What is business Flashcards
What are economic factors when doing PESTEL analysis?
How a certain economies performance can affect a business. e.g. economic growth, exchange rates, inflation rates, interest rates, disposable income of consumers, unemployment rates etc.
What does political factors mean when doing PESTEL analysis?
How and to what degree the government intervenes in the economy of a certain industry. All the influences the government has on your company- e.g. Government policy, political (in)stability, corruption, foreign trade, tax policies etc.
What is another name used for general external environment?
Macro environment
What is a mission statement?
Statement that describes the general purpose of the organisation and their aims.
What are companies aims and objectives?
Corporate Aims- The long term statement of what the business intends to achieve
Objectives- More precise and detailed goals/ targets company needs to do in order to achieve mission and aims.
Why is profit important?
- To be reinvested in to the firm
- To be keep owners/ shareholders happy
- To help attract new shareholders to invest
What is corporate vision?
What the company aspires to be
What are the three sectors of business
Primary- The extraction of raw materials from the earth e.g. farming, fishing, mining, oil extraction
Secondary- Transforming or refining the raw materials e.g. manufacturing, construction, electricity, energy firm, oil refinement
Tertiary- The service industry e.g. retail, restaurants, hotels, transportation and education
What are the 4 main resources needed when turning an input into outputs and adding value
Capital- Goods that produce other goods and services e.g. Machinery, lorries, computer systems
Enterprise- The act of bringing the other factors of production together to make the goods and services; making decisions and providing the finance
Land- All the natural resources that can be used for production e.g. Coal, oil and livestock
Labour- Physical and mental effort involved in production e.g. factory workers and accountants
What is the transformation process?
The transformation process is the conversion of a firm’s inputs into outputs to add value to their customers
What is a publicly owned company?
-Nationalised company with public policies attached to ensure they operate for a specific benefit of the people.
What is nationalisation?
Government purchasing and controlling business to ‘benefit the people’. E.g. NHS and BBC
Key business size statistics
- Small businesses (0-49 employees) have take up 99.2% of business in the UK and also have the highest percentage of employees at 47.7.%
- However large businesses (250 employees +) make up the largest percentage of turnover at 48.1% compared to small businesses 35.7%
- Medium businesses take up 0.6% of businesses in UK and large businesses just 0.1%
- Medium businesses cover 12.9% of employment making 16.2% of the annual business turnover
- Although large businesses only take up 0.1% of businesses, they make up for 39.4% of employment
How can wealth be provided by businesses?
Businesses create a surplus by charging customers more than what it costs to provide a product. Surplus creates wealth in their country and government utilises financial surplus to invest in things such as infrastructures.
What makes businesses important?
- Wealth can be created by businesses
- New goods and services that better people’s lives
- Improves a country’s reputation by increasing National Status
- Increases employment rates by creating new jobs
What are the differences between Goods, Services and Products?
Goods- Physical product that can be purchased e.g. book, pencil, car etc
Services- Non-tangible product that meets a need/ demand e.g. insurance, electricity, dog walking
Products- Something made or supplied by a business
Why set objectives?
- Easy for workers to follow
- Clear company directions
- Coordinate business activity
- To motivate workers and departments to strive for success
Common business objectives
Survival, breaking even, sales growth/profit, growth and expansion, reducing risk, diversification.
Improving cash flow and liquidity, increasing market, increasing shareholder value, maximising customer satisfaction, social and ethical objectives, staff retention
What are SMART objectives?
Specific Measurable Attainable Realistic Time-Bound
What are companies aims and objectives?
Corporate Aims- The long term statement of what the business intends to achieve
Objectives- More precise and detailed goals/ targets company needs to do in order to achieve mission and aims.
What does PESTEL analysis stand for?
Political, Economic, Social, Technological, Environmental, Legal
What is the purpose PESTEL?
To map out the external environment of an organisation (Macro environmental factors)
This is especially useful when starting a new business or entering an foreign market.
What are 2 market indicators?
Economic Growth (GDP) The level of demand is influenced by the rate of economic growth. Economies vary in terms of their "normal" long-term growth rate. A mature economy like the UK has a long- term growth rate of around 2-3% GDP growth will vary depending on the state of the economic cycle.
Market Demand The size and growth rate of a market is a key indicator of market conditions. A fast-growing market will encourage new entrants as well as benefit existing competitors. A slow-growing or declining market makes market conditions much tougher, with competitors fighting for their share of weak demand.
How do environmental issues and fair trade affect demand?
Environmentally friendly production increases costs however increase brand reputation and good USP therefore increasing sales and demand (Depending on how important to customer)
How do demographic factors affect demand?
