Understanding External Influences

Question 1

What is a stakeholder?

Answer 1

A stakeholder is an individual or a group that has an interest in and is affected by the activities of a business.

Question 2

Why is a manager a stakeholder?

Answer 2

Want bonuses and long term success

Question 3

Why are pressure groups stakeholders?

Answer 3

Want to influence business decisions and actions

Question 4

Why are employees stakeholders?

Answer 4

Want good pay and working conditions

Question 5

Why are customers stakeholders?

Answer 5

Want value for money

Question 6

Why is the local community a stakeholder?

Answer 6

Wants local investment and limited pollution

Question 7

Why is the government a stakeholder?

Answer 7

Wants low unemployment and competitive markets

Question 8

Why are suppliers stakeholders?

Answer 8

Want regular orders

Question 9

Why are owners (shareholders) stakeholders?

Answer 9

Want profits and a return on their investment

Question 10

Give an example scenario of how stakeholders are linked:

Answer 10

Local community complains about traffic congestion> Bad publicity leads to falling sales> In order to maintain profits for owners, employee bonuses are withheld> Employees are unhappy with fall in incomes> Business guarantees employees’ bonuses in the following year by raising prices> Customers are unhappy with prices and sales fall further> As a result, the business halves its usual order value from suppliers.

Question 11

What is the impact of stakeholders?

Answer 11

All stakeholders are linked. The actions of one stakeholder group are likely to have an impact on other groups, and it is difficult for a business to meet everyone’s needs.

Question 12

What is a pressure group?

Answer 12

A group of people who join together to try to influence government policy or business policy for a particular cause.

Question 13

What are 2 examples of stakeholder conflict?

Answer 13

Shareholders want more profit paid in dividends> Managers want to invest profits to grow
Workers want higher profits> Customers want lower prices

Question 14

What are the possible positive effects of stakeholder conflict on stakeholders?

Answer 14

Shareholders receive a return on their investment
Employees and managers receive income, rewards, financial security and status
Customers receive high-quality products at reasonable prices with excellent service
The local community may benefit from development and investment in the local area
The government collects income tax and corporation tax

Question 15

What are the possible negative effects of stakeholder conflict on stakeholders?

Answer 15

The local community can suffer because of pollution in the local environment
The government needs to monitor and regulate business activity that is unfair, anticompetitive or illegal
Employees may lose their jobs and income or face job uncertainty
Employees work under poor conditions
Shareholders lose their investment
Pressure groups protest against unethical business activity and damage the business’s reputation

Question 16

What is a competitive advantage?

Answer 16

An advantage a business has over its rivals that is unique and sustainable

Question 17

What are some types of technology that influence business activity?

Answer 17

E-commerce, Social media, Electronic payment systems, digital communication (e.g. email and QR codes)

Question 18

How can technology affect a business’s costs?

Answer 18

Technology can be a huge investment for businesses, but in the long term it can help a business improve efficiency and reduce costs.

Question 19

How can technology affect a business’s sales?

Answer 19

Innovating products with the latest technology can increase demand from customers and boost sales. The means by which a business sells its products can also evolve through e-commerce and digital communication

Question 20

How can technology affect the marketing mix?

Answer 20

Technology influences all aspects of the marketing mix: from lowering the costs of products, to making promotions easier through social media, to allowing customers to purchase products anytime and anywhere through e-commerce

Question 21

What does legislation mean?

Answer 21

The laws that a business must comply with

Question 22

What are the principles of consumer law?

Answer 22

Consumers have the right to return or reject goods
Goods should be delivered and installed safely
Terms of contracts should be fair
Services should be provided with reasonable care
Businesses should disclose full information about products and services
Products sold to consumers should be of a good standard and quality

Question 23

What are the drawbacks of consumer law?

Answer 23

Businesses must know the law and keep up to date
Laws can restrict businesses from operating as they wish
Changing products and practices to comply with laws can be costly
Bad publicity can result if businesses do not comply with laws
Consumers can use law to take legal action against the business

Question 24

What are the benefits of consumer law?

Answer 24

Compliant businesses are less likely to be fined or sued by customers
Compliant businesses may be considered professional and caring, and may benefit from increased customer loyalty
Improved relationship with stakeholders
Good publicity, if followed

Question 25

What are the principles of employment law?

Answer 25

All employees’ pay should be fair and meet the minimum wage requirements
Groups of people, such as employees with disabilities should not be discriminated against
Redundancy procedures should be fair
Disciplinary issues and grievances should be dealt with fairly
Health and safety requirements in the workplace should be met
Recruitment procedures should be fair and prevent discrimination

Question 26

What are the drawbacks of employment law?

Answer 26

Meeting health and safety regulations can be costly for businesses
Paying the national living wage will increase businesses’ costs
Failing to comply may lead to unhappy employees, low productivity and legal action

Question 27

What are the benefits of employment law?

Answer 27

A compliant business may be considered a good employer
Fewer employees will be tempted to leave the business, so reducing recruitment costs
Employees may be happier and more motivated, leading to high productivity and better customer service

Question 28

How do businesses meet the requirements of consumer and employment law?

Answer 28

Costs-meeting legal requirements means that businesses incur additional costs
Equipment-health and safety equipment is required to keep employees safe
Licences-businesses must meet legal requirements to be granted relevant licences, e.g. electrical installation licences for electricians
Pay-all pay must meet the national requirements for the living wage
Administration-businesses must use correct processes and record keeping systems, e.g. recording health and safety incidents and testing products
Training-employees must be trained in health and safety rules and customer service guidelines

Question 29

What are redundancy procedures?

