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2.5 External Influences Flashcards

1
Q

What are some examples of external factors that impact the business?

A
  • Government
  • World events
  • Consumer tastes
  • Economic climate
  • Pressure groups
  • Changes in population
  • Social factors
  • Environmental factors
  • Legislation and regulation
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2
Q

What is the definition of appreciation of a currency?

A
  • a rise in the value of the currency
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3
Q

What is the definition of Base rate?

A

the rate of interest around which a bank structures other interest rates, if the Bank of England raises the base rate, all the other borrowing and savings rates are likely to move in the same direction and vice versa

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4
Q

What is the definition of a boom?

A

the peak of the economic cycle where GDP is growing at is fastest

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5
Q

What is the definition of the consumer price index (CPI)?

A

-a common measure of price changes used in the EU

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6
Q

What is the definition of Deflation?

A

-a fall in the general price level, also used to describe a situation were economic growth is falling or negative when inflation is falling

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7
Q

What is the definition of Depreciation (of a currency)?

A

a fall in the value of the currency

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8
Q

What is the definition of a downturn?

A

a period in the economic cycle where GDP grows. but more slowly

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9
Q

What is the definition of Economic, trade or business cycle?

A

regular fluctuations in the level of output in the economy

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10
Q

What is the definition Exchange rate?

A

the price of one currency in terms of another

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11
Q

What is the definition of Fiscal policy?

A

using changes in taxation and government expenditure to manage the economy

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12
Q

What is the definition of Government expenditure?

A

the amount spent by the government in its provisions of public services

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13
Q

What is the definition of Gross Domestic Product (GDP)?

A

a common measure of national income., output or employment

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14
Q

What is the definition of Index linked?

A

the linking of certain payments such as benefits, to the rate of inflation

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15
Q

What is the definition of inflation?

A

a general rise in prices

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16
Q

What is the definition of monetary policy?

A

using changes in the interest rates and money supply to manage the economy

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17
Q

What is the definition of a recession?

A

a less severe form of depression
a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

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18
Q

What is the definition of recover or upswing?

A

a period where economic growth begins to increase again after a recession

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19
Q

What is the definition of a slump or depression?

A

the bottom of the economic cycle where GDP start to fall with significant increases in unemployment

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20
Q

What is the definition of taxation?

A

the charge made by government on the activities, earnings and income of businesses and individuals

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21
Q

How is inflation measured?

A
  • a common approach to measuring inflation is to calculate changes in the consumer price index (CPI)
  • this involves gathering information about the prices of goods and services in the economy
  • Each month the government records price changes of about 600 goods and services
  • From these records an average price change is calculated and converted into an index number
  • this can be compared with previous figure to calculate percentage change prices (i.e. the inflation rate)
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22
Q

How can inflation affect businesses?

A
  • inflation rates between 1 and 5% are not likely to have a big impact on businesses
  • however once the CPI gets into double figures and beyond, inflation can have some damaging effects on business, these reasons being:
  • increased costs
  • uncertainty
  • borrowing and lending
  • consumer reactions
  • international competitiveness
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23
Q

How can inflation rates increase the costs of a businesses?

A
  • shoe leather costs (business used to send employees around of foot to find this out hence the name)–> suppliers prices increasing all the time but at different rates, time must be spent searching for the best deal as well as more time tracking competitors prices to decide on what to set yours
  • Menu costs (because for restaurant when changing prices they need new menus) –> raising your prices costs money, you need to inform customers, brochures might have to be printed and websites updated
  • hyperinflation –> management is likely to have to spend more time dealing with worker’s pay claims, (annual contracts deals instead of 3 year ones), if hyperinflation occurred pay negotiations would have to be monthly, larger risks of strikes as workers and managers have different thoughts about future inflation rates
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24
Q

How can inflation cause uncertainty for business?

A
  • whether to spend or to save there money –> should they invest now if prices may be higher in 6 months?
  • long term contracts–> if prices are changing ever 6 months how can a supplier put a price on a 3 year contract when he doesnt even know what the price is going to be in a few months
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25
Q

How can inflation affect borrowing and lending for business?

A
  • debts that have occurred in the past can be settled quickly as they are eroded by inflation
  • but in this environment interest rates rise to match inflation, if there is prolonged inflation interest rates are likely to become index linked - linked to the index of prices
  • so interest rates might charge at the rate of inflation plus 5% or 10%
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26
Q

How can inflation affect consumers reactions?