Different genders, ages, ethnicities etc. affect demand for certain products.
Ie. More single people living alone- demand for one beds
More old people- increase in health products and cruises
More ethnicities- increase in diverse foods in supermarkets
How does interest rates affect demand?
For customer: Interest rates fall- increase in disposable income- increase in demand
For businesses that have loans: Interest rate falls- decrease in loan repayments- lower costs- lower prices- higher demand
Who is in control of interest rates?
The Monetary Policy Committee (MPC) at The Bank of England
How do incomes effect demand?
Positives:
Income rises- overall demand increases- increase demand for luxury products- businesses need more staff- unemployment reduces- Increase in economic growth
Increase demand- shortage of stock- higher prices- business expansion
Negatives:
Minimum wage increases- pay staff more- higher cost of production- increase in pricing- change in demand
Income falls- demand falls- luxury demand falls- essential product demand increases- surplus of luxury items- prices reduced- lower profits for business- reduce production costs- cut staff- unemployment
What are factors that affect cost and demand and increase competitiveness?
- Investment in new equipment and technology
- Improvements in operational procedures
- Effectiveness of the marketing mix
- Innovation through investment in research and development- Newer products and services mean consumers want to upgrade
- Financial planning and control
- Staff skills, education and training
- Incentive schemes for staff
What happens if a business has a reduction in costs?
They will generally decrease the pricing of their goods and services and therefore increase demand- Higher revenue.
Opposite if business production costs increase.
What are factors that influence the price of a product?
- Price
- Taste and Fashion (Retail, fashion trends)
- Price of other goods
- Complementary- Products bused alongside another. If demand of bread increases so will the demand of butter for the bread. Electronics and chargers etc.
- Substitutes
- Marketing and advertising
- Seasonal factors- Christmas crackers on Christmas, sunglasses during summer
What is a substitute product?
If the price of a product increases but there are alternatives in the market then this would be called a substitute product and consumers will choose the cheapest alternative unless the product is a necessity.
How can we use weighted average to measure PESTEL factors?
- Select most important PESTEL factors
- Give them a rating of importance (in relative to the other factors. Ie. Total ratings must add up to 100%
- Give them assigned grades (Scores out of 10)
- Work out each average of (score x percentage)
- Add up each average for weighted average and compare to other options e.g. country, market etc.
What are legal factors when doing PESTEL analysis?
Company knows what is/ is not legal to operate safely and successfully- Discrimination laws, consumer protection laws, copyright/patent laws, health safety laws etc.
If you’re business also runs overseas it may be harder to keep up with other country’s laws. Also laws are changing constantly and have different impacts on your business.
Solution would be to have a legal advisor/ attorney to keep up with these things.
What are environmental factors when doing PESTEL analysis?
The well being of our planet- Weather, climate, environmental offsets and climate change etc.
Climate change is changing how companies operate, practicing sustainability, corporate social responsibility.
What are technological factors when doing PESTEL analysis?
Innovations and regulations regarding technology that may affect the operations of the industry/market. E.g. Technology incentives, level of innovation, automation, technological change/awareness etc.
Can be good or bad. Should i still enter this industry? Launch this product? Will my business get replaced by technology?
What are social factors when doing PESTEL analysis?
Represents the demographic, characteristics and norms of the population of which the organisation operates. E.g. Population growth rate, age distribution, income levels, careers/health/lifestyle, cultural barriers etc.
REALLY important for marketing and target audience.
What are economic factors when doing PESTEL analysis?
How certain economies performance can affect a business. e.g. economic growth, exchange rates, inflation rates, interest rates, disposable income of consumers, unemployment rates etc.
Affects the purchasing power of consumers and affects supply and demand in the economy- Long term and short term effects. This can affect company pricing
What are the two market indicators?
- Economic growth
2. Market demand
What is GDP?
- Measure of the value of activity in the economy
- Value used to assess changes in economic growth
List some key issues that make the external environment tougher
- Competitors with significant market share/ faster growth than market
- Disruptive technologies
- Competitors innovation and investment in R&D
What is real income and what factors affect it?
Consumer’s amount of disposable income
Price fluctuation, wages, employment levels, interest rates and tax have impact
List different interest rates operating in the economy
- Savings in banks and other accounts
- Loan interest
- Mortgage interest
- Credit card interest
- Government and corporate bonds
What is revenue?
The MONEY that goes into the business
What is a disadvantage of a private limited company?
Shares are sold privately, limited amount of potential investors.
What is limited liability?
Shareholders can only lose their own investment in the company
What is a profit and loss statement also known as?
Income statement
