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LO3 - Know the impact of the economic environment on businesses

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Title: LO3 - Know the impact of the economic environment on businesses


1
Unit 29
THE BUSINESS ENVIRONMENT
LO3 - Know the impact of the economic
environment on businesses
2
LO2 - Assessment Criteria
Learning Outcome (LO) The learner will Learning Outcome (LO) The learner will Pass - The assessment criteria are the pass requirements for this unit. The learner can Pass - The assessment criteria are the pass requirements for this unit. The learner can Merit - For merit the evidence must show that, in addition to the pass criteria, the learner is able to Merit - For merit the evidence must show that, in addition to the pass criteria, the learner is able to Distinction - For distinction the evidence must show that, in addition to the pass and merit criteria, the learner is able to Distinction - For distinction the evidence must show that, in addition to the pass and merit criteria, the learner is able to
1 Know the range of different businesses and their ownership P1 Describe the type of business, purpose and ownership of two contrasting businesses M1 Analyse the type of business, purpose and ownership of two contrasting businesses D1 Evaluate the effect of a selected business changing its ownership status
P2 Describe the different stakeholders who influence the purpose of two contrasting businesses
2 Understand how businesses are organised to achieve their purpose P3 Describe how two businesses are organised
P4 Explain how their style of organisation helps them to fulfil their purposes
3 Know the impact of the economic environment on businesses P5 Describe the influence of two contrasting economic environments on business activities within a selected organisation M2 Analyse the impact of changes in demand and supply on a selected business D2 Evaluate to what extent a selected business is likely to be affected by changes in the economic environment
4 Know how political, legal and social factors impact on business P6 Describe how political, legal and social factors are impacting upon the business activities of the selected organisations and their stakeholders
3
Assessment Criteria P5, M2, D2
  • P5 - Learners could write a report for the
    management team of an organisation. They should
    describe the influence of two contrasting
    economic environments upon business activities
    within the selected organisation.
  • M2 - Learners will need to go on to consider
    changes in demand and supply on the business, and
    analyse the impact of those changes.
  • D2 - Learners will need to evaluate the extent to
    which a business is likely to be affected by
    changes in the economic environment.
  • In earlier learning outcomes, learners were
    required to focus on two businesses. In learning
    outcome 3 they just need to be concerned with
    one. Learners need to understand that any
    business does not exist in isolation but is
    affected by a range of possible economic factors.
  • They could undertake a group task where the key
    economic variables that can affect a business are
    identified and researched. Learners should then
    use the data that they have obtained and look for
    changes in the behaviour of businesses using
    examples from newspapers or news websites. Each
    group could then be asked to present their
    findings

4
LO3 - The impact of the economic environment
  • Focusing on ONE of the businesses selected during
    LO2, you need to provide evidence for the
    following 5 tasks within this case study
  • Economic Environments
  • Business Demands
  • Supply for the Business
  • Comparing Economic Environments
  • Evaluate Economic Environments
  • Focusing on one of the businesses selected from
    the two selected during ao2
  • Task 1 (P5.1) Focusing on a business, describe
    the influence of two contrasting economic
    environments that impact a business, based on
  • Ownership of Business
  • Business Operations - Functionality of Businesses
    Activities
  • Movement of Capital

Importance of Stability Impact on business of changes in the economic environment Growth, Recession, Ripple Effect Levels of Inflation
Availability and Cost of Credit Labour Changes in Government Policy
5
LO3 - The impact of the economic environment
  • Economic factors sometimes play the biggest part
    in business change
  • Importance of Stability
  • Impact on business of changes in the economic
    environment Growth, Recession and the Ripple
    Effect
  • Levels of Inflation - such as minimum wage
    introduction or regulation of wages
  • Availability and Cost of Credit such as the
    availability of loans and the interest rate
  • Labour the availability of the correct people
    to work
  • Changes in Government Policy legal, fiscal and
    monetary
  • Globalisation integration of national economies
    into international economy through trade, foreign
    direct investment, capital flows, migration, and
    the spread of technology

