1.5 Understanding External Influences On A Business Flashcards
Business stakeholders
Business stakeholders are individuals or groups that affect or are affected by the actions of a business .
Stakeholders can have different objectives based on their different roles and perspectives.
A business needs to take into account the needs and interests of its stakeholders to operate successfully and ensure long term success.
Owners (shareholders)
Shareholders are individuals or entities who own a portion of a company’s stock.
They invest in the company to make a profit.
Shareholders’ primary objective is to maximise their returns on investment.
They want the company to be profitable and generate a high return on their investment.
Employees
Employees are individuals who work for a company.
Their primary objective is to earn a living, have job security and be compensated fairly for their work and have a safe working environment .
Management
Managers are individuals who are responsible for the day-to-day operations of a company.
Their primary objective is to meet the company’s goals and objectives.
They want to maximise profits and minimise costs while ensuring that the company operates efficiently.
Suppliers
Suppliers are individuals or businesses who provide goods or services to a business.
Their primary objective is to sell their products or services and make a profit.
Suppliers want to be paid on time and have a long-term relationship with the company.
Customers
Customers are individuals or businesses who purchase goods/services from a business.
Their primary objective is to receive high-quality products or services at a fair price.
Customers also want good customer service and a positive experience with the company.
Pressure groups
Pressure groups are organisations that seek to influence the policies and actions of businesses or governments.
Their primary objective is to promote a specific cause or agenda.
Pressure groups want the company to support their cause or take action on an issue.
Government
The government is responsible for creating and enforcing laws and regulations that affect businesses.
Their primary objective is to promote the public good and protect the interests of citizens.
The government wants companies to operate within the law and contribute to the economy.
Local community
The local community includes individuals and organisations that live or operate in the area where a business operates.
Their primary objective is for the business to have a positive impact on the community.
This may include the business being environmentally responsible, providing jobs, and contributing to local causes.
How stakeholders are affected by business activities
If a business experiences financial difficulties, shareholders may lose value in their investments and employees may face job losses or pay cuts.
If a business is profitable, shareholders may benefit from increased dividends and employees may receive bonuses or promotions.
Customers can be affected by business activity in terms of product availability, quality, and pricing.
The local community can be impacted by the environmental and social impact of business operations, such as pollution or job creation.
The government can be affected by business activity in terms of tax revenue and regulatory compliance (following the laws).
How stakeholders impact business activity
Customers can influence product development and pricing through their purchasing decisions and feedback.
Employees can impact business activity through their productivity, skills, and job satisfaction.
Shareholders can impact business activity through their investment decisions and demands for returns.
The local community can impact business activity through regulations and permits (from the local council), and social pressure.
Pressure groups can impact business activity by lobbying for changes in policy or boycotting products.
The government can impact business activity through taxes, regulations (laws), and subsidies.
Conflicts between stakeholder groups
Stakeholder groups can have conflicting interests and objectives, which can lead to tensions and conflicts.
Shareholders may prioritise profit maximisation, while employees may prioritise fair treatment and high wages.
Customers may prioritise low prices, while the local community may prioritise environmental sustainability which raises costs and prices.
These conflicts can create challenges for businesses to balance the competing demands of different stakeholder groups.
Conflicts can also arise when stakeholders have different levels of power and influence.
Managing stakeholder conflicts requires careful communication, transparency, and compromise.
Types of technology used by businesses
E-commerce - trade of goods / services over the internet.
Social media - websites and applications that allow users to create or share content or to participate in social networking.
Digital communication - the use of digital technologies to exchange information, ideas and messages.
Payment system - the technologies used to process and manage financial transactions including credit card payments, bank transfers and mobile payments.
Influence of e-commerce
Influence on sales - A powerful tool for expanding the customer base and increasing sales.
Influence on costs - Has also helped businesses reduce costs by eliminating the need for physical storefronts and reducing overhead costs.
Influence on the marketing mix - Offers businesses new channels for advertising and promotion.
Influence of social media
Influence on sales - A powerful tool for businesses to increase sales by building relationships with customers and generating leads.
