Mar 28, 2010
External Influences on Business
External Influences on Business
External Influences Technology and Changing Social Attitudes
External Influences New business opportunities Opening up of new markets Technical progress in foreign countries
Cost of investment versus return
External Influences New business opportunities: Within the same industry? (Core business) Totally new markets/opportunities Amount of investment needed
Market research – do consumers need the product?
External Influences e.g. Canon – core business, optical technologies: cameras, photocopiers, scanners, projectors, calculators, binoculars, digital cameras, printers, projectors
New markets – Discmans? DVD players? Flat Screen TVs? Plasma TVs?
External Influences Cheaper alternatives from abroad – CFC technology, bio-technology, computer and micro-processor technology (especially China?)
Rivals producing substitutes – PS2, X-Box and Game Cube
External Influences Technology and productivity – impact on workers, morale, motivation? Implications for ‘old’ plants (e.g. Longbridge versus Sunderland?
Flexible working – working from home, hot desking, mobile computing (wireless networks) video-conferencing
External Influences More efficient? – if so why have some firms banned the use of e-mail at work for any purpose? Impact on motivation, morale and worker attitudes
To what extent does the message get through?
External Influences Changing Social Attitudes: Social ‘class’ – changing socio–economic groupings Links with behaviour and demand (e.g. growing number of pensioners; those who smoke or drink certain types of alcohol) Changing tastes – concern for ‘green’ production, attitudes to fur, wine versus beer, vegetarians (long term or short term?)
Changing lifestyles – convenience and fast foods, use of freezers, use of cars, amount of leisure time and how it is used, etc.
External Influences Changing income structures Regional distribution of income Impact of government taxation on disposable incomes
Relative income elasticity of demand for different goods and services
External Influences Business Ethics and Moral Behaviour
Social and Environmental Audits
External Influences 3: Legal and Political
External Influences - Legal and Political
The European Union
Labour Market Legislation
External Influences - Legal and Political Impact on competitiveness Impact on decision making
Impact on innovation and new product development
External Influences - Legal and Political Example 1 - Accessibility and usability Increases need to provide for those with different needs
Installation of lifts, ramps, wheelchair access, widening doorways, etc., monitoring of Web site, use of colour, font in documents – all adds costs
External Influences - Legal and Political Example 2 - Government Policy: Government procurement policies Should government focus on securing most cost-effective solution or supporting of UK industry? Decisions to privatise – wide impact on businesses in relevant sectors
Government planning law – out-of-town shopping centres
External Influences - Legal and Political Stilton Cheese, Cornish Pasties, Parma Ham, Parmesan Cheese – Who has the right to name their products in a certain way? Date marking and food labelling – stricter controls – how much meat is in sausages? Impact on costs to comply
Who benefits – consumer? But at what cost?
External Influences 4 Business Ethics, Moral and Environmental Issues
Business Ethics Rules or standards governing the conduct of a business Moral code – what is ‘right’ and what is ‘wrong’?
Tension between different stakeholders
Stakeholders Responsibilities to stakeholder groups: Shareholders – Generate profits and pay dividends Customers – provide good quality products at reasonable prices. Safety, honesty, decency and truthfulness Employees – health and safety at work, security, fair pay
Suppliers – pay on time, pay fair rates for the work done, provide element of security
Stakeholders Local Community – provide employment, safe working environment, minimise pollution and negative externalities – provide external benefits? Government – abide by the law, pay taxes, abide by regulations Management – their aims versus those of the organisation as a whole
Environment – limit pollution, congestion, environmental degradation, development, etc.
Business Ethics Profits versus higher wages Expansion versus development Production versus pollution Supplier benefits versus consumer prices/lower costs
Survival of the business versus needs of stakeholders
Business Ethics Production of children's toys Multi-national operations McDonalds – food quality, litter
Jewellery – diamonds and gold
Business Ethics Improve competition and contestability of markets
Social and Environmental Audits
Social and Environmental Audits
Environment Urban blight – excessive development, inappropriate development, use of greenbelt land Waste – land-fill? re-cycling? burning? Energy use – renewable energy, non-renewable resources
Global Warming – fact or fiction?
Externalities Impact on a third party of a business decision Those affected not involved in the decision Negative externalities – negative effects of business activity – pollution, urban development, etc
e.g. out of town shopping centres – impact on city centres
Externalities Benefits to third parties of business activity e.g. new infrastructure as a result of development, side effects of research and development, technology (the Internet?), convenience, improved standards of living
Out of town shopping centres – greater ease of access, everything in one place, pleasant environment to shop in, etc.
