This document discusses various external influences on business, including technological changes, social attitudes, legal and political factors, ethics and the macroeconomic environment. It notes that new technologies can create new opportunities or substitutes, while social attitudes impact consumer demand. External influences like regulations and government policies affect business costs and competitiveness. The macroeconomic factors of inflation, economic growth, interest rates and exchange rates also impact business activity and decision making.

1. External Influences on Business

2. External Influences on Business

3. External Influences Technology and Changing Social Attitudes

4. External Influences New Technology: New business opportunities Creation of substitutes Opening up of new markets Technical progress in foreign countries Productivity Ways of working Communication Cost of investment versus return

5. 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?

6. 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? Risk versus gain

7. External Influences Threats: Cheaper alternatives from abroad – CFC technology, bio-technology, computer and micro-processor technology (especially China?) Rivals producing substitutes – PS2, X-Box and Game Cube How to react?

8. External Influences Working practices: 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

9. External Influences Communication: Faster? 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?

10. 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.

11. External Influences Changing income structures Distribution of income Regional distribution of income Impact of government taxation on disposable incomes Relative income elasticity of demand for different goods and services

12. External Influences Business Ethics and Moral Behaviour

13. External Influences

14. Business Ethics

15. Stakeholders

16. Social and Environmental Audits

17. Moral Behaviour

18. External Influences 3: Legal and Political

19. External Influences - Legal and Political

20. Consumer Legislation

21. UK Government

22. The European Union

23. Labour Market Legislation

24. External Influences - Legal and Political Impact on Business: Impact on costs Impact on competitiveness Impact on profitability Impact on behaviour Impact on decision making Impact on innovation and new product development

25. 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

26. 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

27. External Influences - Legal and Political Example 3 - The EU 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?

28. External Influences 4 Business Ethics, Moral and Environmental Issues

29. External Influences

30. Business Ethics

31. Business Ethics Rules or standards governing the conduct of a business Moral code – what is ‘right’ and what is ‘wrong’? Highly subjective nature Tension between different stakeholders

32. Stakeholders

33. 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

34. 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.

35. Moral Behaviour

36. Business Ethics Tensions: 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

37. Business Ethics Examples: Production of children's toys Coffee industry Baby milk Music industry Multi-national operations McDonalds – food quality, litter Chocolate industry Jewellery – diamonds and gold Chemical industry

38. Business Ethics Solutions: Taxation Self Regulation Subsidies Government/EU regulation Legislation Pressure Groups Improve competition and contestability of markets Social and Environmental Audits

39. Social and Environmental Audits

40. 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? Pollution: Noise Air Land Sea Water

41. 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

42. Externalities Positive 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.

43. 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

44. External Influences The Macro-Economy

45. External Influences – The Macro-Economy 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

46. 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%?

47. External Influences – The Macro-Economy Inflation: a general rise in the price level over a period of time Measured by: RPI – Retail Price Index RPIX = RPI – mortgage interest payments RPIY = RPIX – indirect taxes and local authority tax HICP – Harmonised Index of Consumer Prices (From November 2003)

48. 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

49. External Influences – The Macro-Economy Full Employment: Policies designed to help those who want to work get work: Strong economy National Minimum Wage and changes to welfare benefits ‘ New Deal’ and ‘Employment Zones’ Investing in education and training Investing in diversity 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)

50. External Influences – The Macro-Economy Balance of Payments: 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

51. External Influences – The Macro-Economy Balance of Payments: Ease with which businesses can sell products abroad Impact on business costs from imports Impact on competition from imports and exports

52. External Influences – The Macro-Economy Exchange Rates 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

53. External Influences – The Macro-Economy Exchange Rates: Effects on Business: 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 £

54. 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

55. External Influences – The Macro-Economy Economic Growth: 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

56. External Influences – The Macro-Economy Economic Growth Effects on business: 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

58. External Influences – The Macro-Economy Government Policies: 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.

59. External Influences – The Macro-Economy Monetary Policy: 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:

60. External Influences – The Macro-Economy Rising Interest Rates: 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