Unit 7 definitions - External Environment Flashcards
the average rate of return
the average annual profit as a percentage of the initial investment
equation for ARR
(total net cash flow/number of years) / initial investment x 100
barrier to entry
factors that make it difficult or impossible to enter an industry e.g economies of scale
boom
is above-trend growth of GDP and characterised by high consumer and business confidence, high investment rising prices, low unemployment and rampant speculation
Bric economies
for large emerging economies, Brazil Russia India Chin
Budget deficit
occurs when taxation receipts are less than gov spending. Low taxes and high government spending help the economy expand and boost overall demand for firms’ products. The UK had a very large budget deficit in 2020/21 - £320bn
budget surplus
occurs when taxation receipts are greater than gov spending. This tends to reduce demand in the economy
business cycle
a regular fluctuation of income and output (GDP) within an economy over time
the four stages of the business cycle
boom, recession, slump, recovery
carroll’s pyramid
sets out the priorities for businesses to become good corporate citizens, starting with the foal of being profitable, then obeying the law, then being ethical and finally being philanthropic
cartel
a formal or written agreement to restrict competition and boost profits. This may be by fixing price via restricting output or sharing out the market
competitive advantage
a distinctive feature that gives a firm an edge over its rivals. It may result from innovation, relationships or reputation e,g Coca-Cola has a secret recipe
competitions and markets authority
the main UK organisation is set up by gov to enforce competition law and tackle constraints on the competition. It is responsible for investigating mergers, monopolies and firms that may abuse their market power.
competition policy
government action to prevent abuse of monopoly power and restriction of competition. It involves policy focused on monopoly, mergers and restrictive practices to ensure they are not allowed to prevent, restrict or distort competition
conflict of interest
occurs where different individuals or stakeholders want different outcomes/decisions to be made. E.g shareholders in Stansted airport would like an extra runway to boost dividends while local residents do not want an extra runway as this would damage their peace and quiet
contractionary policy
leads to a reduction in demand within the economy due to gov action such as higher interest rates, higher taxes or lower gov spending
core competencies
a key area of strength for the business that gives it a comp advantage
corporate objectives
specific time-based targets relating to the whole business. E.g gain a market share of 12% by 2025
cost-push inflation
a general rise in prices caused by an increase in costs
CSR
a commitment to behave ethically and contribute to economic development while improving the quality of lif of the workforce as well as the local community at large
CPI
measures the average change from month to month in the prices of consumer goods and services purchased in the UK, using a typical basket of items
customs union
a group of countries that do not impose tariffs on each other’s goods and agree to impose common external tariffs on goods from countries outside their customs union e.g EU
demand-pull inflation
a general rise in prices due to a nationwide rise in demand for products
disposable income
is the amount of income available to spend after taxes and benefits have been dealt with
what is the equation for disposable income
gross income - direct tax + state benefits
disruptive technology / innovation
is the introduction of a new process or new product that radically changes the competitive advantage of an existing market e.g Uber and taxicabs
e-commerce
buying through electronic means
economic growth
a rise in the real GDP meaning an increase in the number of goods and services produced per head of the population over a period of time
Elkington’s triple bottom line
an accounting framework in which businesses are assessed not only from their financial impact and accounts but their social impact and accounts and its environmental impacts and account
what does ETBL consider
profit, people and the planet
emerging market
is a country whose GDP is growing faster than average and has the potential to grow further in terms of productive capacity, market opportunities and competitive advantage e.g India
enterprise finance guarantee scheme
is a government loan guarantee scheme to help to provide additional lending to viable small and medium-sized enterprises (SMEs) that lack adequate security of track record for a commercial loan. EFG was launched in January 2009 at the height of the credit crunch and has supported over 20,000 SMEs
enterprise policy
government action to encourage the start-up of new businesses and health and growth of young businesses e.g New Enterprise Allowance, Enterprise Finance Guarantee Scheme, GRowth voucher programme, Science and research funding.
environmental audit
a check up on the level of pollution emissions, wastage, energy consumption, recycling levels and use of non-renewable resources of a firm
exchange appreciation
a rising value of the currency compared to other currencies e.g from £1:€1.15 in Jan 2015 to £1:€1.44 in July 2017
exchange depreciation
a fall in the value of the currency compared to other currencies e.g from £1:$1.47 in June 2016 to £1:$1.23 in December 2016
expansionary economic policy
any government action that stimulates the increase in GDP. E.g supply-side policies, cutting taxes or cutting interest rates
fiscal policy
the issue of taxation and government expenditure to influence the economy. The changes to fiscal policy are usually announced by the Chancellor in the budget.
functional decision making
the policies and tactics adopted by the individual business departments such as marketing and operations
globalisation
the growing trend towards worldwide markets in the product, services, capital and labour unrestricted by barriers. it is the increasing integration of the world’s local regional and national economies into a single international market
greenwash
the broadcasting of misleading information by an organisation to conceal its abuse of the environment in order to present a positive public image
GDP
the total value of output produced in a nation in one year. This is also equal to the total income generated by a nation in one year and the total expenditure by a nation in one year
hedging
any technique designed to reduce or eliminate financial risk e.g insuring against future exchange rate changes
Income Elasticity of demand
shows how income changes affect demand for certain goods
inferior good
a good which demand falls for as income rises so has a negative income elasticity of demand
inflation
a sustained increase in the average prices of goods and services. Inflation also represents therefore a fall in the purchasing power of money
inflation target
the level of inflation that the government expects the Bank Of England’s Monetary Policy Committee to achieve through the use of the monetary policy. The current target is that CPI should be between 1% and 3%
infrastructure
the physical and organisational structures and facilities needed for the operation of a society. This social capital assists businesses operations. Sewers, roads, power lines, hospitals and wireless communication facilities.