6
LO3 - The impact of the economic environment -
Stability
  • Businesses 'stability' rests on how successfully
    a business ensures its 'on-going ability' to
    harvest value from its assets (i.e. 'protect' its
    income generating capability and 'retain' its
    value as a business).
  • Ever wonder what makes one company more
    financially stable than another?
  • Financial Statements provide information on a
    company's profitability, equity, available cash,
    and other financial data that illustrate how well
    a company is doing.
  • A good marker/measurement of a business achieving
    stability, is when a business is operating in a
    steady manner where it can be deemed as
    self-sustaining with finances generated allowing
    the business to independently co-exist without
    the need for additional funding
  • Good examples of this is Arsenal Football Club,
    where they have managed to buck the trend of
    depending on the owners to fund the operations of
    the business. Instead they are operating within
    there means and investing for the future without
    impacting the short-term goals

7
LO3 - The impact of the economic environment -
Growth
  • Business Growth can be measured and monitored in
    various ways, such as
  • Increase, from period to period, for the
    value/production of goods and services
  • An increase, as in size, number, value, or
    strength extension or expansion
  • There are only two ways to grow a business
    INCREASE SALES and DECREASE COSTS
  • Measurements and Monitoring of growth can be
    performed through
  • Assess your Options - Planning growth strategies
    including finance options, diversification, new
    product development and consolidation
  • Strategic Planning - Formulate and implement a
    clear strategy to drive business
  • Business Plan - Monitoring progress, reviewing
    plans, setting targets and allocating resources
  • Action Plan Identify areas your business will
    need to work on to grow
  • Acknowledge the Challenges
  • Utilise the knowledge from within the business

8
LO3 - The impact of the economic environment -
Changes in Trade Cycle
  • RECESSION DEPRESSION????
  • Lets have a look at this statement
  • Economists officially define a recession as two
    consecutive quarters of negative growth in gross
    domestic product (GDP)
  • A loss of jobs, a decline in real income, a
    slowdown in industrial production and
    manufacturing and a slump in consumer spending -
    spending that drives more the economy
  • Disposable income is reduced considerably because
    sales revenues and profits decline ? manufacturer
    will cut back on hiring new employees
  • In the last century there has been a recession
    every 7 to 10 years and these last on average 2
    years. Post War 1918, great Depression 1929-33,
    Post War depression 1945-47, 4 Day week 1974,
    Housing collapse 1990, Dot.com bubble burst,
    1999, 2007. Companies cannot predict when the
    recession will happen and often do not prepare
    for it. When the going is good then why rock the
    boat.
  • Other countries face similar recessions but this
    can be spurred on by political change or regime
    change.

9
LO3 - The impact of the economic environment
Ripple Effect
  • Where business decisions/choices impact other
    areas of the business (internally or externally).
  • The ripple effect is a term used to describe a
    situation where, like the ever expanding ripples
    across water when an object is dropped into it,
    an effect from an initial state can be followed
    outwards incrementally.
  • Ripple Effect Example Building Trade
  • A labourer (electrician, plumber, plaster,
    builder) that would normally fix up house(s) are
    sitting tight
  • This in turn impacts Do-It-Yourself retailers
    (BQ, Wickes, Focus, etc...) with fix it people
  • So Do-It-Yourself retailers buy less from their
    suppliers
  • The suppliers need to lower staff in order to
    make ends meet
  • Staff cant find jobs so they start to hold on to
    their money and hence the cycle repeats
  • Ripple effects can be predicted by managing
    suppliers and watching the market but their
    influence takes time to get over.

