3.1.3 Businesses operate within an external environment

• How is capital raised - share capital?

  Known as equity finance

  returns are higher

  Return is paid in dividends

  Can be repaid
• How is capital raised - debt?

  Most commonly in the form of loans or overdrafts

  Return: interest on amount loaded and outstanding

  Repaid over an agreed period of time

  Can be short or long-term

  often secured against the assets of the company
• What are methods of issuing shares?

  Floatation --> share issued on stock exchange for the first time. Opportunity for existing shareholders to realise profits on their investment, its costly and time consuming
• What are the benefits of floatation?

  Able to raise substantial funds if the business has best prospects

  Broader base of shareholders

  Equity rather than debt, lower risk finance structure
• What are the drawbacks of share issues?

  Can be costly and time consuming

  Existing shareholders may be alienated

  Equity has a cost of capital that is higher than debt
• What external factors influence a business's costs and demand?

  Competition

  Market conditions

  Incomes

  Political tension
• Businesses must consider the external environment in which they operates in order to make effective decisions
• Most businesses are unlikely to have nay control over the external environment, they need to monitor their environment constantly in order to react to any changes that occur
• The most competitive businesses will anticipate change rather than react to it
• Competition with a significant market share or faster growth can reduce demand for a businesses products

  Compettotors investments in innoation ad nerw product devlopment can attract consumers away from other firms
• What factors affect purchase?

  Consumer tastes (trends)

  Quality

  Availability

  Brand reputation

  Sustainability
• What factors can change price?

  Taxes

  Exchange rates

  Supply

  Demand
• Competition is the process by which businesses stive against one another to attract more consumers by keeping prices down and making the product more appealing they compete on other ways than price
• What are homogenous goods?

  Goods that only compete on price
• What are the benefits of homogenous goods?

  Don't have to focus solely on quality

  Target more people
• What are the drawbacks of homogenous goods?

  Have to change price regularly to stay relevant

  Harder for consumers to chose a product
• How can businesses be more competitive?

  Follow trends

  Staff training

  Increase quality

  Planning
• What factors are outsides a business's control?

  Taxes

  Competition

  Government policies

  National disaters

  Conflic/war
• What is PESTLE?

  P- political

  E- economic

  S- social

  T- technological

  L- legal

  E- ethical/environmental
• What does a political changes mean?

  Competition policy

  Industry regulation

  Government spending/tax

  Business policy
• What do economics changes mean?

  Interest rates

  Consumer spending

  Exchange rates

  Business cycle
• What do social changes mean?

  Demographic change

  Impact of pressure groups

  Consumer lifestyles
• What do technological changes mean?

  Disruptive technology

  Adoption of mobile technology

  New production process

  New marketing strategies
• What do legal changes mean?

  Employment laws

  Living/national wage

  Health and safety laws

  Environmental laws
• What do ethical/environmental changes mean?

  Sustainability

  Tax practices

  Ethical sourcing

  Environmental laws
• How is a PESTLE analysis used by a business, in terms of competitors?

  They can lower price to appeal to more consumers, create a new marketing campaign or release a new directly competitive product
• How is a PESTLE analysis used by a business, in terms of environmental issues?

  They can limit their waste, use environmentally friendly materials or use renewable raw materials
• How is a PESTLE analysis used by a business, in terms of household income?

  They can release an essentials range, reduce prices or have more own brands
• What is GDP?

  The level of demand in most markets is influenced by the rate of economic growth a mature economy (UK) has a growth rate of 2-3%
• What is market demand?

  The size and growth of a market is a key indicator if market conditions, a fast growing market will encourage new entrants a slow growing market makes market conditions much tougher
• GDP is a measure of the value if output in the economy, a value used to assess change in economic growth
• Demand is how much of a good or services a consumer is willing and able to pay, for a business demand turns in to revenue
• Total expenditure - total amount spent on producing the goods and services
• Total income - total amount made from producing the goods and services
• Level of growth - the increase in growth from last year to the current year
• How has technology affected actives in human resources?

  Employee management

  Background checks

  Simulations

  Communication

  Data analysis

  Recruitment is simpler