Influence on costs - A cost-effective alternative to traditional advertising channels.
Influence on the marketing mix - Offers businesses new channels for building brand awareness and engaging with customers, the marketing mix has been transformed for many businesses.
Influence of digital communications
Influence on sales - Offers businesses new channels for reaching customers and closing deals.
Influence on costs - Offers a cost-effective alternative to traditional communication channels.
Influence on the marketing mix - Has transformed the marketing mix by providing businesses with new channels for communicating.
Legislation
Legislation refers to laws and regulations passed by governments that require businesses and individuals to conduct their behaviour in a particular manner.
Following existing laws is usually quite straightforward for businesses but when laws change they may need to make significant changes to the way the business operates which can increase costs.
There are three areas of legislation that have significant impacts on businesses.
Consumer protection
Employee protection
Health and safety legislation (this could be added under employee protection)
Consumer protection laws
Consumer protection legislation aims to ensure that consumers are treated fairly by the companies with which they interact.
The legislation covers areas including:
The safety of products.
The standard and quality of products.
The rights of customers if they are unhappy with their purchase.
The product information that must be given to customers.
Meeting the requirements of each of the above laws results in increased business expenditure, which may reduce profitability.
However, all businesses are subject to these extra expenditures.
Consumer protection legislation aims to provide a level playing field for businesses ensuring that no business can gain an unfair advantage over rivals by taking shortcuts or by making false claims about its products.
Employee protection laws
Employee protection legislation aims to prevent the exploitation of workers
Legislation covers areas including:
Pay and working conditions.
Equality of employment rights for marginalised groups (e.g. those with disabilities) to avoid discrimination.
The right to belong to a trade union and take industrial action.
Contracts and termination of employment.
Meeting employee legislation is likely to have a range of benefits.
Businesses can avoid attracting unwanted media attention.
They are less likely to be subject to legal action.
New employees are likely to be attracted to work for a business that fulfill its legal obligations.
Health and safety laws
Health and safety legislation requires businesses to operate in a way that protects the physical and mental wellbeing of its employees and contractors as well as its customers.
Legislation covers areas including.
The provision of adequate breaks and rest periods.
Temperature and noise levels.
The provision of safety equipment.
Hygienic, safe and sanitary conditions.
Preventing stress.
Implementation of procedures and equipment required to maintain healthy working conditions are likely to incur financial and time costs such as:
Staff training and supervision.
Changes to working hours and rest provisions.
Arrangement of manuals, signage and safety documentation.
Purchase and maintenance of safety equipment.
Drawing up and implementing a code of practice.
Serious health and safety breaches can lead to fines or investigation by the Health and Safety Executive and, in some cases can lead to prosecution.
Economic climate on a business
The economic climate refers to the broad performance of the UK economy, as measured by changes to GDP growth.
When GDP growth is increasing, incomes may increase, spending on goods/services increases, inflation may rise and unemployment may fall.
When GDP growth is decreasing, incomes may fall, spending on goods/services falls, inflation may fall and unemployment may rise.
Economic changes can present significant opportunities and threats to business activities.
Businesses need to anticipate and respond to changing economic variables to maximise their chance of success.
The following economic variables need to be considered.
Changes to inflation, unemployment, exchange rates, household income, interest rates, and government taxation.
Impact of Changes in Consumer Income
When household income rises, the impact on businesses will depend on the nature of the goods/service that they sell.
Firms which sell inferior goods will see a fall in demand and sales revenue will fall.
Firms which sell normal goods and luxuries will see an increase in demand and sales revenue.
When household income falls, the impact on businesses will depend on the nature of the goods/service that they sell.
Firms which sell inferior goods will see an increase in demand and sales revenue will rise.
Firms which sell normal goods and luxuries will see a decrease in demand and sales revenue.
Impact of Changes in Inflation
Inflation is the general rise in prices in an economy over time (measured using the consumer price index).
After several decades of relatively low levels of inflation the UK has recently experienced rapidly increasing levels of inflation.
This has caused large scale disruptions in the economy as many workers are striking to attempt to secure higher wages.
