topic 5 - external factors

Question 1

describe political

Answer 1

political factors affecting organisations arise from decisions made and actions taken by the government, either at a local or national level. This can be changes in laws and legislation or alternations to a governments fiscal policy.

Question 2

state the positive and negative impact for changing laws and legislation

Answer 2

positive - the government could introduce environmental protection laws such as ‘zero waste scotland’ and by complying, organisations will be seen in good light. This is good PR and can attract potential customers.
negative - the government could increase the minimum wage so that organisations have higher wage costs. This will result in a lower profit for the year.

Question 3

state the positive and negative impact for changing income tax rates

Answer 3

positive - the government could reduce taxes (money collected by the government to fund public spending) such as income tax. This will give customers a higher disponsable income. This means customers will be more likely to buy products.
negative - the government could increase income tax. This will give customers a lower disposable income. This means that customers would be less likely to spend money on a business’s products, unless it is essential. This will reduce sales overall.

Question 4

state the positive and negative impact for changing VAT rates

Answer 4

positive - the government could lower VAT (value added tax). This is the tax on goods and services. Reducing the VAT rate will make products more affordable for customers, increasing sales for a business.
negative - the government could raise VAT. This will increase the selling price which could put customers off purchasing products and reduce sales.

Question 5

state the positive and negative impact for changing corporation tax

Answer 5

positive - many types of businesses, such as limited companies, have to pay a tax on their profits (corporation tax). The government could lower the rate of corporation tax which would mean less money is taken from the business and given to the government, which would increase profits.
negative - the government could raise the rate of corporation tax which means more money would be taken from the business and given to the government, which would reduce the profit of the organisation.

Question 6

state the positive and negative impact for public spending on infrastructure

Answer 6

positive - the government could decide to fund the developement of infracstructure. Examples include building new motorways, car parks, tram networks and so on. This will increase the likelihood of attracting customers for businesses in these areas. Public spending also creates jobs, which gives people wages and enables them to spend money on other goods and services.
negative - public spending is a contentious issue as it only improves certain areas. For example, the edinburgh tram network greatly improved edinburghs infrastructure; however, businesses in Glasgow saw no benefit. This is known as ‘oppurtunity cost’ ie the cost of spending money on one area is that it can’t be spent in another.

Question 7

state the reasons for promoting competition

Answer 7

• prices are kept low for consumers
• products and services are high quality
• customer service is good
• entire markets improve and grow, creating jobs and raising GDP
• healthy markets can attract foreign investment

Question 8

state the impact of competition policy

Answer 8

cartels - organisations cannot participate in cartels. This means
colluding with other organisations to fix prices to make higher profits. If found guilty of participating in cartels, owners or management can be fined or even sentenced to prison.
mergers - the CMA can block mergers if it is likely to lead to a
‘substantial lessening of competition’ in any market. The CMA can also impose conditions that must be met for a merger to be given the green light. For example, when the CMA investigated the Sainsbury’s/
Asda merger they forced them to divest (sell) a number of stores, mostly to Morrisons, to ensure there was enough competition in certain towns.
anti competitive behaviour - organisations cannot use their dominant position in the market to charge drastically low prices, pay lower prices to suppliers or control the supply of goods to the detriment of the market.
consumer protection - consumers have rights and are protected from unfair practices such as hidden charges and poor customer service.

Question 9

describe economic

Answer 9

economic factors arise from the state of the economy. An economy is the state of a country or region in terms of the production and consumption of products, and the supply of money.

Question 10

describe what gross domestic product (GDP) is

Answer 10

a figure that sums up the amount of goods and services produced and consumed by a country.

Question 11

descirbe the stage boom in the economic cyle

Answer 11

GDP and employment levels are very high. Demand for products is high.
impact - businesses can take advantage of the demand for products and the wealth of consumers by increasing prices. This will improve profits for the business. However, a side effect is an increase in inflation. This is a rise in prices over time and often leads to wage rises, so people can afford to keep up with inflation.

