analysing the external environment

• direct and indirect discrimination

  direct = treating someone less favourably because they have a protected characteristic eg. not employing someone because of a disability

  indirect = when everyone is treated the same but it has worse effect on one group of people than on others
• how do discrimination laws affect all businesses

  recruitment , pay and promotions/redundancies
• tariffs

  import taxes - discourage international trade

  removing or reducing tariffs between countries to make opportunities for business to make international change
• quotas

  trade restrictions set by governments that puts limits on imports and exports
• political changes impacting international trade

  when the UK joined the EU British exports to EU countries increased because there were no quotas or tariffs.

  imports from other EU countries to Britain also increased
• GDP definition

  gross domestic product

  the total market value of goods and services produced within a nation over a period of time
• what does GDP measure?

  measures economic performance of a country
• what does economic growth depend on?

  amount and quality of economic resources available

  productivity

  investment
• positive effects of GDP on businesses

  GDP means higher revenues, higher profitability

  potential for economies of scale

  growth increases confidence
• aspects of a boom

  GDP is high, production reaches max capacity, price increases, wages rise
• aspects of a recession

  incomes start to decrease, demand goes down and business confidence is reduced
• aspects of a slump

  GDP is at a low, lots of redundancies and unemployment is high
• aspects of recovery

  production increases, employment increases and people have more money to spend
• how do businesses deal with booms?

  businesses can raise prices and this increases profitability

  long lasting boom = new products
• how do businesses deal with recessions?

  make workers redundant to save costs and increase capacity utilisation
• global upswings and global recessions

  global upswings provide growth opportunities for everyone

  global recessions are bad for everyone
• consumer price index

  measures UK inflation - it tracks the prices of hundreds of goods and services that an average household would buy
• What happens when there is high inflation?

  Spending goes up temporarily as people rush to buy more before prices increase further.
• How does high inflation affect spending if wages do not increase accordingly?

  Spending goes down as people can afford less due to the disparity between prices and wages.
• deflation


  opposite of inflation - when there's not enough demand so companies reduce their prices
• how does deflation impact businesses?

  deflation causes a fall in productivity and this leads to a rise in unemployment.

  demand drops further and causes firms to lower prices
• what happens when the exchange rate is high?

  UK exports are relatively expensive abroad and imports to the UK are cheap to buy

  a strong pound is bad for UK exporters because their goods aren't competitively priced abroad
• what happens when the exchange rate is low?

  UK exporters are cheap to buy for other countries which is goof for UK exporters and imports to the UK are expensive
• what does a strong pound mean?

  cheaper imports and lower costs for UK businesses importing raw materials

  negative for UK manufacturers who export goods
• impact of globalisation on the economy

  resulted in businesses operating in lots of countries

  more opportunities for businesses in international markets

  benefit from economies of scale making them more competitive
• benefits of emerging economies

  developing countries that are fast growing

  good opportunity for businesses as they offer good returns due to rapid growth

  labour is usually cheaper in these countries
• risks associated with emerging economies

  more risky investments as they are less stable

  may be sudden political changes, infrastructure problems and currency fluctuations
• why are India and China important for UK businesses?

  as India's income increases its imports have also increased - opportunities for UK businesses

  china and India have large populations

  UK businesses can reduce their costs by outsourcing manufacturing to emerging economies
• difficulties for UK doing business in India and China

  language and cultural barriers can prevent UK businesses from trading over there

  emerging economies use different currencies

  GDP per person in China is below average
• demographic changes


  changes in the structure of the population over time in terms of age, sex and race
• how do demographic changes affect decision making?

  changes in consumer lifestyle and buying behaviour also lead to firms altering strategic planning

  more working parents will boost the workforce
• urbanisation

  an increase in the proportion of the population living in cities

  happening now at a fast rate for emerging economies
• what opportunities does the urbanisation of emerging economies bring to businesses?

  new markets with concentrated demand

  higher levels of education - more skilled workforce

  infrastructure and housing will be needed so existing businesses can expand in these areas
• migration

  the movement of the population from one area or country to another.
• how does migration affect businesses?

  migrants can create demand for certain products which creates new markets for businesses to move into

  'brain drain' = too many skilled people emigrating from a country has a negative impact
• environmental issues affecting business strategy


  customers, investors and the government can put pressure on businesses to be more environmentally friendly

  environmental audits which impact objectives and strategic planning
• benefits of good CSR

  competitive advantage

  brand loyalty

  employee morale - motivation

  businesses attract talented employees
• downsides of CSR

  CSR has costs which shareholders might see as a misuse of funds

  the costs may be passed down to customers - higher prices

  the expectation of CSR puts small businesses at a disadvantage
• opportunities that technology creates for businesses

  new products

  improved processes

  e-commerce

  mass customisation
• threats of increased digital technology

  competitors - technology reduces the barriers to entry for everyone

  businesses closing down physical stores - job loss

  if businesses rely heavily on tech there will be decreased productivity