10
LO3 - The impact of the economic environment
Levels of Inflation
  • Inflation is a general rise in prices, or a fall
    in the value of money. It means that year after
    year, 100 buys gradually less and less.
  • In simple language, inflation means rising prices
    and it shows the increase in cost of living. In
    economics, inflation is explained as rise in the
    general level of prices of goods and services in
    an economy over a period of time. With the rise
    in price levels a unit of currency will buy fewer
    goods and services. As a result, the purchasing
    power of money will be reduced with inflation. In
    other words the real value of money will be lost
    day by day along with inflation.
  • Inflation is measured by the Rate of Inflation or
    Inflation Rate which is the percentage change in
    a general price index calculated as an annualized
    figure.
  • A low inflation rate is beneficial to a country
    and zero or negative inflation is considered as
    bad. Also, a high inflation is harmful to an
    economy and it affects an economy in many ways.
  • How is Inflation Measured?
  • Inflation is measured by the Retail Price Index
    (RPI). This is like a huge shopping trolley which
    Government inspectors take round the shops every
    month. They fill it with a representative sample
    of all the goods and services that people
    typically buy. Then they add up the prices and
    compare them with the previous months prices.
    Although figures are collected monthly, they are
    normally quoted annually e.g. inflation is 2 pa
    which means average prices are rising by 2 every
    year.

11
LO3 - The impact of the economic environment
Levels of Inflation
  • Inflation is given as an index number. This means
    the first years calculation is set at 100, and
    every year after is measured in relation to that.
    So if 1990 100, and 2000 110, we know
    instantly that prices have risen 10 over the 10
    years. This is just a way of making the data
    quicker to understand.
  • The RPI is a good measurement but not 100
    accurate, so it is possible sometimes that the
    Government under- or over-reacts to inflation
    data.
  • Whats Wrong With Inflation?
  • Its a matter of degree 25 inflation is much
    worse than 5 inflation. Some countries (e.g.
    Russia and Serbia) have recently had
    hyper-inflation with prices rising by up to 1000
    pa! Low inflation, such as the 2 or so the UK
    has at present, is not a real problem.
  • The UK has had a big problem with inflation in
    the past. It rose to 28 in the late 1970s. This
    caused significant problems with growth and
    employment. The memory of this time makes the
    Government very determined now to keep inflation
    under control.
  • If inflation rises too quickly, however, it can
    cause problems. How quick is 'too quick' is not
    easy to specify. In the UK a rate of inflation
    over 3 might give cause for concern. In the mid
    1970s, inflation in the UK reached 25. In other
    countries such as Germany between the two World
    Wars and in the former Yugoslavia in the 1990s,
    inflation rates of thousands and even millions of
    percent were recorded. Such cases are extreme but
    the danger of letting inflation get out of
    control is something that most Governments want
    to avoid.

12
LO3 - The impact of the economic environment
Levels of Inflation
  • The dangers of inflation are as follows
  • Difficulties for businesses to plan ahead -
    especially when inflation starts to get out of
    control. This affects not only the amount the
    business receives from sales but also the prices
    of inputs - raw materials and so on
  • Businesses may face pressure from employees
    organisations for pay awards to keep up with
    inflation and this can affect costs of production
  • It affects spending power if wages do not rise by
    the same rate as inflation
  • It especially affects those who may be on certain
    types of fixed incomes like company pensions
  • Savings can fall in value if the rate of interest
    is lower than inflation
  • Inflation in the UK at a higher rate than in
    other countries affects businesses who try and
    sell abroad. It makes it harder for them to sell
    goods and services because they are less
    competitive