A
  • prolonged inflation leads to more saving, and less willing to borrow money
  • the value of saving tends to fall as inflation erodes their real value –> start to save more to make up for the previous real value
  • less spending being business make less sales
  • during hyperinflation consumer spending may differ –> on pay day there would be huge activity in shops as people spend there money as and when they get it –> suppliers of fresh food would have to gear up to deliver all there goods on one day of the week
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27
Q

How can inflation affect international competitiveness?

A
  • high inflation can impact businesses that import or export goods and services
  • if the UK has higher inflation rates than its trading partner, UK businesses will become uncompetitive
  • cheaper to import from overseas business that by UK based products as the prices are rising less quickly
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28
Q

What factors can cause inflation?

A
  • Cost Push: occurs when there is an increase in the cost of production (including wages, raw materials, taxation and interests rates) that forces firms to increase their prices in order to protect their profit margins.
  • Demand Pull: the process by which prices rise because there is excess demand in the economy
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29
Q

What are some factors can can cause cost push inflation?

A
  • Increase in the cost of raw materials
  • Minimum wage & other wage increases
  • Skills shortages
  • Taxation
  • Energy prices
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30
Q

What are the general affects of high inflation rates on a business?

A
  • Inflation encourages investment – the value of outstanding debt reduces.
  • Stock and property prices rise – making balance sheets look healthier
  • Less resistance to rising prices – especially if national trend
  • Higher prices may mean lower sales – Price elasticity
  • Premium price products may suffer – price consciousness
  • Workers want “Real” wage rises – can cause industrial relation issues
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31
Q

What are the general affects of low inflation rates on a business?

A
  • Low interest rates – benefits borrowers, hits savers
  • Low relative to other countries – imports become more expensive, exports appear more competitive
  • More certainty within the economy – people feel more confident as future prices can be predicted more easily.
  • Marketing and admin costs lower – less frequent price adjustments
  • Efficient firms survive, other disappear. In a period of high inflation, firms can hide inefficiencies under price rises.
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32
Q

How can deflation cause a problems for a business?

A
  • mainly associated with the a fall in demand
  • consumers delay spending as they think they can make a purchase at a lower price in the future
  • as a result businesses postpone investment and may lay off workers due to the need to cut production
  • businesses may have to reduce their prices which can reduces their profits
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33
Q

How can deflation be a benefit to a business?

A
  • if deflation is the result of falling import prices or the fall in price of commodities it could be positive:
  • a fall in UK import prices could be the result of a strong pound –> this means imported goods will be cheaper and will put downward pressure on the CPI
  • this may not have a negative impact on the UK economy as if commodity prices fall, this might reduce the costs of outputs to many businesses - they might respond by actually increasing production
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34
Q

What happens when exchange rates fall (weaker pound or stronger foreign currency)?

A
  • price for exports –> fall
  • demand for export –> rises
  • price for imports –> rises
  • demand for imports –> lowers
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35
Q

What happens when exchange rates rise (stronger pound or weaker foreign currency)?

A
  • price for exports –> rises
  • demand for exports –> falls
  • price for imports –> falls
  • demand for imports –> rises
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36
Q

How can businesses be affected by exchange rates?

A

-fall in exchange rates –> good for exporters
-rise in exchange rates –>
good for importers
-fluctuating exchanges rates an cause uncertainty –> difficult to predict demand for exports and the cost of imports
-another problem is that it usually costs money to switch from on currency to another –> cost for importer thus reduced profits

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37
Q

What are the effects of interest rates of costs in general?

A

-changes in interest rates are likely to affect the overheads of a businesses
if interest rates rise, businesses are likely to pay higher interest payments on their borrowing –> only if loans are variable

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38
Q

What are the effects of interest rates on the costs of loans?

A
  • Investment projects are often financed through loans
  • A rise in interest rates increases the price of borrowing money
  • Projects financed this way will therefore find that their costs have increased, reducing profitability
  • This could convince some businesses not to venture into new ideas
  • Total investment in the economy will then fail
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39
Q

What are the effects of interest rates on the attractiveness if savings?

A
  • Businesses have the option to save their money rather than investing in things like buildings and machinery
  • A rise in interest rates makes saving more appealing, so a business may decide to save profit in order to make more, shelving their desired investments for when interest rates are not as generous
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40
Q

What are the affects of interest rates of paying off existing loans?

