tutor2u ™ gcse business studies revision presentations 2004 external environment

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GCSE Business GCSE Business StudiesStudiesRevision Presentations 2004Revision Presentations 2004

External EnvironmentExternal Environment


GCSE Business GCSE Business StudiesStudies

External factors affecting business

Social (E.g. greater numbers of older and retired people in UK population)

Legal (E.g. Human Rights Act – customers right to remain private)

Economic (E.g. Increase in income tax reduces amount customers have to spend)

Political (E.g. decision to spend more on public services such as education and health)

Technological (E.g. effect of widespread use of Internet)

Ethical (E.g. changing attitudes to employing older people)



Changing External Environment

Markets keep changing

Customers develop new wants and needs

E.g. want DVD’s rather than CD’s

New competitors enter a market

New technologies emerge

E.g. image mobile phones



External factors: threat or opportunity?

They can be both!

Depends on what business does and how it responds to changing environment.

Example: an increase in Minimum Wage

A change in a political and economic factor

Might increase costs of some businesses (e.g. clothing factories)

Allows employees to spend more money on goods or services sold by other businesses (e.g. Bingo Halls)



Main Economic Sectors

Primary sector

Extraction and production of raw materials

E.g. coal, wood and steel

Secondary sector

Transformation of raw materials in goods

E.g. manufacturing steel into cars

Tertiary sector

Provision of services to consumers and businesses

E.g. cinema and banking



Chain of Production

Chain of production

Follows construction of a good from its extraction as a raw material through to its final sale to consumer

Example: piece of wood:

Cut from a felled tree (primary sector)

Made into a table by a carpenter (secondary)

Sold in a shop (tertiary)



Specialisation

Occurs when a producer concentrates on:

Making a small number of products, or

Providing a narrowly defined service

Examples:

A baker baking only bread

Machinery that only cuts sheet metal

Lawyer dealing only with criminal law

Specialisation means that producer becomes more efficient

Learns best way to produce at lowest cost

Specialisation also allows a producer to get a higher price from a customer

Customer is prepared to pay more for expert / specialist knowledge (e.g. a cosmetic surgeon)



Importance of tertiary sector

Now the most important economic sector

Growing faster than the primary or secondary sector

Higher incomes in UK mean that households demand more services such as more holidays and restaurants

More leisure time means more time to spend on services

Businesses offer more after sales services, e.g. help lines offered through telephone call centres



Public and Private Sectors

Private sector

Private individuals and organisations own business activity

Businesses usually run with the objective of making a profit

Businesses owned by “shareholders” or “partners”

Public sector

Organisations are owned and controlled by Government

Includes central government, local government and public corporations

Objectives usually based on delivering service (e.g. educational standards) rather than making a profit



Objectives of Private Sector Businesses

Short term objectives

Survival

Make a profit

Long term objectives:

Expand

International operations

Market leadership

Environmentally aware

Satisfy investors



Examples from Public Sector

National Health Service

Patent Office

Royal Mail

British Tourist Authority

BBC

Visit web site

Visit web site

Visit web site

Visit web site

Visit web site



Objectives of Public Sector Organisations

Provision of equitable level of goods and services

i.e. low price, affordable and available for those who need good

Provision of products not provided by private businesses

E.g. free health care and defence



Mixed Economy

An economy where goods and services are produced by a combination of:

Government controlled corporations, and

Private businesses acting on their own behalf, without intervention from government

Mixed economy sits between two extremes of centrally planned economies (communism) and free market economies

UK is a mixed economy

USA has less government intervention

France has more intervention



Voluntary Sector

Businesses which are operated “not for profit”

Usually staffed by volunteers who work without pay

E.g. Voluntary Service Organisation

Some “not for profit” businesses do try to make money – to help raise money for activities of organisation

E.g. charity shops



Economic Environment

Businesses are directly and indirectly affected by changes in the economy

Key areas that affect businesses:

Taxation

Interest rates

Exchange rates

Labour market

European economy



Taxation

Main taxes affecting businesses:

Corporation tax – a tax on profits earned by a business

Income Tax – businesses collect this from employees on behalf of the Government

National Insurance – contributions are paid by employees and their employers

Value added tax (“VAT”): tax charged on sales – which businesses collect for the Government

Council tax: local tax charged by local authorities on households and businesses

Customs and excise duties: e.g. tax on wines & spirits; petrol



Income Tax

The main tax on employees

Directly affects how much “take-home” pay households have available to spend

Fall in income tax: (i.e. lower rate of tax charged)

Leads to an increase in amount of money available for households to spend on products (known as “disposable income)

Increased money available may be spent on products of business leading to increased sales and profits

Increase in income tax

Lowers disposable income

May reduce demand for businesses’ products/services



Exchange Rates

Exchange rates changes can increase or lower price of a product sold abroad

Price of imported raw materials may also change when exchange rates move

Price of competitors’ products may change in home market.

For example an increase in exchange rate:

Means that the selling price for a UK business selling abroad goes up – likely to lower sales

Price of imported raw materials falls, either leading to a fall in price and more sales, or an increase in profits

Competitors’ prices fall, meaning lower sales.



Interest Rates

Represent the cost of borrowing money

Set by the Bank of England

Effect of an increase in interest rates?

Decrease demand for a business’ product as consumer less likely to borrow to fund spending

Increase business financial costs as interest charges on existing loans will increase



Labour market

Labour shortages

May be more difficult to recruit new people - might prevent business from growing as fast as it wishes

Existing workers may demand higher wages because they know that business will be reluctant to release them

Competitors may try harder to poach best staff Business may have to invest further in staff training and

development rather than rely on “recruiting” new skills into business

Mobility of labour

Mobility of labour means speed with which a person can move into a different job

Geographical mobility (can they physically move to that place of work )

Occupational mobility (do they have skills to do new job)



Labour & Capital Intensive Industries

Examples of Labour Intensive Industries

Hairdressing

House-building

Teaching

Fashion industry

Examples of Capital Intensive Industries

Car industry

Steel production

Rail industry

tutor2u ™ gcse business studies revision presentations 2004 external environment

Documents

business social

business activity businesses

services businesses

external environment

public services

banking slide

important economic sector

shop tertiary slide