Question 12

descirbe the stage recession in the economic cyle

Answer 12

GDP and employment levels fall. Demand for products falls.
impact - businesses have to react to a falling demand by making staff redundant, which will cost them redundancy payments and lose them the skills and knowledge of employees.
prices will have to be cut to try and increase demand, which will lower the amount of profit a business can make and may even lead to losses.

Question 13

descirbe the stage recovery in the economic cyle

Answer 13

GDP and employment levels begin to rise. Demand for products increases.
impact - businesses can rely on consumers being in a better position to spend money due to rising employment, so therefore sales will increase.
Businesses can develop new products and start to increase prices, which will leas to bigger profits for the business.

Question 14

describe fiscal policy

Answer 14

a governments fiscal policy concerns the tax rates it sets and its level of public spending (as covered in the political section of external factors).

Question 15

describe monetary policy

Answer 15

a governments monetary policy is the ways in which it controls the supply of money into the economy and therefore affects spending. This can be done by varying interest rates.

Question 16

describe the effect of rises in interest rates

Answer 16

on savings - customers are more likely to save due to attractive rates as they will earn more money on their savings. This means customers will spend less on businesses’ products as they are saving their money instead.
on borrowings - customers are less likely, or able, to take out loans or to spend using credit cards as they will have to pay back more money on their
borrowing. This means customers will be able to spend less on businesses’ products.

Question 17

describe the effect of reductions in interest rates

Answer 17

on savings - customers are less likely to save as interest rates are unattractive, so are more likely to spend money on businesses’ products.
on borrowings - customers are more likely to borrow money as it is less expensive to pay back loans and credit card debts, so are more likely to spend money on businesses’ products.

Question 18

describe the effect of a strong pound (exchange rates)

Answer 18

on exports - if the value of the pound is high compared to foreign currencies, UK exporters will struggle to sell their products abroad as they will be more expensive than foreign goods and sales will fall.
on imports - if the value of the pound is high compared to foreign currencies, imports will become cheaper. This will decrease costs for businesses that source materials from abroad which will increase their profits. It will also allow a lower selling price to be charged for products made in the UK to attract customers.

Question 19

describe the effect of a weak pound (exchange rates)

Answer 19

on exports - if the value of the pound is low compared to foreign currencies, UK exporters will be able to sell more goods to foreign countries as their goods will be less expensive for customers outside the UK.
on imports - If the value of the pound is low compared to foreign currencies, imports will become more expensive. This will increase costs for businesses that source their materials from abroad and may lead to an increase in prices.

Question 20

state the positive and negative impacts of UKs ageing population

Answer 20

positive - this is a vast, and growing, market segment. Businesses that can produce products tailored for this market should succeed. Many potential customers in this segment are retired and well off so there is a potential to offer quality products at high prices.
negative - extensive market research must be carried out which costs time and money.

Question 21

state the positive and negative impacts of more woman with professional careers

Answer 21

positive - as more women are taking up high-profile professions and managerial roles they are waiting longer to have a family. As a result, couples are generally better off when they have their first child so businesses can offer high quality maternity and baby products that sell for a high price.
negative - more women will be taking maternity leave once they are established in their careers which will mean organisations have to consider flexible working arrangements, such as part time or job share. This will result in the organisation having to spend time recruiting and training replacement staff.

Question 22

state the positive and negative impacts of evolving work-life balance

Answer 22

positive - fewer employees are working the traditional 9–5 working week. As a result, businesses must cater for the needs of a society that works around the clock for 7 days a week. This has led to a trend of convenience in the UK, e.g. 24-hour opening hours, e-commerce, etc. By meeting the convenience needs of customers businesses will ensure repeat custom.
negative - organisations have to provide more staff to work 24 hours a day, 7 days a week to meet customer needs, which will increase wage costs.

Question 23

state the positive and negative impacts of changing fashion trends

Answer 23

positive - businesses can cater for the latest fashion trends and offer products that customers want, therefore increasing sales. For example the North Face or Supreme clothing trend.
negative - businesses have to spend time and money researching and developing new products. Some products also have a very short shelf-life.

