External Influences


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External Influences

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  • The aim of this slide is to demonstrate that companies with a core skill are able to use that knowledge to apply to a range of associated products. But, how far should a company extend itself into other products using similar but not exact technologies? DVD players, Discmans, etc. all utilise similar types of technology but a company like Canon may decide to steer clear of them because it is not their core skill – many businesses are re-focusing on what they are good at rather than trying to spread themselves too far. This is becoming even more relevant as the boundaries between technologies become ever more blurred and micro processors are used to control or execute so many products, e.g. the intelligent fridge! Many years ago cameras did not have micro-chips in them, Canon have had to acquire an understanding of that technology to keep ahead in the field of photographic equipment and now even more so with digital cameras.
  • External Influences

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