13
LO3 - The impact of the economic environment -
Availability and Cost of Credit
  • The availability of credit is determined by any
    bank that provides more credit for businesses to
    start or continue trading and providing a
    product/service to the consumers
  • Business credit is a measure of an business's
    ability to obtain goods or services based on a
    promise to pay for them later. This term can
    refer to the ability of a business to secure loan
    money as well.
  • The goods, services, or cash obtained using
    business credit are usually not personally
    guaranteed by the owner or representative of the
    organization BUT borrowed against the assets of
    the organization
  • The availability of credit is historically tied
    to the price of homes and other assets simply
    because of supply and demand. The more credit
    there is available, the more demand will exist
    for assets of all types.
  • Just as a greater availability of credit will
    increase the price of homes, the reduction of
    credit will just as quickly reduce the prices of
    homes.
  • There are a number of reasons why banks may
    suddenly stop or slow lending activity, this may
    be due to
  • An anticipated decline in the value of the
    collateral used by the banks to secure loans
  • A change in monetary conditions (for example,
    where the central bank suddenly and unexpectedly
    raises reserve requirements or imposes new
    regulatory constraints on lending)
  • The Central Government imposing direct credit
    controls on the banking system
  • An increased perception of risk regarding the
    solvency of other banks within the banking system
  • The cost of credit shows you the real cost of
    borrowing - it is the difference between the
    amount you borrow and the total amount you will
    repay including the interest by the end of the
    loan period.

14
LO3 - The impact of the economic environment -
Labour
  • Availability of employees???
  • Based on....Quality of ....Employable candidates
    with relevant skills
  • In the current climate the quality of potential
    employees are RARE because key positions are
    prepared/catered for low paid positions in third
    word countries where they can carry out
    simple/mundane tasks
  • Cheaper Labour ? Profit For The Business
  • Well Qualified Labour ? Efficiency Of Workforce ?
    Less Mistakes/Good For Business (Higher Costs)
  • The balance between quantity and quality of
    employees within the workforce is ALWAYS a
    significant factor in how the business succeeds,
    due to the reliance of the knowledge and
    technical ability and also the huge costs

15
LO3 - The impact of the economic environment -
Changes in Government Policy
  • Legal A tool available to the Government (and
    one that has an enormous ripple effect to ALL
    directly or indirectly involved
    (businesses/public consumer) is the legal policy.
  • The term legal policy refers to the governing
    rules that a Government undertakes to ensure that
    all products and services are adhered to a
    minimum standard

Costs and Broad Appraisal Issues Impact Assessment Public Sector Impacts Sustainable Development Scientific Evidence
Risk Legal European Union International Treaty Obligations Transfers Environmental Appraisal
Rural Proofing Equal Treatment Appraisal Health and Safety Consumer Impact Assessment ecommerce
16
LO3 - The impact of the economic environment -
Changes in Government Policy
  • Fiscal - Another tool available to the Government
    (and one that is used by all levels of
    Government) is fiscal policy.
  • The term fiscal policy refers to the expenditure
    a Government undertakes to provide goods and
    services and to the way in which the Government
    finances these expenditures.
  • A Government's taxation policy. Tax enables the
    Government to raise revenue in order to provide
    public goods which would not otherwise be
    provided by the market, such as a police force,
    national defence, and so on. The tax system may
    also have an effect on the distribution of
    income, and the allocation of resources in the
    market. A Government's fiscal policy will have a
    broader effect on economic activity,
    unemployment, and inflation.

17
LO3 - The impact of the economic environment -
Changes in Government Policy
  • Monetary - Monetary policy is the process a
    government, central bank, or monetary authority
    of a country uses it to control
  • One of the Bank of England's two core purposes is
    monetary stability, to attain a set of objectives
    oriented towards the growth and stability of the
    economy
  • . Monetary stability means stable prices - low
    inflation - and confidence in the currency.
  • A principal objective of any central bank is to
    safeguard the value of the currency in terms of
    what it will purchase. Rising prices inflation
    reduces the value of money.
  • Low inflation is not an end in itself. It is
    however an important factor in helping to
    encourage long-term stability in the economy.
    Price stability is a precondition for achieving a
    wider economic goal of sustainable growth and
    employment. High inflation can be damaging to the
    functioning of the economy. Low inflation can
    help to foster sustainable long-term economic
    growth.