Question 24

state the positive and negative impacts of flexible working arrangements

Answer 24

positive - flexible working arrangements mean staff will be able to work at a time when they are most productive, which will improve quality in the organisation as well as raising morale. Additionally, businesses can save money on renting office space if more employees work from home.
negative - flexible working arrangements can lead to a lack of supervision and direction of staff, which can reduce productivity. Organisations may also have to provide staff with equipment such as smartphones and laptops so they can work at home, which can be costly.

Question 25

state the positive and negative impacts of ethical considerations

Answer 25

positive - businesses that practice ethically (doing what is right) will be seen in a good light by customers, prospective employees, suppliers and the government. An example would be not exploiting child labour.
negative - often unethical practice is carried out purely to keep costs low so operating ethically will increase costs and perhaps reduce overall profits. Of course, a bad image from operating unethically could affect sales anyway!

Question 26

describe techological

Answer 26

technological factors concern the quickly evolving technological advancements that can impact organisations, for example, faster broadband connections, cloud computing and social media.

Question 27

state the positive and negative impact of cloud computing

Answer 27

positive - through technology such as OneDrive or Dropbox, organisations can save money on their own IT hardware. Additionally, they will not require as many IT staff to maintain equipment, saving on wage costs.
negative - there is a heavy reliance on ‘the cloud’ performing. If internet connection is unavailable, the organisation won’t be able to access files stored on the cloud, causing production to stop. There are also privacy and confidentiality issues regarding storing information on the cloud.

Question 28

state the positive and negative impact of social media

Answer 28

positive - having a social media (e.g. Facebook, Twitter) presence enables organisations to keep in touch with customers and raise their profile to a potentially worldwide market.
negative - social media can be used by customers to spread bad reviews about an organisation, leading to a poor reputation that could put customers off and cause them to take their business to the competition.

Question 29

state the positive and negative impact of wi-fi

Answer 29

positive - organisations that provide a free Wi-Fi service are likely to attract customers who wish to use Wi-Fi for work or personal reasons, for example a customer choosing a Starbucks coffee house over an independent coffee shop because of Starbucks’ free Wi-Fi.
negative - there is a financial cost of setting up and maintaining Wi-Fi.

Question 30

state the positive and negative impact of 4G

Answer 30

positive - 4G will enable organisations’ employees to communicate and download information while on the move much more quickly.
negative - not all areas are equipped with 4G capabilities, which could leave organisations in these areas behind.

Question 31

state the positive and negative impact of the weather

Answer 31

positive - a business could be impacted by spells of favourable weather, for example, during prolonged periods of snow the ski industry in Scotland will see an increase in customers.
negative - prolonged spells of adverse weather, such as snow, can affect the transport networks across the UK. This will make it difficult for deliveries of materials to arrive and for staff to get to work, therefore causing production to slow down or cease entirely.

Question 32

state the positive and negative impact of recycling

Answer 32

positive - organisations encourage recycling by their customers in order to impact less negatively on the environment. For example, retailers discourage the use of plastic bags and sell ‘bags for life’ which will lower the cost to the retailer of providing plastic bags and gain the company a favourable reputation for being ‘environmentally friendly’.
negative - organisations need to undertake recycling, for example, of waste paper and printer cartridges, but it takes time, effort and money to recycle rather than just disposing of waste.

Question 33

state the positive and negative impact of carbon footprint

Answer 33

positive - organisations are encouraged to reduce their carbon footprint. This means to lower the amount of emissions from fossil fuels released into the atmosphere. Businesses that do this, for example by utilising renewable energy, will eventually save money on fuel bills.
negative - there is a financial cost associated with investing in renewable energy, for example, solar panels or wind turbines to power factories.

Question 34

state the positive impacts of competition

Answer 34

• competition opening up a phyisical store right next to a business can be good as it provides more choice for customers and brings passing trade to the area.
• competition improves a market as it brings with it more choice, new ideas and keeps prices low, which can benefit all businesses in the market.

Question 35

state the negative impacts of competition

Answer 35

• the competition could lower prices, undercutting another business. Businesses will either have to lower prices too, reducing profits or risk losing customers to the competition.
• the competition could launch new or improved products. Businesses will have to spend money researching and developing new products to keep up with competition.