Business challenges caused by inflation
Increased business costs - Workers often demand higher wages to compensate for the increase in the cost of living.
Suppliers increase the cost of raw materials and components.
Utilities such as electricity become more expensive.
Higher repayment on loans - Interest rates usually rise which makes business borrowing more expensive.
Consumers change spending habits - Price increases deter consumers from making more luxury type purchases.
Consumers focus more of their spending on necessities.
Impact of Changes in Exchange Rates
The exchange rate is the value of one currency expressed in terms of another.
Exchange rates are an important economic influence for businesses that import raw materials and components and for businesses that export their products.
The value of a currency can appreciate or depreciate over time .
Impact of appreciation
Appreciation - An Increase in the Value of the £ Against Other Currencies.
Impact on exporting businesses - Sales are likely to fall as products become more expensive when compared to overseas competitors.
In order to remain competitive, exporting businesses may need to lower prices and accept lower profit margins.
Impact on importing businesses - Costs are likely to fall as raw materials from overseas become cheaper.
Impact of depreciation
Depreciation - A Decrease in the Value of the £ Against Other Currencies.
Impact on exporting businesses - Sales are likely to rise as products become cheaper when compared to overseas competitors.
Impact on importing businesses - Costs are likely to rise as raw materials from overseas become more expensive.
Businesses may seek domestic suppliers to reduce costs and maintain profit levels.
Impact of Changes in Interest Rates
The interest rate is a percentage reward offered for saving money and the percentage charged for borrowing money.
Lenders commonly charge interest on borrowing at a higher rate than the rate offered to customers for savings and investments.
If interest rates rise businesses will have to pay more on their loan repayments which will increase their costs.
Businesses may be less willing to make capital investments choosing instead to save their money.
Customers are less likely to purchase goods on credit when interest rates are high leading to a fall in sales.
Impact of Changes in Taxation
Governments impose direct and indirect taxes on businesses and households.
Direct taxes are levied on income e.g. Income tax and Corporation Tax.
Indirect taxes are levied on spending e.g Value added tax (e.g. VAT).
Impact of an Increase in Taxation
Revenue - Revenue may fall for many businesses.
Increased income tax will reduce the disposable income of customers and demand for products may fall.
Increased VAT will make products more expensive and customers may switch to alternative products.
Costs - Business costs will rise as a result of increased taxes such as VAT and National Insurance contributions.
Higher costs may be offset by charging higher prices.
Higher prices may lead to lower sales and profits may fall.
Import costs are increased when customs duties are raised.
Business decisions - Operational decisions may be affected by increases in business rates and taxes related to employing workers.
Businesses may choose to forego business improvement or relocation, or employ fewer workers as a result of increased costs.
Impact of Changes in Unemployment
The impact on business of changes in the unemployment rate will depend on the type of skill required by the business.
Generally, the higher the unemployment rate, the cheaper a business can secure labour - and vice versa.
Labour costs are amongst the most significant for many businesses, so the unemployment rate can have a direct impact on the profitability of the business.
Possible Responses by Businesses to External Influences
Businesses may respond to changes in technology, legislation, and economic climate in a variety of ways.
The response varies from business to business depending on their circumstances and objectives.
The key is to stay aware of external influences and to be proactive in responding to them.
Responding to changes in technology
Investing in new technology that improves the products, reduces costs, increases efficiency, or expands their reach.
Partnering with tech companies to gain access to their expertise and resources.
Training employees to use new technologies effectively.
Responding to changes in legislation
Complying with new regulations which may involve changes to their operations, such as increased reporting requirements or new safety standards.
Lobbying policymakers to influence the development of new legislation through trade associations or directly with policymakers.
Seeking legal advice to help navigate changes in legislation and ensure compliance.
Responding to changes in economic climate
Diversifying their products to reduce their reliance on a single market or customer base can help them weather economic downturns.
Cutting costs by reducing staff, renegotiating contracts, or streamlining operations can help businesses to remain profitable during difficult economic conditions.
Seeking finance from lenders or investors to help weather economic downturns or to fund growth opportunities.