investment appraisal
judging the attractiveness of a plan to generate future income e.g using payback period, ARR or NPV
Kaplan and Norton’s Balanced Scorecard
a strategy performance management tool that focuses not just on financial issues but a broader range of variables notably a) financial performance b) customer perspective (marketing issues) c) internal business process performance (operational perfective) d) learning and growth
M-Commerce
the buying and selling of goods and services through mobile devices like phone
migration
the movement of people from one place to another
immigration
people moving into a nation
emigration
people moving out of a nation
mission statement
memorable sentences that encapsulate the key reason that a business exists e.g Nike “to bring inspiration and innovation to every athlete in the world”
monetary policy
the control of interest rates and money supply in order to influence the level of spending in an economy
Monetary Policy Committee
a group of economic experts who meet at the bank of England are commissioned to set interest rates and the level of quantitative easing to get inflation (CPI) between 1 and 3%
multi-channel
is a marketing strategy that offers customers a choice of ways to buy products e.g in-store, click and collect, online. There are different distribution channels in the marketing mix
Net Present Value
measurement of profit calculated by adjusting future cash flows into their current equivalent value. Net Present VAlue subtracts the present values (PV) of cash outflows (including initial cost) from the present values of cash inflows over a period of time
New Enterprise Allowance
a government scheme to support new business. There is a grant and a loan to help with start-up costs and which needs to be repaid within 5 years
normal good
is one for which demand rises as income increases so have a positive income elasticity of demand
oligopoly
a market form wherein an industry is dominated by a small number of businesses that are interdependent. These businesses may collude or compete
open trade
when there is no discrimination against imports from and exports to foreign jurisdictions. It is also known as free trade
payback
the time is taken to recover the cost of an investment
philanthropy
the desire to promote the welfare of others, expressed especially by the generous donation of money to good causes
porter’s generic strategies
4 general ways to gain a competitive advantage are cost leadership, cost focus, differentiation and differentiation focus
Porter’s 5 forces
a framework for analysing the level of competition and profitability within an industry and including contestability (threat of entry), alternatives (substitutes), buyer power, industry structure and supplier power
pressure group
an organisation whose members have a common cause for which they seek to influence the political or corporate decision-maker to achieve a declared objective
prime mover advantage
the benefit of being the firm business to produce a product or enter a market. This is in terms of being able to gain and maintain a high market share perhaps because the business gains a reputation for originality
protectionism
is an attempt by the government to impose restrictions on trade in goods and services using policies like tariffs and quotas
quantitative easing
increasing the money supply by electronic money creation. It often involves governments using this money to buy government bonds to reduce long term interest rates and encourage private banks to lend more
quota
is a physical limit placed on the imports of certain products
recession
when there are two or more quarters of negative growth
recovery
occurs when growth resumes after a downturn.
regulator
a government empowered organisation that aims to enforce the law e.g environment agency
S Commerce
the buying and selling of goods and services from Social Media sites like Facebook and Instagram
self-regulation
the process whereby an organisation monitors its own observance of legal, ethical, or safety standards.
sensitivity analysis
a technique that allows the analysis of changes in assumptions used in forecasts. It is a very useful technique for use in investment appraisal
shareholder concept
the view that businesses exist only to meet the need of shareholders. This is best done by maximising profits and thus maximising shareholder value which combines rewards from increased share rice and increase dividends.
short-termism
the pressure to deliver quick or short term results to the likely harm of longer terms goals and development.
social audit
a check-up on how committed the firm is towards acting responsibly towards all stakeholders and society in general. It also measures progress towards the social goals
stakeholder concept
the view that businesses should aim to look after anyone impacted by the business as a fulfilment of their duties. This may help them attain their social and ethical goals but some believe that long-run profit is best served by looking after the stakeholders
strategic decision making
the process that devises the policies adopted by the whole business. The strategy involves the whole environment in which the firm operates, the entire resources and impacts all the business departments
strategy
a wide-ranging long-term course of action that has significance for the whole organisation. It gives details of the financial, production and personnel resources required and the marketing mix, showing how the goals will be achieved.
strong pound
occurs when the pound has appreciated and has a high exchange rate value. It makes the nation’s firms uncompetitive but helps consumers get large volumes of imports cheaply
substitute threat
the danger that a rival similar product takes sales away from the business product. it is one of porters 5 forces
SWOT analysis
assessment of a product or organisation in terms of its Strengths, Weaknesses, Opportunities and Threats
Tactic
specific, short term goals of relevance to an individual department
tariff
is a tax imposed on imported products
urbanisation
urbanisation is the movement of people from the countryside to live in towns or cities
World Trade Organisation
an international body that polices international trade