the supply of money availability of money cost of money or rate of interest
18
LO3 - The impact of the economic environment
Business Demands
  • The demands placed on a business influence
    (dictate) the performance of the business by
    acting on the needs of the customers - Click on
    the links below for additional information
  • Influenced by affordability
  • Competitive Pressures such as emerging markets
    from abroad or new entrants to markets (e.g.
    Supermarkets selling electronics or clothing)
  • Availability of Substitutes
  • Level of Gross Domestic Product (GDP)
  • Needs and Aspirations of Consumers
  • Task 2 - P5.2 Based on the two contrasting
    economic environments selected describe the
    influence of customer demand for the
    product/service focusing on

Affordability Competitive Pressures Substitutes GDP Needs / Aspirations of the Customer
19
LO3 - The impact of the economic environment -
Influenced By Affordability
  • The influence of the affordability aspect for the
    business demand, the following issues must be
    addressed
  • Budget Constraints what have you got?? / what
    can you spend on??
  • Is the appropriate level of funding in place to
    cover the expense of the project?
  • In respect of capital works, is there a revenue
    budget allocation to cover on-going costs
    (maintenance etc.)?
  • Providing information to bidders about your
    affordability criteria
  • Financial Pressures
  • What is the likely cost of the goods, service or
    works?
  • Adverse impact on Services
  • Legal Implications
  • Reputational Damage

20
LO3 - The impact of the economic environment
Competitive Pressure
  • Competitive pressure is the pressure one feels
    when competing against someone else for a prize
    or to achieve a goal that is available only to
    the winner.
  • Entry of competitors how EASY or HARD is it for
    new businesses to start trading and compete
    against other similar businesses?
  • Threat of substitutes introduction of
    imitations/substitutes of the product/service
    how will they impact the business and others?
  • Bargaining power of buyers how strong is the
    position of the buyers?
  • can they work together to achieve and maintain
    the needs of the consumers
  • Bargaining power of sellers how strong is the
    position of the sellers?
  • are there other suppliers that can provide the
    product/service required or is it monopolised?
  • Rivalry among existing players is there
    competition?
  • Is it equal in strength and size?
  • Government governing rules and changes how
    will they impact the business and others?

21
LO3 - The impact of the economic environment
Availability of Substitutes
  • SUBSTITUTES IMITATION OF PRODUCT????
  • In terms of demand (that is, substitute-in-consump
    tion), organisations that offer similar
    products/services can either lead to an increase
    or decrease in
  • Price, based on the quality, branding, marketable
    base of the goods
  • Sales, based on the demand of the product
  • The availability of the substitute(s) will
    compete against each other based on their
    reputation, pricing, features, etc...
  • E.g.1 - MP3 Players (iPod, Sony Walkman, Phillips
    MP3, etc...)
  • E.g.2 Laptops (Samsung, HP, Sony, Macs, etc...)

22
LO3 - The impact of the economic environment
Level of Gross Domestic Product (GDP)
  • GDP, or Gross Domestic Product, is arguably the
    most important of all economic statistics as it
    attempts to capture the state of the economy in
    one number.
  • What is GDP? - GDP can be measured in three ways
  • Output Measure value of the goods and services
    produced by all sectors of the economy
    agriculture, manufacturing, energy, construction,
    service sector and the Government
  • Expenditure Measure value of the goods and
    services purchased by households and by
    Government, investment in machinery and
    buildings. It also includes the value of exports
    minus imports
  • Income Measure value of the income generated
    mostly in terms of profits and wages
  • In theory all three approaches should produce the
    same number.
  • In the UK the Office for National Statistics
    (ONS) publishes one single measure of GDP which,
    apart from the first estimate, is calculated
    using all three ways of measuring.
  • Usually the main interest in the UK figures is in
    the quarterly change in GDP in real terms, that
    is after taking account of changes in prices
    (inflation).