A
  • A rise in interest rates leads to an increase in the cost of existing variable rate borrowing
  • A business could choose to pay off existing loans rather than increasing the investment
  • This will reduce costs
  • It also prevents further risks from borrowing
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41
Q

What are the effects of interest rates of a fall in demand?

A
  • A rise in interest rates is likely to reduce total spending in the economy
  • This might affect the profitability of investment projects
  • A predicted fall in demand may prevent certain projects from going ahead
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42
Q

What are the effects of interest rates of domestic consumption?

A
  • Consumers will be hit by a rise in interest rates
  • The costs of loans will rise
  • This will deter customers from purchasing things using credit, such as cars and furniture; these goods are known as consumer durables because they are used up over a long period.
  • An example of this is housing; consumers are less likely to enter the market because they fear being unable to keep up with the repayments
  • If unemployment begins to rise due to the fall in demand, this will reduce consumer confidence, making consumers even less likely to spend
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43
Q

What are the effects of interest rates of domestic investment?

A
  • Businesses are likely to cut back plans for investment if interest rates rise
  • Investment goods, like houses and machines, are made by businesses
  • These businesses will see a fall in their demand
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44
Q

What are the effects of interest rates on stock?

A
  • Businesses keep stocks of raw materials and finished goods
  • Stocks cost money to keep, because a fall in stock levels could be used to finance a fall in borrowing and interest payments, so a rise in interest rates will increase the price of holding stock
  • This will encourage businesses to de-stock
  • This will be especially true if demand levels change drastically
  • With fewer sales, less needs to be produced, so less stock needs to be kept
  • Cutting stock affects all the businesses that are needed to sell a product; if less stock is needed, less raw materials will be required from the supplier
  • Destocking due to a rise in interest rates therefore causes a fall in demand throughout the industry
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45
Q

What are the effects of interest rates on exports and imports?

A
  • A rise in interest rates tends to lead to a rise in the value of one currency against another
  • A rise in the value of the pound, for example, will make it harder for the UK to export profitably
  • However, foreign businesses will find it cheaper because they will be able to reduce their prices
  • The rise is therefore likely to be a fall in exports and a loss of sales to importers in the domestic market
  • Both will reduce demand and hit UK businesses
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46
Q

What is a way that government can affect business decision making?

A

Governments can affect business decision-making using fiscal policy. This involves changing taxation and government expenditure to influence the economy. Taxes vary from country to country but are paid by both businesses and individuals.

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47
Q

What are direct taxes?

A

taxes on income

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48
Q

What are indirect taxes?

A

taxes of spending

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49
Q

What are the main direct taxes in the UK?

A
  • Income tax – Paid on personal income and that from paid and self-employment.
  • National Insurance Contributions (NIC) – Paid by businesses and individuals on employee’s earnings.
  • Corporation tax – Paid by companies based on how much profit they make
  • Capital Gains tax – Paid on the capital gain (profit) made when selling an asset.
  • Inheritance tax – Paid on money transferred to another individual usually after death
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50
Q

What are the main indirect taxes in the UK?

A
  • Value Added Tax (VAT) – paid mainly when buying goods and services (except food, children’s clothing)
  • Excise Duties – Paid when buying certain goods such as petrol and tobacco.
  • Customs Duties – Paid when buying certain goods from abroad.
  • Council Tax – Paid by residents to the council to help fund local services.
  • Business Rates – Paid by businesses to the council to help fund local services.
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51
Q

What effect does changes in taxation have of businesses?

A

the main areas that are affected are:

  • consumer spending
  • prices
  • business,costs, revenue and profits
  • business spending and investment
  • shares
  • importing and exporting
  • tax avoidance and evasion
  • other effects
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52
Q

How does taxation effect consumer spending?

A
  • Changes in certain types of taxation are likely to increase the income consumers have left after tax. These includes reductions in income tax rates, increase in personal allowance and an increase in the limits on which inheritance tax is paid or a reduction in the rate of inheritance tax.
  • If consumers have more income left they might increase spending on the products of businesses.
  • Increase in income tax, National Insurance Contributions and council taxes are likely to leave consumers with less income and could reduce spending on products.
53
Q

How does taxation effect prices?

A
  • An increase in VAT or excise duty will raise the costs of a business. To compensate businesses raise the price of their goods. An increase in customs duty will increase the price of goods being imported into a country.
54
Q

How does taxation effect business costs, revenue and profits?