Answer 29

The process through which a business stops employing some of its staff because their roles are no longer needed

Question 30

What is the economic climate?

Answer 30

The level of demand and spending within the economy. Many variables contribute to consumer spending and demand, e.g. the level of economic activity and interest rates. Economic activity is measured by gross domestic product (GDP)

Question 31

What is the level of demand in the economy?

Answer 31

It refers to spending that takes place in an economy. Demand can come from consumers, government, business or overseas

Question 32

What might change demand?

Answer 32

The level of economic activity- if there’s a recession, demand will fall
Interest rates- if interest rates fall, borrowing and demand will increase
Changes in exchange rates- if the pound gets weaker, foreign demand will rise
Consumer income- when the economy is doing well, people earn more money and have more disposable income
Changes in taxation- an increase in most forms of taxation reduces consumers’ disposable income. A fall in taxation will have the opposite effect and boost customer demand for most goods.

Question 33

What is the impact of high demand/economic activity?

Answer 33

Consumer incomes rise 
Inflation may rise 
Unemployment may fall 
Interest rates may rise 
The pound may become stronger

Question 34

What is the impact of low demand/economic activity?

Answer 34

Consumer incomes fall 
Inflation may fall 
Unemployment may rise 
Interest rates may fall 
The pound may become weaker

Question 35

What is unemployment?

Answer 35

Unemployment exists when people who want to find work cannot do so.

Question 36

What is the impact of unemployment on businesses?

Answer 36

1) High levels of unemployment may make it easier for businesses to recruit new employees. However, over time, the number of employees with the skills that businesses need will fall.
2) High levels of unemployment lower consumer demand for most businesses’ products and services
3) Economic activity falls when unemployment is high. This means that businesses’ sales revenue will fall

Question 37

What is inflation?

Answer 37

Inflation is the change in the average level of prices in the economy. It is measured using the consumer price index (CPI). It measures changes in the price of food, housing, clothing and other products.

Question 38

What is the impact of inflation on businesses?

Answer 38

A sharp rise in the rate of inflation will cause a business’s costs to rise unexpectedly. This can have a direct impact on profits.
Consumers’ costs rise when the rate of inflation rises. This reduces consumers’ disposable income, meaning that they buy fewer goods and services from businesses. When an increase in inflation causes a business’s costs to rise, the business has two choices. It can either absorb the costs or pass them on to its customers by raising prices

Question 39

What is an interest rate?

Answer 39

The percentage reward or payment over a period of time that is given to savers on savings or paid by borrowers on loans

Question 40

What is the cost of borrowing?

Answer 40

An entrepreneur or small business may not have capital to start or expand a business without borrowing. Typically a bank will give a loan to a business or allow it to have an overdraft. The business will pay interest:
On top of its repayments for the loan
On any amount it is overdrawn
This is the cost of borrowing and the incentive for a bank to lend it

Question 41

What is the difference between fixed and variable interest rates?

Answer 41

Fixed interest rates do not change over the life of the loan. A business could lose out on a fixed contract if the rate falls. Variable interest rates change over the life of a loan. They can be more risky and are hard for a business to plan against.

Question 42

What are the effects of rising interest rates?

Answer 42

Businesses on a variable rate may struggle to repay loans.
Small businesses are less likely to borrow money to start up or to expand
Customers are less likely to spend money as borrowed money costs more, so consumer spending falls.

Question 43

What are the effects of falling interest rates?

Answer 43

Businesses will have more money to spend and cash flow may improve
Businesses may borrow money for a start-up or expansion
Customers are more likely to borrow and to spend their money. Consumer spending rises.

Question 44

What is the exchange rate?

Answer 44

The price of buying foreign currency. It tells UK 🇬🇧 people and businesses how much foreign currency they get for every pound

Question 45

What is the effects of a fall in the value of the pound?

Answer 45

Good for UK exporters of goods- price of exports falls> sales increase
Good for UK tourism- prices cheaper to foreigners> tourism increases
Good for UK businesses- imports more expensive> buy more UK goods
Bad for UK importers of materials- imports more expensive> costs rise

Question 46

What is the effects of a rise in the value of the pound?

Answer 46

Bad for UK exporters- price of exports rise> sales fall
Bad for UK tourism- prices more expensive to foreigners> tourism falls
Bad for UK businesses- imports cheaper> people buy fewer UK goods
Good for UK importers of materials- imports cheaper> costs fall

Question 47

How does external influence provide business opportunities?

Answer 47

A rise in economic activity, leading to increased demand
New legislation that increases demand for a business’s safety products
New technology that lowers the cost of production
Lower interest rates, making it easier for a business to borrow money

Question 48

How does external influence provide threats to a business?

Answer 48

New competition entering the market
New legislation that makes a business’s products illegal
A fall in economic activity, leading to lower demand
A new technology that makes a business’s products obsolete

Question 49

What are some responses to external influences?

Answer 49

Stop producing a product line that has become obsolete due to rise of new technology
Change company policy to adhere to employment or consumer legislation
Lower prices go counteract the entrance of a new competitor
Increase productivity and recruit new employees when economic forecasts look positive
Invest heavily in new technology in order to gain an advantage over competitors
Cut investment and spending when economic activity is low

Question 50

What is a downturn?

Answer 50

Likely to be a fall in spending. This may result in closures and falls in prices. The government may act in a downturn by lowering interest rates.