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Flashcards in 2.5 External Influences Deck (35)
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What are external influences

Are factors that happen outside the business . These include economic, legal and competitive influences.
How businesses manage these influences will effect their ability to succeed in their market


Name the economic influences which can effect a business

Government spending
Interest rates
Exchange rates
Business cycle


What is a recession

How does it effect a business

Can cause a downfall in the economy

It causes decreased consumer spending , decreased business confidence and decreased profits and investment.


What is a boom

How does it effect a business

Is where consumer spending and business confidence to rise along with profit and investment.

Allows a business to increase prices whilst maintaining demand


What is taxation

Are taxes which can effect supply and demand of a product.


What is inflation

Is the sustained increase in the cost of living or general price leading to a fall in purchasing power


What is the relationship between businesses and economic influences

Businesses want to predict with certainty the economic environment where they operate. This is very difficult to do accurately but requires that an amount of cash or retained profit is put aside in case the economic environment worsens


What are the effects of inflation on a business

A firms costs will increase and damage profitability
A firm with long term loans will have higher interest rates to pay back if its not fixed
If inflation in the UK is higher than other countries, other countries will gain a competitive advantage


Define exchanges rates

Is the value of one currency expressed in terms of another


What is the effect of exchange rates on a business

Pound makes


Define interest rates

Is the amount charged by a lender per year for borrowing money, expressed as a percentage of the total money borrowed


What are the effects of interest rates on a business

Consumers are less likely to have money to spend as the cost of borrowing will increase , reducing demand
The amount of interest for borrowing will increase, increasing costs
A firm is less likely to invest as the opportunity cost of investment will be greater


Define the business cycle

What are its effects on a business

Is where the economy has a boom followed by a recession meaning demand changes.

Strongly dependent on the income elasticity of demand


Define legislation

Is a set of laws suggested by governments and passed by parliament


What are the types of legislation

Consumer protection laws
Employee protection
Environmental protection
Competition policy
Health and safety at work act


What is the consumer protection law

What do they involve

What is the effect on a business

Protect consumer rights when they buy a good or service

Involves : broken or damaged goods, unusable goods and goods that are not what was advetised

If under the act consumers can get a refund, increasing costs and damaging profitability


What is the employee protection law

What does it involve

Is designed to help and protect the worker

Involves : paternity/maternity leave, workers being paid when they are sick, fair wage and treated equally


What is the environmental protection law

What does it involve

Effect on the business ?

Attempts to control pollution in terms of waste that is disposed of in air, land or water

Involves : polluted air, noise pollution and chemical spills

Increases cost of production


What is the competition policy

Who is involved

Is a government policy which seeks to promote competition and efficiency in different markets and industries
The CMA tries to promote competition for the benefit of the consumer and to control market share


What is the health and safety at work act

Effect on the business

Is done to give all workers a place which is safe and comfortable to work in.

Increases costs as the business have to implement health and safety workers


What is the impact of legislation on business costs

Training staff
Protection equipment for staff
Cost of returns
Paying higher wages


What is the impact of legislation on Recruitment

Discrimination (sex, religion, disability) is illegal when recruiting
Equal pay and promotion opportunities must be equal


Define competition

Is where more than one seller seeks to sell goods or services to a customer


In which ways can competition effect a business

Nature of business ownership
Nature of product or services produced
Nature of the product range
Pricing strategies used
Marketing methods used


How will competition effect the nature of business ownership

Will have an impact on the decision to become a private limited company or a public limited company.


How will competition effect the nature of products or services provided

May cause a business to change what they sell.
For example smaller coffee shops sell Lattes because Costa do


How will competition effect the nature of the product range

Competition can change their product range in response to consumer demand.
Leads to constant innovation and change


How will competition effect pricing strategies used

Can force a firm to change their pricing strategy to attract customers and remain competitive.
May use competitive pricing to compete on non-price competition


How will competition effect marketing methods used

Competition means that marketing campaigns must be exciting and up to date , costly.
Important when there are many sellers with the same products


What is the impact on businesses of being in a competitive market

Forces prices down resulting in falling profit margins
Promotes the need to innovate
Increased marketing spends to gain a competitive advantage