A
  • Increases in some taxes might raise the costs of a business e.g. VAT.
  • A business might try to raise prices to cover this and maintain profit.
  • However, higher prices can reduce sales so profit could still be affected if revenue falls.
  • Rise in corporation tax, business rates employer’s National Insurance Contribution and Landfill tax will all tend to reduce business profits.
  • Reductions in taxes are likely to increase the profits of a business.
55
Q

How does taxation effect business spending and investment?

A
  • Increases in costs reduces profits mean that businesses have less retained profits.
  • This can affect the ability of business to pay its debts, buy stocks and meet other expenses.
  • It can also affect whether it invests in new factories or machinery.
56
Q

How does taxation effect shares?

A
  • Changes in capital gains tax and stamp duty might affect shareholding.
  • For Example, an increase in capital gains tax might deter shareholders or delay sales of shares.
57
Q

How does taxation affect business operations and employees?

A
  • Increases in National Insurance Contributions of employers might deter employers from recruiting extra workers.
  • Changes in taxation on company car or mileage allowance and might also change how a business offers these benefits to employees.
58
Q

What other effects does taxation have on business?

A
  • Certain types of business might be affected by changes in tax.
  • For example an increase in landfill tax might encourage businesses to recycle.
  • A rise in passenger duty could discourage holiday makers and reduce the demand for holidays.
59
Q

How can taxation lead to tax avoidance and evasion?

A
  • Increases in taxation often lead businesses to try to avoid paying the tax.
  • For example, they might not hire workers to avoid higher National Insurance Contributions or switch from buying imports to avoid Customs Duties.
  • In some cases they might even try to the law, for example dumping waste in countryside to avoid landfill taxes, which is illegal.
60
Q

what effect can changes in government expenditure on businesses?

A
  • if the government increases spending to more than it raises in taxes total spending in the economy will rise
  • however too much spending can lead to inflation and higher interest rates
  • government cuts have let to a drop in disposable income for many –> less sales and demand
61
Q

What are the stages of a business cycle?

A
  • boom
  • downturn
  • recession
  • upswing
62
Q

What happens during a boom?

A
  • the peak of the cycle is called a boom
  • during a boom GDP is growing fast because the economy is performing well
  • existing firms will be expanding and new firms will be entering the market
  • demand will be rising, jobs will be created
  • wages will be rising and the profits made by firms will be rising
  • however prices may be rising also
63
Q

What happens during a downturn?

A

the economy is still growing but at a slower rate

  • demand for goods and services will flatten out or begin to fall, unemployment will start to rise and wage increases will slow down
  • many firms will stop expanding, profits may fall and some firms will leave the market
  • prices will rise more slowly
64
Q

What happens during a recession/ depression?

A

-at the bottom of the business cycle GDP may be flat
-If GDP starts to fall, the bottom of the cycle may be referred to as a slump or depression
demand will start to fall for many goods an services - non-essential
-unemployment will rise sharply
-business confidence is low
-bankruptcies rise and prices become flat or even fall

65
Q

What happens during a recovery or upswing?

A
  • when GDP starts to rise after a recession
  • businesses and consumers regain their confidence and economic activity increases
  • demand starts to rise, unemployment begin, unemployment begins to fall and prices start to rise again
66
Q

What are the factors of a business that are impacted by the business cycle?

A
  • output
  • profit
  • business confidence and investment
  • employment
  • business start-ups and closures
67
Q

How is the output of a business affected by the business cycle?

A
  • during a boom –> increasing output to meet rise in demand
  • provide non-essential and luxury products
  • during a recession –> reducing output and cutting capacity, business that trade essentials such as supermarkets will avoid the worst of the downturn
68
Q

How is the profits of a business affected by the business cycle?

A

boom –> profits are likely to rise as demand is rising and it is easier to raise prices

  • recession –> when national income begins to decline it becomes harder to make profits, businesses cut their costs to maintain profit levels
  • many will have to tolerate lower profits and some will make losses
69
Q

How is business confidence and investments affected by the business cycle?

A
  • going through recovery and boom –> business confidence is high, owners are optimistic about the future and are prepared to take more risks like launching a new product
  • during a recession –> confidence low and business owners are pessimistic, cautious and anxious about the future, they arent likely to take risks and more inclined to contract their businesses, investments are likely to fail
70
Q

How is employment affected by the business cycle?