23
LO3 - The impact of the economic environment
Level of Gross Domestic Product (GDP)
  • How is GDP calculated?
  • Calculating a GDP estimate for all three measures
    every three months
  • The output measure - is considered the most
    accurate for the short term involving surveying
    tens of thousands of UK firms.
  • The main sources used for this are ONS surveys of
    manufacturing and service industries
  • Information on sales is collected from 6,000
    companies in manufacturing, 25,000 service sector
    firms, 5,000 retailers and 10,000 companies in
    the construction sector
  • Data is also collected from government
    departments covering activities such as
    agriculture, energy, health and education.
  • This is augmented by a wide range of sources
    which ensure that activity in the economy is well
    covered
  • GDP private consumption gross investment
    government spending (exports - imports)

24
LO3 - The impact of the economic environment
Level of Gross Domestic Product (GDP)
  • What is GDP used for?
  • GDP is the principal means of determining the
    health of the UK economy
  • Used by the Bank of England and its Monetary
    Policy Committee (MPC) as one of the key
    indicators in setting interest rates each month
  • So for example, if there are concerns the rate of
    GDP growth is too great and could be
    inflationary, the MPC is more likely to consider
    raising interest rates.
  • The treasury also uses GDP when planning economy
    policy.
  • When an economy is negative, tax receipts tend to
    fall, and the government adjusts its tax and
    spending plans accordingly to increase/improve
    customer sales
  • UK GDP is used internationally by the various
    financial bodies such as OECD, IMF, and the World
    Bank to compare the performance of different
    economies.
  • The European Union also uses GDP estimates as a
    basis for determining different countries'
    contributions to the EU budget.

25
LO3 - The impact of the economic environment
Influences on Demand
  • External economic influences on demand can have
    an impact on sales within companies and have an
    impact on price and what the customer is willing
    to pay.
  • Price goods can be seen as overprices in
    comparison to the past, ruse beyond inflation
    rates, be seen as too expensive or too cheap.
    Economies of scale can force product price drops
    and rises, Memory Chips dropped 700 in one year
    but Stamps went up 300 is the same year. This
    can have a positive or negative impact on
    companies depending on their product ranges.
  • Price of substitutes and complements Force of
    demand, Xbox drops its price so Sony must but
    what of companies with fewer rivals. Cheap
    imports can reduce down the price of home goods
    jus the same as next doors shop sales.
  • Income Standard of Living increases reduce down
    in a recession but prices of good continue to
    rise, causing a ripple effect in sales and price
    marking within supermarkets. Similarly the price
    of goods in certain areas is dependent on the
    wage within that area, McDonalds on in Chelsea is
    twice what it is in Corby.
  • Advertising Advertising drives sales, unless a
    company cannot afford it, advertising is a key
    feature in most companies product drives but
    success and failure can be driven by a number of
    factors, location, image, target audience etc.
  • Tastes and preferences Tastes change, this can
    have a major impact on product sales, fur was
    popular, then Burberry, fashions come and go in
    any product driven field.

26
LO3 - The impact of the economic environment
Elasticity of Supply
  • Supplying a service/products to the consumers
    from the business plays a big part in business
    supply chain - Click on the links below for
    additional information
  • Influenced by availability of Raw Materials and
    Labour
  • Logistics
  • Competition for Raw Materials such as the cost
    of electricity, sometimes related to oil/gas etc
  • Ability to Produce a Profit
  • Government Support such as limitations on
    taxation, importing and exporting of
    products/services
  • But these wax and wane with the economy.
    Elasticity of supply is how companies react to
    the change in conditions.
  • Task 3 (P5.3) Based on the two contrasting
    economic environments selected describe the
    influence of supplying the product/service to the
    business and customers focusing on -

