PESTLE factors Flashcards
What are legal factors?
=Laws that are designed to protect individuals, employees, customers and the environment from negative acts of a business. Legislation tends to restrict operations and can create extra costs.
What is company law?
Concerns the legal rights and responsibilities of private and public limited companies. Plcs have more responsibilities such as the issuing of shares on the stock market.
benefits and limitations of company law?
treats the business as a separate legal entity to the shareholders, which limits their liability. However there is a cost involved.
What does a business risk if they do not comply with company law?
fines, struck off directors or compulsory liquidation is requested by a court.
Benefits and limitations of employment law?
-Places extra costs in HR but staff will have more job security and satisfaction.
Health and safety legislation?
Employers have a duty to take all reasonable care to ensure safety and wellbeing of employees, and make sure employees abide by safety rules.
Legal responsibility for safe working conditions and to train workers to deal with any unavoidable risks.
Employee rights legislation?
Worker’s rights in regard to terms and conditions.
Have to be provided with a written contract of employment within two months. This states the level of pay, holiday, maternity pay, pension rights, disciplinary procedure and length of notice.
Also protects against unfair dismissal.
Anti-discrimination laws?
Discriminating based on age, sex, sexual orientation, race or religion.
Applies to recruitment, dismissal, promotion, transfer, training and terms and conditions.
What is consumer protection?
Aim to make sure businesses act fairly towards consumers and customers.
Goods must be of satisfactory quality, fit for purpose and safe.
Legislation, for example, makes it a criminal offence to give untrue or misleading descriptions of goods. As a result, manufacturers and retailers have to take a great deal of care about information presented on their packaging or within advertisements.
Benefits and limitations of consumer protection?
All businesses must comply, so there are no competitive advantages in regards to extra costs. However some businesses may cut corners to reduce costs, and customers may end up at a disadvantage.
What is competition policy?
Designed to ensure that fair competition takes place in each industry.
The CMA monitors potential mergers or take-overs of large businesses and may investigate. Another role of the CMA is to investigate cartels and investigate potential collusions.
Ensures consumers are charged a fair price and have enough choice.
Why do governments want competition?
Governments believe that more competition leads to lower prices, a wider range of products and better quality products. Businesses in a monopoly or near monopoly position have control over price.
When and why was minimum wage introduced?
Was first introduced in April 1999 to boost the pay of very low paid workers.
What is minimum wage legislation?
Requires employees to pay a minimum hourly rate, regardless of if they work hourly, weekly or monthly.
Was first introduced in April 1999 to boost the pay of very low paid workers.
Has benefitted younger workers in sectors such as care, hospitality, cleaning and catering.
Overall wages also increased due to pressure to maintain wage differentials.
Impact of minimum wage?
Stops employee exploitation however it is argued it has deterred investment in the UK, as businesses have moved operations to other countries where workers can be paid less. It has also caused a rise in zero hour contracts.
What is intellectual property law?
Legals rights regarding designs/invention/artistic work.
What are trademarks?
designs and artwork, such as packaging and logos. A copy infringes a trademark when it is similar enough to confuse customers.
What is patent law?
covers inventions for a limited period (usually 20 years). Prevents the selling, making and using of the invention without permission. However it is expensive for small businesses to obtain.
What is copyright law?
protects artistic work. It is an offence to copy, publicly perform, rent, lend, issue copies of work or adapt the work, without consent. Illegal downloading has made this more difficult.
What is data protection law?
Data protection is concerned with how personal data gathered by organisations is used and kept secure. Businesses are required to have a Data Protection Officer who ensures that the Data Protection Act is met.
What must the data gathered be?
used fairly and lawfully, used for 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.
Impacts of data protection law?
Businesses who fail would be subject to very large fines and a poor reputation.
This legislation adds to the costs of the business.
Impact on stakeholders: employment law?
Compliance with employment legislation can be very costly and human resource departments are constantly having to deal with increasing amounts of legislation. Minimum wage legislation has an impact upon some businesses, although the majority of businesses pay over that level already. Complying is likely to improve motivation, thus reducing absenteeism, improving productivity and retaining staff.
Impact on stakeholders: health and safety?
However, a good health and safety record will improve their image in the eyes of their customers. In addition to this, employee loyalty will be enhanced and motivation will improve. It is likely that workers operating in a safe and secure environment will prove to be more productive.
Impact of stakeholders: is legislation needed?
However it can be argued that in this day and age, legislation is not always needed, as the market would regulate itself in the freedom customers and employees have to choose where they work/purchase from. Therefore businesses that do not protect its stakeholders would be unsuccessful and would not survive anyway.
What are the economic factors?
Interest rates, exchange rates, economic growth, inflation, unemployment.
What is inflation?
A sustained increase in the general price level period of time (usually annually) which leads to lower purchasing power of money, because more has to be spent in order to purchase the same amount.
What is the ideal level of inflation and who controls this?
