External factors affecting a business Flashcards
Can an organisation control the affect an external factor has on the business?
No, they can only control internal factors
What are the different factors within the wider economy that can have an impact on an organisation?
Inflation
Labour market
Financial market e.g. currencies, stock exchanges
Global market e.g. currency, culture, trade restrictions
What is inflation?
Inflation is the rising prices of goods and services over time
What does inflation reduce?
Inflation reduces the purchasing power of each unit of currency. As prices rise, your money buys less.
How can higher inflation affect an organisation?
Puts pressure on them through increased prices of items bought from suppliers and items sold
Requires close monitoring to plan for changes and the effect of inflation
May mean they have to raise prices of products or services to cover costs
Rising labour costs and falling profits
What is the labour market?
The market in which employers look and compete for workers and where workers look and compete for employment
How can the labour market affect an organisation?
More or fewer people qualified to do the job
Pay scales and salary expectations can differ
Unemployment rates affect availability
Highly qualified/experience expect a higher salary
If unemployment rates are high there will be more competition
What is a financial market?
A financial market is where financial products, including the supply of credit, mortgages, company shares and insurance are bought and sold.
What is a primary financial market?
It is where all financial products originate and where contracts are first drawn up
What is a secondary financial market?
This is where buyers and sellers can resell their products and contracts to a third party
How can financial markets affect a business?
They dictate interest and borrowing rates
Currency rates can affect how much is spent and earnt
Share prices can fluctuate
What are market forces?
They are directly related to frequent economic changes that can mean there is less money or more money to spend and invest, resulting in increased or reduced costs and profits.
How can economic changes affect a business?
Excess demand causes prices to rise and could cause quantity of supply to rise
Excess supply causes prices to fall
How can policy and regulatory change affect an organisation?
Organisations must respond by updating products, services, policies and procedures to ensure they are complying with the law which can cost time money and resources
What is a supply chain?
It is the flow of goods and services from start - raw materials - to finish - to the customer