Logistics Availability of Raw Materials and Labour Competition of Raw Materials and Labour Profitability Government Support
27
LO3 - The impact of the economic environment -
Availability Of Raw Materials And Labour
  • Availability of Raw Materials
  • Reliance on resources available, such as oil,
    fossil fuels, gas, crops, etc
  • Depending on explorations by refineries, seasonal
    weather and harvesting of businesses within the
    PRIMARY sector
  • Availability of Labour
  • Reliance on the quality of education, training
    and experience of the prospective employees
  • During a recession, the number of employees
    applying for a position are high with a wider
    range of education, training and experience
    available to choice from
  • Although the range is greater, unfortunately
    that does not mean better choices to make from

28
LO3 - The impact of the economic environment -
Logistics
  • Reliance on the business area of transportation
    for products/services to businesses and
    consumers, can be affected by
  • Importing embargos/restrictions
  • QUOTAS used to monitor the amount of
    products/services invested into the country
  • Exporting restrictions/constraints
  • QUOTAS used to monitor the amount of
    products/services provided to other countries
  • Petrol/Diesel costs
  • Government increases on TAX and price increases
  • Postage firms
  • With businesses and consumers heavily dependant
    on deliveries of products/services within a short
    period of time, the dependencies on the
    logistical aspect is colossal

29
LO3 - The impact of the economic environment -
Competition Of Raw Materials And Labour
  • Competition of Raw Materials
  • Depending on the availability of the resources
    from different suppliers for oil, fossil fuels,
    gas, crops, etc
  • High Levels of Resources leads to leads to
    greater amount of choices to the consumers at low
    and competitive costs
  • Low Levels of Resources leads to leads to limited
    choices for the consumers at high and
    non-negotiable costs
  • Competition of Labour
  • For businesses recruiting, this can be deemed as
    a very good thing because of the wider range of
    education, training and experience available and
    possibly the higher caliber of quality to choice
    from

30
LO3 - The impact of the economic environment -
Profitability
  • The ability of a company to earn a profit. It is
    a relative measure of success for a business.
  • Profitability of the business is dependent on
    different aspects, such as
  • Consumer Satisfaction
  • Consumer Loyalty
  • Meeting Customer Demand
  • Reducing Costs (BUT NOT QUALITY) for overheads
    and materials
  • Reputation with Suppliers
  • Good Communication links between Businesses and
    Suppliers to manage the stock inventory and
    ordering through a Management Information Systems
    (MIT)
  • The above aspects might be linked together, such
    as
  • Reducing costs to consumer satisfaction,
    reputation and meeting customer demand
  • Reputation with suppliers to loyalty and good
    communications

31
LO3 - The impact of the economic environment -
Government Support
  • The government provides support to help
    businesses to
  • start up, grow and succeed
  • overcome current financial and economic
    challenges
  • innovate
  • trade internationally
  • There is a wide range of government support
    available to businesses, not only through grants
    and other funding but also through numerous
    advisory, guidance, information and other
    services, including training.
  • Availability of grants base don good practice is
    one form the government uses to level companies
    into good practice. There is also grants for
    youth training, disability and race and for job
    creation. Companies use these to their advantage.
  • Ability of national governments to regulate
    businesses Ofcom, Ofwat, Ofsted and Oftel are
    there to monitor companies and business practices
    but have little power to stop utility companies
    raising prices. However they can lever the
    companies into paying tax, abiding by safety
    rules, equal pay and hiring policies etc.
  • They can also give tax incentives to companies
    who create local work, car manufacturers, steel
    industry and transport included.

32
LO3 - The impact of the economic environment -
Government Support
  • Supply-side measures, such as enhancing the
    skills of the working population through
    initiatives in education, training and research
    is something the government has been trying to
    encourage for years. Bargaining with local
    Academys to teach skill based subjects that are
    linked to local businesses like Engineering and
    manufacturing Courses in Corby or Industrial
    Design and Manufacturing in Luton and Bedford.
  • Similarly there is a heavy government push to
    promote apprenticeships in the fields of local
    commercial industry to bring the local population
    up to a workable labour force for industry.
    Examples include apprenticeships in woodwork in
    Chesterfield, Boat Building in Rutland, Saddlers
    in Winchester etc.
  • The continued 2 tier approach to education still
    stands, NVQ versus A Level subject based courses
    to accommodate University versus workforce
    learning. The push is now on for IT, Programming,
    App Invention and Chemistry in Britain as the
    turn of small firms comes around again.