Externalities Out of town shopping centres: Highlights complexity of the interaction of positive and negative externalities
Government policies – encourage business activity that leads to positive externalities and discourage those that lead to negative externalities
External Influences The Macro-Economy
External Influences – The Macro-Economy The production and exchange process of the whole economy as opposed to individual markets within the economy
Businesses affected by changes in the macro–economy and by government policies
External Influences – The Macro-Economy Government Macro-economic objectives: Control of inflation – 2.0% Maintain full employment – all who want a job can get one! Control of balance of payments Stability of exchange rate
Maintain steady economic growth -> 2-2.5%?
External Influences – The Macro-Economy Inflation: a general rise in the price level over a period of time RPIX = RPI – mortgage interest payments RPIY = RPIX – indirect taxes and local authority tax
HICP – Harmonised Index of Consumer Prices (From November 2003)
External Influences – The Macro-Economy HICP – Internationally comparable measure of inflation adopted by all EU countries Geometric rather than arithmetic mean Does not include: housing costs, buildings insurance, mortgage costs Does include: university accommodation fees, tuition fees, stock broker charges
Weights determined by expenditure by private households AND all private visitors to UK, and residents of institutional households
External Influences – The Macro-Economy Policies designed to help those who want to work get work: National Minimum Wage and changes to welfare benefits ‘ New Deal’ and ‘Employment Zones’ Investing in education and training
Source: Adapted from ‘Towards full employment in a modern society’, Department for Work and Pensions, 2001 (http://www.dwp.gov.uk/fullemployment/pdf/NewDealall.pdf)
External Influences – The Macro-Economy A record of the trade between the UK and other countries Imports – visible and invisible – purchase of goods and services from other countries which result in payments being made abroad
Exports – visible and invisible – the sale of goods and services to other countries which results in payments being received from those countries
External Influences – The Macro-Economy Ease with which businesses can sell products abroad Impact on business costs from imports
Impact on competition from imports and exports
External Influences – The Macro-Economy The rate at which one currency can be exchanged for another e.g. £1 = €1.72, £1 = $1.68
Influences the perceived prices of imports and exports and therefore costs and competitiveness
External Influences – The Macro-Economy Appreciation – value of £ against other currencies rises, e.g. £1 = €1.72 to £1 = €1.75 Exports harder to sell abroad - foreign traders have to give up more of their currency to get same amount of £ - export prices appear to rise
Imports appear to be cheaper – buyer in UK gets more foreign currency for every £
External Influences – The Macro-Economy Depreciation – value of £ against other currencies falls, e.g. £1 = $1.68 to £1 = $1.60 Exporters benefit – foreign traders get more £ for their currency – export prices appear to fall Importers – have to give up more £ to get same amount of foreign currency – appears import prices have risen
Precise effect of both depends on Price Elasticity of demand for imports and exports
External Influences – The Macro-Economy Measured by Gross Domestic Product (GDP) – the value of output of goods and services in the economy over a period of a year Measured by adding up total incomes (Y) or total expenditure (E) or total output of industry In theory all should be the same! Appropriate growth levels in UK too high - economy overheating, too low - economy stagnating, resources unemployed
Actual growth of 2–2.5% seen as being sustainable
External Influences – The Macro-Economy Low growth – business sales low, profit margins tight, excess capacity, orders reduced, excess stock, redundancies
High growth – business sales rising quickly, profits rising, skill shortages, inflationary pressure on prices, capacity squeezed, stocks running down
External Influences – The Macro-Economy Fiscal Policy – influencing economic and non-economic objectives through variations in public income and expenditure (tax revenue, borrowing and government spending)
Affects all aspects of business activity – regulations, infrastructure – roads, transport, etc, health and safety, support for industry, business taxation, employment laws and taxes – income tax and national insurance contributions, pension contributions, etc.
External Influences – The Macro-Economy Changes in the rate of interest to help control the level of expenditure in the economy and therefore the level of inflation In hands of the Monetary Policy Committee – (MPC) of the Bank of England
Significant effects on business activity:
External Influences – The Macro-Economy Likely to depress consumer spending Increases the cost of borrowing – impacts on investment decisions Increases existing loan costs – the more highly geared the greater the impact Affects exchange rate – could impact on sales abroad (exports) or cost of imported resources
Falling rates have the opposite effect