Unit 7B: Analysis of the external environment:

• Single Market

  Trade between member states is easy
• European Single Market

  • Very few trade barriers between EU member states
  • Firms in EU countries don't pay tax when they import goods from other EU countries
  • Provides easy export opportunities for firms in the EU
• Single market smooths out price differences between member states

  1. Producers can look for the highest selling price within the EU

  2. Consumers can look for the lowest purchase price within the EU

  3. When price is high in part of the EU, producers flood that area driving down prices

  4. Low prices attract more buyers pushing prices up
• EU customs union

  Same customs duties apply to all goods entering the EU, regardless of which non-member country they come from or which EU country they're going to
• Freedom of movement within the EU

  • For all raw materials, finished goods and workers
  • EU citizens can work in any country in the EU
  • Businesses have the opportunity to expand into other EU countries
• Common policies on product regulation

  • How food should be labelled
  • How much energy appliances can consume
  • Businesses have to take these regulations into account when making functional decisions
• The EU banned vacuum cleaners of more than 1600 watts in 2014
• Competition law

  • Ensures fair competition so companies are motivated to provide good quality products at reasonable prices
  • Encourages companies to innovate and develop new products
  • Provides customers with choice through product differentiation
• Competition Act 1998 (UK)

  • Sets out laws on competition and what constitutes unfair business practices
  • Enforced by the Competition and Markets Authority (CMA)
• EU competition law

  • Regulates competition across the EU
  • Companies breaking the laws can be given big fines or even be criminally prosecuted
• Businesses need to understand competition laws so they don't break them and can watch out for competitors breaking them
• Competition law prohibits

  • Businesses conspiring to fix prices
  • Businesses conspiring with competitors to limit production to charge higher prices due to shortage
  • Businesses dividing up the market to avoid competition
• Dominant position

  A business has a market share of at least 50%
• Laws to stop abuse of dominant position

  • Dominant businesses can't demand exclusivity from wholesalers/retailers
  • Dominant businesses can't demand retailers buy a second product to buy the popular one (tying)
  • Businesses can't sell goods at a loss to force smaller competitors out (predatory pricing)
• Monopoly

  One business has complete control over the market, with no competition, allowing them to set whatever price they want
• The CMA can prevent monopolies from occurring by stopping takeovers and mergers
• Environmental regulation

  • Industries releasing waste into water or land are regulated by the Environment Agency
  • Businesses must ensure production processes don't cause unnecessary pollution or risk heavy fines
  • Industrial processes releasing pollution into air are regulated by local authorities
  • Businesses must get authorisation before carrying out processes that create smoke or noise
  • Environmental health officers can force factories to stop making noise at night if disturbing local residents
• Examples of specific laws and directives affecting businesses

  • EU directive on Waste Electrical and Electronic Equipment (WEEE) - forces increased recycling
  • Landfill Tax - introduced in 1996 to reduce waste dumping
  • EU Packaging Waste Directive - forces increased recycling of packaging
  • Climate Change Act - requires UK PLCs to report greenhouse gas emissions
• Businesses must factor in the cost of complying with environmental laws in their decisions, which may influence materials or processes used
• Some businesses can turn environmental restrictions into unique selling points of their products
• Laws protecting customers and consumers

  • Trade Descriptions Act (1968) - prevents misleading descriptions
  • Sale of Goods Act (1979), Sale and Supply of Goods Act (1994), Sale and Supply of Goods to Consumers Regulations (2002) - set out customer rights for goods being fit for purpose and of satisfactory quality
  • Consumer Protection Act (1987) - requires new consumer goods to be safe
  • Data Protection Act (1998) - prevents misuse of customer data
• These laws affect the functional decisions made by different business departments like R&D, manufacturing and marketing
• Labour Laws


  Control what rights Employees have
• Employees


  • Have a legal right to fair treatment while at work, and also while looking for employment
• Equality Act 2010


  Protects employees from discrimination based on age, gender, race, religion, disability, pregnancy, etc. These things are known as protected characteristics
• The Equality Act 2010 simplified things by replacing several previous anti-discrimination acts, such as the Race Relations Act (1976) and the Sex Discrimination Act (1975). It reflects the content of the EU's Equal Treatment Directive.
• Types of discrimination


  • Direct
  • Indirect
• Direct discrimination


  Treating someone less favourably because they have a protected characteristic, e.g. not employing someone because of a disability, or paying women less than men doing the same job
• Indirect discrimination


  When everyone is treated the same but it has a worse effect on one group of people than on others, e.g. a rule that employees must not wear head coverings could be indirect discrimination against some religions
• Reasonable adjustments


  Employers have to make for workers with disabilities, such as installing wheelchair ramps
• Parents can ask to work flexibly, and employers can only refuse for a good business reason. Men with young children who are refused flexible working could claim that it is direct sex discrimination if women with young children have had flexible working requests approved.
• Discrimination Laws affect All Aspects of businesses
• Recruitment


  • Employers aren't allowed to state in job adverts that candidates must be a particular age, race, gender, etc. They can't use discriminatory language, e.g. advertising for a "waitress" excludes men. Businesses are only allowed to advertise for someone of a specific age, gender, etc. if it's a genuine requirement of the job - e.g. a female toilet attendant for ladies' toilets. Businesses have to make decisions about who to employ without discriminating, and be able to justify why they gave a job to a particular candidate, in case an unsuccessful candidate takes them to a tribunal. Avoiding discrimination when recruiting means that businesses will recruit a more diverse workforce, which means they'll have a wider range of skills, talents and experiences to draw upon.
• Government Policies


  Encourage Enterprise
• Pay and Benefits


  • Businesses have to give male and female employees the same pay for work of equal value. They're entitled to the same benefits too (e.g. a company car). Not paying fairly can result in a fall in the quality of work and poor staff retention, as well as having to pay compensation and legal fees if taken to tribunals.
• Promotions and Redundancies


  • Discrimination laws mean that everyone should have the same opportunity to get promoted. For example, businesses can't just promote older people because they think young people are more likely to change jobs. If businesses need to make redundancies, they can't deliberately select staff who are older, disabled, etc.
• The UK government encourages enterprises to be set up because enterprise benefits the economy
• Employment Tribunals


  Can settle disputes where employees feel they've been treated unfairly by their employers. Representatives of the employer and the employee put forward their cases, and a tribunal judge (or sometimes a tribunal panel) decides who's in the right. The employer might have to pay compensation or give the employee their job back in an unfair dismissal case.
• Employers have to pay staff at least the Minimum Wage
• Businesses increase productivity and create new jobs