A

boom –> unemployment falls because businesses are taking on more workers to cope with rising demand,sometimes firms might struggle to recruit the quality and quantity of staff as their are fewer people seeking work
-during a recession –> businesses lay off workers and unemployment rises

71
Q

How are business start-ups and closures affected by the business cycle?

A
  • in a boom more people are prepared to set up a business, this is because demand is rising and it is easier to make profit, business confidence will be high so new entrepreneurs will be more enthusiastic
  • However during a recession it is not a good time to start a new business
  • business closures will be rising and inefficient businesses, those with cash-flow problems and those producing non-essential products, are most at risk
72
Q

How does economic uncertainty effect the decision making of businesses?

A

unpredictable variables, like inflation, interest rates, exchanges rate need to be taken into account when making decisions
-the level of uncertainty increases the risk businesses take when making long-term decisions thus some investment projects arent undertook

73
Q

How does economic uncertainty cause unexpected events for businesses?

A
  • the behaviour of some economic variables are volatile

- the effects of such volatility can have have a very unsettling effect on businesses

74
Q

How does economic uncertainty effect business confidence?

A
  • can effect investment decisions –> due to unpredictability and volatility of economic variables
  • if business confidence is high owners are more likely to be optimistic and take more risks
  • if businesses are faced with economic uncertainty business confidence is low, of owners are more likely to be pessimistic with less investment being made and lo development
75
Q

How is anti-competitive or restrictive practice defined?

A

attempts by firms to prevent or restrict competition

76
Q

How is barriers to entry defined?

A

obstacles that make it difficult for new firms to enter a market

77
Q

How is collusion defined?

A

two (or more) businesses agreeing to a restrictive practice such as price fixing

78
Q

How is a contract of employment defined?

A

a written agreement between an employer and an employee in which each has a certain obligation

79
Q

How is discrimination defined?

A

favouring one person over another, for example in the EU t is unlawful to discriminate on grounds of race, gender,age and disability

80
Q

How is employment tribunal defined?

A

a court that deals with cases involving disputes between employers and employees

81
Q

How is the national minimum wage defined?

A

a wage rate set by the government below which it is legal to pay people at work

82
Q

How is unfair dismissal defined?

A

the illegal dismissal of a worker by a business

83
Q

What is a problem with having too much legislation?

A
  • will discourage enterprise and deter foreign investment in the UK
  • This might stifle growth in national income, reduce job creation, decrease tax revenue and reduce consumer choice
84
Q

What is the problem with having too little legislation?

A

some stakeholder’s best interests may be neglected

85
Q

What is the role of legislation in a business?

A

-regulates the rights and duties of people carrying out businesses to ensure fairness
-protects people dealing with businesses from harm
-ensure the treatment of employees is fair and indiscriminate
-protects investors,creditors and consumers
-regulates dealing with the businesses and suppliers
ensures a level playing field for competing businesses

86
Q

What ares does legislation cover in a business?

A
  • consumer
  • employment
  • health and safety
  • competition
  • environment
87
Q

What are some ways that consumers are protected by legislation?

A
  • goods must fit their description
  • must be of a satisfactory quality
  • goods are fit for their intended purpose
  • businesses may not use unfair commercial practices,such as misleading advertising
  • consumers have the right to return and get a full refund of goods that do not comply with the law
  • services must be done at a reasonable price and at the time stated
  • a customer can request that an unsatisfactory service is repaired or carried out again at no cost
  • distance selling regulation provide further protection for consumer again online businesses
88
Q

how does consumer legislation affect businesses?

A
  • increases costs –> improving the safety and quality of the goods cost money
  • improve quality control
  • deal with customer complains to nip the problem in the bud before they use the legal system
  • to treat customer fairly
89
Q

What are the two areas which are mainly covered by employee legislation?

A
  • individual employment

- industrial relations

90
Q

How are employees entitled to equality?

A

-it is a basic rule that men and women are entitled to have equal pay for doing equally valuable work

91
Q

What is the basic pay employees are entitled to?

A

-pay national minimum wage no matter when the worker is paid or how frequent

92
Q

What is it illegal to discriminate a employee on?

A
  • sex
  • pregnancy and maternity
  • marital status
  • sexuality
  • disability
  • race
  • age
  • religion
  • trade union membership
  • whether the worker is part time,full time or temporary or permanent
93
Q

What are some employee rights?