33
LO3 - The Economic Environment - Comparison
  • Task 4 - M2.1 Based on the TWO contrasting
    economic environments selected analyse and
    compare the impact of changes in demand and
    supply on a selected business.
  • Consider the market they are in, what they exist
    for and the size of the business
  • Consider the structure - Tall, wide, small, big
    departments ...
  • Strategic plans for the future to achieve the
    aims of the business
  • Inter Dependencies of the departments
  • Consider the departments your organisation has,
    why they exist and what they perform how are
    they affected by the departments that exist ()
  • Changes in the Supply Chains of Operations

Development of Internal Structures Functional Areas
34
LO3 - The Economic Environment - Comparison
  • Many different things influence (impact) the
    structure and the functional areas of an
    organisation.
  • Some examples are below but many others exist
  • Organisation Size - For example smaller
    organisations tend to have fewer functional areas
    performed by fewer staff
  • Business Environment - A fast moving business
    environment will lend itself to a flexible flat
    less rigid structure. Perhaps with functional
    areas being more team based and smaller
  • Strategic Plans - What are the organisations
    short and long term plans, do they focus on
    innovation therefore needing a larger more
    proactive RD and marketing department who need
    to communicate
  • Changes in Supply and Demand S D Curves,
    Elasticity of Demand, Price Sensitivity and
    Branding
  • Global Interaction Supply Chains, Ownerships,
    Capital and Business Operations and Government
    Regulation

35
LO3 - The Economic Environment - Evaluation
  • Business Activities How the business operates
    (dealing with suppliers / customers)
  • has it forced your company to downsize, change
    its ethos, change its plans or way of dealing
    (like going purely online)
  • Business Strategy business changed and impact
    it has on the business operations
  • Internal Structures organisation structure
  • Would they ? hire more or less? / retrain or lay
    people off?
  • Would they find a different way of doing things
    like training staff to do multiple jobs or cut
    our one section of their company altogether?
  • Functional Activities department function /
    link together (how would the change)
  • Stakeholders change in the focus and/or
    management of the business
  • Task 5 - D2.1 Evaluate to what extent a
    selected business is likely to be affected by
    changes in the economic environment

Business Activities Business Strategy Internal Structures Functional Activities Stakeholders
36
Assessment Tasks
  • Assessment Outcome P5
  • Task 1 - P5.1 Focusing on a business, describe
    the influence of two contrasting economic
    environments that impact a business, based on
  • Task 2 - P5.2 Based on the two contrasting
    economic environments selected describe the
    influence of customer demand for the
    product/service focusing on
  • Task 3 - P5.3 Based on the two contrasting
    economic environments selected describe the
    influence of supplying the product/service to the
    business and customers focusing on

Ownership of Business Business Operations (Functionality of the Business Activities) Movement of Capital
Affordability Competitive Pressures Substitutes GDP Needs / Aspirations of the Customer
Availability of Raw Materials Competition of Raw Materials Logistics Availability of Labour Competition of Labour Profitably Government Support
37
Assessment Tasks
  • Assessment Outcome M2
  • Task 4 - M2.1 Based on the TWO contrasting
    economic environments selected analyse and
    compare the impact of changes in demand and
    supply on a selected business
  • Assessment Outcome D2
  • Task 5 - D2.1 Evaluate to what extent a
    selected business is likely to be affected by
    changes in the economic environment

Development of Internal Structures Functional Areas
Business Activities Business Strategy Internal Structures Functional Activities Stakeholders
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