic efficiency** (the development of export markets can enable a business to gain economies of scale. Also foreign firms competing in the domestic market helps force UK firms to be more efficient)
**For growth** (access to millions of new customers creates the potential for businesses, and therefore the economy, to grow)
**International co-operation** (trade leads to co-operation rather than conflict because as nations become dependent on each other)
**Specialisation** (a country can specialise in what it does best (ie what its resources are most suitable for) and then sell these products to others)
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Export insurance
In some circumstances the UK government offers assistance in the form of insurance to UK exporters against the risk of non-payment by overseas buyers
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How might export insurance help businesses who trade internationally?
Export insurance helps businesses who trade internationally by reimbursing them in the event that they encounter non-payment from overseas buyers.
This would, for instance, help with a business’ cash flow
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Insurance
An agreement in which you pay a company money in exchange for a policy, and they pay your costs / reimburse you if you need to make a claim
(For example, if your luggage is lost on a flight)
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The passport to export programme
Offers help to small and medium-sized firms that want to start exporting
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What assistance is included in the passport to export programme?
Help with market research and selection of target market (s)
Help to visit potential markets
A detailed assessment of the business’s readiness to export
An action plan for exporting
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Explain the relationship between increased globalisation and international trade
As the world has become more interconnected (ie as the pace of globalisation has increased), the amount of international trade has increased
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Why has increased globalisation lead to increased international trade?
**Globalisation has increased competition resulting in businesses needing to lower prices** (this has led to increased international trade because businesses will import cheaper materials from other countries)
**Infrastructure has improved as the pace of globalisation has increased** (this leads to increased international trade because it is easier to transport goods between countries)
**Globalisation has lead to greater connectedness between markets** (this leads to increased international trade because both customers and businesses can order and pay for goods from anywhere in the world
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Free trade
Trade without tariffs or quotas being imposed on products
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Benefit of trading freely
Countries specialise and cost per unit are reduced
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Drawbacks of trading freely
Become too dependent on other countries
Jobs in the domestic export country are at risk if import country can produce products for cheaper
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Advantages of free trade to different stakeholders
Business - economies of scale can be obtained if export demand increases
Business - access to a greater variety of raw materials at a lower cost
Customers - lower prices through increased competition
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Disadvantages of free trade to different stakeholders
Workers - foreign competition leads to job losses
Environment - LEDCs may use up non-renewable resources for export
Business - more competition from businesses based in other countries
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Possible reasons for the government deciding to make most imports tariff free
Can allow free trade
Customers have cheaper imports to pay
Cheaper suppliers from abroad
Helps obtain a range / variety of goods
Other countries may copy and reduce or remove tariffs too
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Trading bloc
A group of countries within a particular geographical region that have reduced or removed trade barriers for its member countries
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Advantages of trading blocs
Businesses gain access to a potential market of hundreds of millions of people
Businesses can import raw materials at a lower cost since tariffs have been removed
If exports increase, there is the potential for economies of scale
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Disadvantages of trading blocs
**Membership may hinder trade with countries outside the bloc**(this is especially true if the bloc has common tariffs for non-members, as the non-members may place tariffs in retaliation
**Competition from firms within member countries may be too great for domestic businesses** (they may lose sales as customers import goods from member countries instead —> as a result, redundancies may follow
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Emerging market
Where a country is becoming a developed nation often driven by relatively high economic growth and a rapid expansion of trade and investment flows.
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Examples of emerging markets
India, Brazil, China, Malaysia, Thailand
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Common features of emerging markets
Countries that are experiencing rapid growth
Citizens often have a lower income per capita than citizens in developed economies
Citizens are often younger than citizens in developed economies
Infrastructure still needs developing in some emerging markets
They are changing at a greater sped than developed economies
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Opportunities that emerging markets present
Can take advantage of a lack of legal constraints
Can move production into these markets and take advantage of cheaper labour
Can move production into these markets and therefore be located closer to other markets they sell to
Can access new markets possibly with higher disposable incomes
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Threats in emerging markets arise from:
Lower labour costs ad therefore the ability of producers in emerging markets to manufacture more cheaply than producers in developed economies
Cheaper labour —> job losses in domestic markets
Fewer exports from developed economies as emerging markets can produce for themselves
More competition from businesses in emerging markets looking to expand into developed economies (more imports and reduced sales)
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Digital revolution
Encompasses (involves) the shift from analogue and mechanical technology to digital technology
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Examples of the digital revolution
Communicating has changes through the use of methods such as emailing and video conferencing
The use of the internet is now widespread (it is used to sell, to advertise, to access bank accounts etc)
Customer and employee information is no stored using digital methods
In production, the revolution has led to the use of robotics
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Information Age
A time when large amounts of information is widely available
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Opportunities that have arisen due to the digital revolution
Cost savings
Increased range of information available
Market research can be carried out using larger samples
Customers can provide feedback online
Access to a much wider market of potential customers
Staff costs can be cut due to the use of online banking
More employment opportunities in this particular sector of the economy
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Threats that have arisen due to the digital revolution
The technology is new and rapidly evolving so it can be difficult for businesses to keep up
Review sites can publish false reviews that can damage a business’ reputation
Businesses need to be more competitive because customers can make more informed decisions from having access to more information
Adverse publicity will travel quickly
Training will be needed
Businesses will need to pay to install protective systems
Capital substitution will lead to job losses
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The effect of the digital revolution may depend on;
The market in which a business operates
How rivals have responded to the digital revolution
The type of product or service being sold
The budget of the business to use digital technology
The type of customer (age, location etc)