A

in terms of employment:

  • reasonable notice before dismissal
  • right to redundancy
  • right to a written employment contract
  • right to request flexibility working
  • right to NMW
  • right to maternity/paternity leave
94
Q

How are employee protected concerning industrial relations?

A
  • protection from unfair dismissal
  • employers must recognize unions if it have 50%+ staff members
  • regulations of procedures for industrial actions, like ballots
  • Role/powers of employment tribunals
  • EU works Council requirement
95
Q

How is business effect by employment legislation?

A

-compliance costs –> employees are entitled to work in the UK, responsibility for the well-being of employees
, deal with tax authorities
-higher labour costs –> introduction of national minimum wage
-changing work practices –> job advertisements dont discriminate
- loss of flexibility –>legislation makes running a business too rigid
-penalties –> fail to comply with the law may result in penalties like fines, damaging of PR

96
Q

How is the environment protected by legislation?

A
  • pollution and emissions into the air –> limit or even get rid of some pollutes (e.g. stop dumping waste in water)
  • destruction of wildlife habitats
  • traffic congestion
  • resource depletion
97
Q

How does environmental legislation affect businesses?

A
  • marketing –> good for PR, however those may see them as threats as pressure groups are criticizing them
  • finance –> positives, energy-saving measures can lead to lower costs in the future and more efficient, however will increase costs trying to find alternative business practices
  • operation management –> change in materials used, to change in production methods, to storage to after-sales service
  • Human Resources –> Staff need to be recruited and trained to deal with ever increasing government regulation concerning the environment –> may be outsourced
  • staff need to be made aware of policy changes in a business –> training may need to be in place to ensure compliance
  • Social enterprises driven by environmental considerations may be motivated by these new targets
98
Q

What are some anti-competitive or restrictive practices?

A
  • increasing prices –>raising prices to levels above what would be in a competitive market
  • restricting consumer choice –> a manufacturer might refuse to supply a retailer stock if they stock rival products
  • raise barrier to entry –> spending huge money of advertising to squeeze other out of the market, lower prices temporarily
  • market sharing –> collusion , could increase the prices together
  • excessive predatory pricing
99
Q

what are the aims of competition policy?

A
  • wider consumer choice in the market
  • technological innovation which promotes dynamic gains
  • effective price competition between suppliers
  • investigating allegations or anti -competitive behavior which might have a negative effect on consumers
100
Q

What are the positive affect competition policy has of businesses?

A
  • stops unlawful/unfair conduct of businesses
  • more competitive environment
  • easier for small firms to break into the market
  • encourages innovation
101
Q

What are the negative affects competition policy has on businesses?

A
  • put constraints on business activities

- delay business practices and cost them more money

102
Q

What are some penalties for breaking competition policy?

A
  • fine of up to 10% of annual turnover
  • Criminal prosecution
  • disqualification of directors
  • civil action by those affected
103
Q

What are some areas that are protected by health and safety regulation?

A
  • providing and maintain adequate safety equipment and protective clothing e.g. fire extinguishers, protective overalls
  • ensuring workers have enough space to do there jobs
  • guaranteeing a hygienic environment with adequate toilet and washing facilities
  • maintaining workplace temperatures and reasonable noise levels
  • providing protection from hazardous substances
  • providing protection from violence,bullying, threats and stresses in the workplace
  • providing adequate breaks for rest
104
Q

How does Health and safety legislation affect businesses?

A

costs –> extra training, written statement of their general policy, supervision to ensure the health and safety of workers

  • health and safety inspectors have the right to enter business premises to ensure that health and safety measures are being carried out
  • penalties –> employee safety might be compromised which can lead to accidents in some cases fatal
  • benefits –> good PR form good health and safety records, easier to attract and retain high-quality staff, workers may feel protected and more secure leading to loyalty and more motivation –> increased productivity
105
Q

How is Cartel defined?

A

a group o businesses (or countries which join together to agree on pricing and output in a market in an attempt to gain higher profits at the expense of customers

106
Q

How is colluding defined?

A

in business, were several businesses (or countries ) make agreements among themselves which benefit them at the expense of either rival businesses or customers

107
Q

How is market structure defined?

A

the characteristics of a market, such as the size of the barriers to entry to the market, the number of businesses in the market or whether they produce identical products, which determine the behaviour of businesses within the market

108
Q

What are some industries that have little or no competition?

