Unit 1 Adv business

• Fiscal Policy


  The means by which the government adjusts its spending levels and tax rates to monitor and influence a nation's economy
• Fiscal Policy


  1. Changes to the tax system

  2. Corporation tax – tax on company profits

  3. Income Tax – changes increase/reduce disposable income and therefore the amount people can spend on goods and services

  4. VAT – increase makes most products more expensive and vice versa
• Monetary Policy


  The process by which the monetary authority of a country controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency
• Monetary Policy


  1. Interest rates set by the Bank of England

  2. Increases in interest rates make the cost of borrowing higher

  3. Affects profits, cash flow

  4. May be particularly difficult for small firms to cope with
• Government Policies - summary

  • Fiscal Policy – changing Taxation and Government spending
  • Monetary Policy – changing interest rates, altering money supply
  • Legislation – protecting consumers
  • Competition policy – to ensure fair trading
  • Regional Policy – to support employment in various areas
• Reasons for Government involvement

  • To control the level of economic activity
  • To facilitate financial investment
  • To provide those services which are uneconomical to be provided by the private sector
  • To improve public service provision
• Further reasons for Government involvement

  • To avoid exploitation of the weak – Equal opportunity
  • To regulate activities
  • To protect the consumer
• Trade Descriptions Act / Consumer Credit Act
• To decrease unemployment and improve employment opportunity
• Businesses may have to increase their opening hours to make the same amount of revenue


  Which will increase overhead costs such as electricity
• Government grants are available for businesses (worth over £1 billion available) which allows them to survive, improves a firm's liquidity without the requirement to repay the cash sum
• The furlough scheme


  Government pays 80% of wages for staff – allows businesses to keep on highly trained staff for future – lowers business wage expenses
• Allowing the payment of VAT and Self Assessment income tax have been deferred – aids cash flow especially for small businesses
• China


  Largest consumer market in the world with over 1.4 billion people, offering enormous opportunities for businesses and investors
• High-speed rail network in China

  China boasts the world's most extensive high-speed rail network, covering over 22,000 miles (35,000 km) and connecting cities across the country, making travel convenient and efficient.
• China's economic growth


  Rapid, sustained growth in China has lifted its citizens out of extreme poverty, decreasing the poverty rate from 8.5% in 2013 to 1.7% in 2018. Capital investment and exports have been the foundations for Chinese growth and development.
• China's latest economic plan

  Developing the services sector, increasing urbanisation, and improving incomes.
• China's exports are changing pattern
• Organisations from the Association of South East Asian Nations (ASEAN) and China have become more powerful.
• ASEAN


  The Association of Southeast Asian Nations
• Aims and Purposes of ASEAN

  • To accelerate the economic growth, social progress and cultural development in the region through joint endeavours
  • To promote regional peace and stability through abiding respect for justice
  • To promote active collaboration/assistance on matters of common interest in the economic, social, cultural, technical, scientific and administrative fields
  • To provide assistance to each other in the form of training and research facilities in the educational, professional, technical and administrative spheres
  • To collaborate more effectively for the greater utilisation of their agriculture and industries, expansion of their trade, improvement of their transportation and communications facilities, raising of the living standards of their peoples
  • Promote South East Asian studies
  • To maintain close international co-operation with organisations with similar aims and purposes
• ASEAN is a strategic region, where economic growth and development is expected to exceed the global average for the foreseeable future
• Differences between EU and ASEAN

  • EU has a Single Market, ASEAN does not
  • EU has political power to create regulations that impact on member states, ASEAN does not
  • EU has own Currency - Euro, ASEAN does not
  • Both promote peace and stability in their region
  • Both have a Commitment to regional integration and cooperation
  • Both promote sharing training and resources
  • Both promote collaboration between member states
  • ASEAN does not have political integration involving member states, unlike the EU
• Transfer Pricing


  As MNCs operate in many different countries, goods produced by them are regularly transferred between the parent company and its foreign operations
• Transfer price


  The price at which goods and services are transferred between subsidiaries of MNCs in different countries
• Multinationals


  Foreign multinational companies that decide to choose the UK as a base for their operations
• Why multinationals choose the UK

  • The UK's general business environment
  • English is the international language of business
  • The country is economically stable
  • The UK has a skilled and adaptable workforce
  • The UK is renowned for its unrivalled research and development (R&D) capabilities
• Issues as a result of growth

  • Duplication of effort
  • Duplication of staffing
  • Compulsory redundancies
  • Diseconomies of scale
  • Clashes of culture
• Methods of Growth


  • Organic Growth
  • Horizontal integration
  • Backwards vertical integration
  • Forwards vertical integration
  • Conglomerate integration
  • De-Merger
  • Contracting out/Outsourcing
• Foreign Direct Investment (FDI)

  Occurs when a business either invests directly in facilities to produce and/or market a product in a foreign /host country or buys an existing enterprise in foreign /host country
• Reasons for FDI


  • To access new overseas markets or better serve existing markets
  • To take advantage of lower manufacturing and wage costs
  • To access new technology and skills - particularly in R&D
  • To locate a business function near clusters of similar or related companies
• The transfer of the goods does not go outside the company so no actual buying and selling takes place
• In recent years FDI has grown more rapidly than the volume of world trade (imports and exports)
• Government Encouragement for FDI

  • Incentives for foreign companies to invest
  • The downfall of communism opening up new markets
  • Emerging markets/economies
• Government Restrictions for FDI

  • Laws and policies
  • Sanctions and Embargos
• Methods of FDI


  • Creating new facilities in the host country
  • Building over an existing company in the host country
• Advantages of creating new facilities in host country

  • Firm can replicate (copy) facilities around the world
  • Firms can manage facilities on a common footing
  • Recruit a new workforce and establish their corporate culture
• Disadvantages of creating new facilities in host country

  • It can take a long time to build new premises
  • It can take a lot of effort, e.g. hiring new employees and training them
  • It is expensive to build from scratch
• Multinational decides transfer price

  Between the subsidiaries
• Global business


  Multinational corporations