The ideal level of inflation is 2% +/- 1%. Low and consistent inflation encourages investment and spending. It gives certainty and shows profits won’t be worth less quickly. The Bank of England attempts to control inflation by setting interest rates.
How is inflation measured?
The Government measures 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 in the UK economy, and includes goods and services.
It is the percentage change of this year’s ‘basket’ compared with last year.
What is the consumer price index?
the target rate of inflation.
What are the two types of inflation?
cost push and demand pull.
What is 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.
This could be the cost of raw materials, labour or increasing interest rates.
What is demand pull inflation?
Caused by excessive demand for goods and services. This enables businesses to increase their prices because demand is increasing.
Causes of increased demand are increased confidence amongst consumers, higher real incomes, or higher disposable incomes.
What is the inflationary spiral?
The inflationary spiral occurs when these two causes come together:
Cost of production rises-> prices rise -> cost of living rises-> wages rise-> cost of production rises.
Impact of inflation on businesses?
Increased and more regular pressure to increase wages. This means more management time spent on negotiating wages and the possibility of industrial action.
A business will have to continually reprice goods, meaning the cost of reprinting menus, brochures.
High inflation discourages business investment because profits and demand are less predictable as purchasing power decreases.
If inflation is higher in the UK than in other countries, costs of UK businesses are increasing faster, so exports are not as competitive.
Why can deflation also be a problem?
Deflation can also be a problem. 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 are interest rates?
Interest rates are charged on loans and paid on savings. Using interest rates to help control the economy is known as Monetary Policy.
Who controls interests rates?
Interest rates are controlled by the Bank of England who set the base interest rate. Other institutions then can charge what they want on their loans/mortgages.
What do high interest rates mean?
Discourages borrowing and encourages saving, putting downwards pressure on inflation.
People have less disposable income, because more is spent on paying off loans and mortgages. So household consumption decreases and demand falls.
Consumers tend to cut back on luxuries so these businesses tend to be more affected.
The cost of borrowing for businesses also increases, reducing profit margins.
What do low interest rates mean?
Encourages borrowing and discourages savings, putting upwards pressure on inflation.
Household consumption increases, along with demand. Businesses are also more likely to invest because of increased consumer confidence.
What is GDP?
the total value of all goods and services produced in a country in a particular period. It measures the annual output of an economy.
Why is GDP important?
Without growth, people’s standard of living will not increase.
What is the business cycle?
the natural rise and fall of GDP.
What are the characteristics of a boom?
Low unemployment, high demand and high profits. Budget surplus for the government is higher, due to high tax revenue and lower expenditure on social security. However, high levels of demand can increase prices, workers will often demand higher wages, thereby pushing up costs.
What are the characteristics of a downturn?
Rising unemployment, falling demand and profits. less investment by businesses. Higher inflation in a boom may have caused increased interest rates, so people are spending less. The economy may still be growing, but at a much lower rate.
What are the characteristics of a recession?
two negative quarters/6 months of negative economic growth. Low demand and profits, high unemployment. A decline in the levels of inflation and interest rates.
What are the characteristics of a recovery?
the recession will soon turn into a recovery). Businesses start to see opportunities so investment by some businesses will start to increase. New jobs are created, and unemployment falls, so consumers start to spend again. Falling unemployment, rising demand and profits.
What are exchange rates?
The price of one currency in terms of another.
How are exchange rates affected by market forces?
This is largely determined by demand and supply. When the demand for UK exports rises, the value of the pound increases, because other currency must be exchanged to pounds to purchase UK exports.
What does the impact of exchange rates on a business depend upon?
Impact on businesses depends on the degree to which they purchase/sell from/to other countries.
Impacts of appreciation of the pound on importers?
Imports will be less expensive in terms of their own currencies. Because the pound can purchase more of the other country’s currency. Businesses can either increase profit margins or pass the reduced cost onto the consumers in the form of lower prices.
impact of appreciation of the pound on exporters?
Exports will seem more expensive to overseas buyers. Businesses can either reduce their prices in £s to keep customers or keep the same, depending on elasticity and loyalty.
Impact of a depreciating pound on importers?
Imports will be more expensive in terms of their own currency. Businesses can pass this onto the consumer by increasing prices, or reduce their profit margins. Depends on margin size and elasticity.
impact of a depreciating pound on exporters?
Exports will seem cheaper to overseas buyers, so businesses will find attracting these export markets easier. They can increase their price in £s to increase profit margins, or try to increase market share with low prices.
What is the natural state of unemployment?
-Every economy has a natural state of unemployment which alters over time.
-It is estimated the current UK natural state is 3-4%. Economists argue that a reasonable level of unemployment is good for the economy as it prevents those in employment seeking higher wages.
What does unemployment depend upon?
-Depends on mobility of labour, availability of training, trade union power and skills.
What are the three types of unemployment?
Structural, cyclical, frictional.