A
  • broad band and fibre infrastructure
  • energy generation
  • water supply
109
Q

What are the determinants of competitiveness?

A
  • number and size of businesses
  • barriers to entry
  • product differentiation
  • knowledge of buyers and sellers
  • degrees of interrelationship
  • legal factors
110
Q

How can the number and size of business determine competitiveness?

A
  • large number of competitors/ a few number of large competitors e.g. supermarkets
  • these provide barriers to entry to the market due to their sheer size and the amount of businesses there
  • monopolies are very uncompetitive
111
Q

How can barrier to entry determine competitiveness?

A

how easy is it to set in in a market –> (hard to set up new oil/ pharmaceutical company)
- based on price and availability of resources
expertise and knowledge needed
- when barrier to entry are high competition tends to be lower
- one consequence of this is that businesses often compete on issues other than prices such as promotion and place

112
Q

How can product differentiation determine competitiveness?

A
  • how much can your product be differentiated
  • cant really differentiate homogeneous products e.g. milk –> focus on price
  • therefore the way products are made and the cost differentiates the products e.g. lager fosters and carling
  • However for some fosters and Carling it is about how they are branded –> the stronger the perceived difference, the stronger the brand
  • where product differentiation is strong the non-price elements of the marketing mix such as promotion tend to be emphasised by business
113
Q

How can knowledge of buyers and seller determine competitiveness?

A

the way your products are perceived

  • identify the benefits of their business to help them sell their product
  • in these situation business with the perfect knowledge tend to focus on product, promotion and place rather than price
114
Q

How can degree of interrelationship determine competitiveness?

A
  • the action of ones business –> how much does it affect others
  • one farming planting carrots has little impact on farmer doing the the same in another field
115
Q

How can legal factors determine competitiveness?

A
  • allows new businesses to enter the market
  • competition in the UK is restricted to stop businesses colluding and created/monopolies/oligopolies ( taking advantage of customers)
  • theses are bad for customers because they often offer high prices as the customer cannot by from anywhere else
116
Q

What are the impact on a business in a competitive environment?

A
  • price
  • profit
  • communication with customers
  • innovation
  • product rang
  • marketing
117
Q

How is price impacted in a competitive environment?

A
  • highly competitive –> lower prices to compete (profit margin can be lower)
  • lower competition –> higher prices due to less alternatives
118
Q

How is profit impacted in a competitive environment?

A

-highly competitive market –>profit margins are lower
-not very competitive markets –>charge a high price to make more profit
-

119
Q

How is communication with customers impacted in a competitive environment?

A
  • business that communicate with customer e.g. customer service are more competitive and successful
  • how is your business perceived
120
Q

How is innovation impacted in a competitive environment?

A

-change a product to make it better or target a new market –> need to stand out in the market

121
Q

How is product range impacted in a competitive environment?

A

opportunity to hit more target markets

- satisfy a larger amount of customers –> cars eco-friendly or sport car

122
Q

How is marketing impacted in a competitive environment?

A
  • using USP
  • make the product more appealing than competitors
  • low competition –> not much need for marketing –> lower costs
123
Q

what is competition like in global markets?

A
  • Large numbers of customers
  • Increased competition
  • Legislative & logistical issues
124
Q

What is competition like in national markets?

A
  • Still large customer base
  • Less language & legislative issues
  • Can be highly competitive
125
Q

What is competition like in regional markets?

A
  • Smaller pool of customers and competition

- Can serve the specific needs of regional population

126
Q

What is competition like in local markets?

A
  • Serves the specific needs of the local population.

- Still facing comp from other regional suppliers

127
Q

what are the problems with operating in a large market?

A
  • Even large markets can be dominated by a few small firms (groceries, fuels).
  • Difficult to enter market due to large initial outlays.
  • Rivals monitor competitors more closely, pricing & promotional strategies vitally important
128
Q

what are the problems with operating in a small market?

A
  • Can business generate sufficient sales to be viable?
  • Small business may appear attractive due to lack of competition, but there will be lower demand.
  • Larger, stronger rivals may enter who work in multiple fields and can afford lower returns due to diversification of product range.
129
Q

How does taxation affect export and imports?

A
  • customs duties can affect business

- raised custom duties imported products a UK imports are higher so domestic products are more competitive

Bus. St (20 decks)

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