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Unit 1- What is business? 1.3 Understanding that businesses operate within an external environment Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Integrity | Curiosity | Respect Do Now...

Unit 1- What is business? 1.3 Understanding that businesses operate within an external environment Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess External Environment Links Closely With… External Environm ent Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess External Environment Links Closely With… Sales Competitive Forecasti ness ng Business Budgetin Objective g s External Decision- Marketi making Environm ng Mix ent Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess The external environment is the factors that can influence a ? business's activities and can determine its success or ? ? failure. Extern al ? ? factor Task: With a partner, try to list s as many factors outside of the business’s control that may influence its activities and performance. ? ? Integrity | Curiosity | Respect 5 Check you have identified all the external factors in watching the video Integrity | Curiosity | Respect 6  Do Now ‘Big Picture’ New Knowledge Practice Assess External Environment The external environment consists of a number of factors that are beyond the control of the individual business. In some cases, they limit a business’s decisions and may prevent its growth and development. Integrity | Curiosity | Respect Can you identify the external factors that are missing? Integrity | Curiosity | Respect Integrity | Curiosity | Respect On Jan 1st 2020 the UK withdrew from the EU – this was a significant external factor for all UK business What problems/issues do you think this caused for UK business? Did business react on the 1st Jan 2020 or do they have to plan? Why? What corporate and functional objectives do you think Integrity | Curiosity | Respect business may have had at the Brexit was an significant external factor for all UK business Integrity | Curiosity | Respect  M – Market Conditions E – Environmental Factors D – Demand I - Income C - Costs I – Interest Rates Integrity | Curiosity | Respect  Costs Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess What are the typical costs in a business? Are they fixed or variable? How might external factors influence these positively and negatively? Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Costs Costs are a major factor in determining the overall success of a business as measured by its profit. Organisations need to understand their costs and what influences them. Any factor that changes costs will also result in a change of the price of a product and/or the profit margin. Integrity | Curiosity | Respect Costs Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Costs Costs and demand are heavily linked. A rise in business costs is likely to lead to an increase in price which, depending on the nature of the product, may cause the quantity demanded to fall. Similarly, a fall in costs may lead to a reduction in price which is likely to increase demand. Integrity | Curiosity | Respect Integrity | Curiosity | Respect  Demand Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Demand Demand: ‘the amount of a good or service that consumers are willing and able to buy at any given price over a period of time’. What kind of things can influence the demand for a product? – Discuss Integrity | Curiosity | Respect  Do Now ‘Big Picture’ New Knowledge Practice Assess Demand General factors that influence demand Tastes and fashions Price of other goods- competitors Marketing and advertising Seasonal factors Business’ reputation Government action Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Match the brand and factor Tastes and fashions Price of other goods - competitors Marketing and advertising Seasonal factors Business’ reputation Government action Income of consumers Price of complements Integrity | Curiosity | Respect  Do Now ‘Big Picture’ New Knowledge Practice Assess Morrison's Read the article on Morrison’s. Identify as many reasons as possible as to why Morrison’s have cut their prices. https://www.thegrocer.co.uk/prices-and-promoti ons/morrisons-announces-price-cuts-across-15 0-popular-food-and-drink-products/671764.articl e Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess 1. Identify as many reasons as possible Morrison's as to why Morrison’s have cut their prices 2. Why are they doing this? 3. What’s the influence on Morrison’s share price? 4. How have Morrisons cut costs? Why are they doing this? 5. What might the competition do? Integrity | Curiosity | Respect  Do Now ‘Big Picture’ New Knowledge Practice Assess Morrisons Match competition on price- ASDA and discounters like Aldi and Lidl To meet customer needs- ‘cash strapped shoppers’ – unemployed – lack of income Economy- recession/ economic downturn Sales are falling after the lockdown increase as customers start to eat out again Covid-19 – furlough- loss of jobs Integrity | Curiosity | Respect  Market Conditions Integrity | Curiosity | Respect  Do Now ‘Big Picture’ New Knowledge Practice Assess Market Conditions The condition of the market that a particular business operates in such as the fashion market or the beauty market The conditions relate to things such as the level of sales, the rate at which they are changing, and the number and strength of competitors You could say for example that the market for vegan products is growing as more people choose a plant-based lifestyle and demand these types of products Some markets are vulnerable to large and dramatic changes in demand such as the market for technological products as new products are launched frequently Integrity | Curiosity | Respect  Do Now ‘Big Picture’ New Knowledge Practice Assess Discuss the local market conditions for MyLahore restaurant Size Growth rate Any barriers to entry (e.g. set up costs / regulation) Seasonal factors Amount and intensity of competition Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Discuss the global market conditions for smartphones using the infographics Size Growth rate Any barriers to entry (e.g. set up costs / regulation) Seasonal factors Amount and intensity of competition Integrity | Curiosity | Respect Integrity | Curiosity | Respect  Do Now ‘Big Picture’ New Knowledge Practice Assess Task 2 What are the ideal market conditions for success? Consider the following features and describe the best situation for a firm to grow and make high profits. Write a full paragraph to explain your reasons. Sales figures and level of demand Price levels Level of competition including the number of competitors, size and market share Barriers to entry – How difficult is it for new entrants to the market? Consumer incomes GDP and economic growth - Gross domestic product (GDP) is the total value of a country's total output of all goods and services over time. Integrity | Curiosity | Respect  Do Now ‘Big Picture’ New Knowledge Practice Assess Competition Almost all businesses operate in competition with other businesses. Competition is usually between firms supplying the same products but it can be broader. The demand for a business’ goods and services will be influenced by the strategies of its competitors, for example, competitors may reduce their prices, introduce new products or conduct effective marketing. Integrity | Curiosity | Respect  Do Now ‘Big Picture’ New Knowledge Practice Assess Who are these businesses in competition with? The Guardian Newspaper Showcase Cinema Ford Boots Adidas Maybelline Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Why is competition generally regarded as being a positive thing? Benefits customers as businesses improve the quality and range of their products and offer the most competitive prices. Competition gives customers more choice. Competition motivates businesses to innovate. Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Disadvantages of competition When firms solely focus on price, quality is often sacrificed and can also lead to production decisions with ethical implications. A large proportion of business finance and time can be spent on marketing which could arguably be spent on developing cheaper or better products. Intense competition can result in some businesses being forced out of the market leading to workers being made redundant and unemployed. Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Monopolies As monopolies are illegal in the UK, all business face competition from others offering a similar or same product. If an individual business differentiates its product from that of its competitors with a unique selling point (USP) it might be able to increase demand. Alternatively, if its competitor releases a new, more technologically advanced product or additional facilities, demand could fall. If the products are relatively the same, such as the grocery market, there will be pressure to reduce prices and lower costs to maintain profitability. A monopoly is the exclusive possession or control of the supply of or trade in a commodity or service Integrity | Curiosity | Respect  Do Now ‘Big Picture’ New Knowledge Practice Assess What are the USPs of these products / services? Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess The Big Four The demand for a firm’s goods and services will be influenced by the strategies of its competitors. What action would you take as a director of any of these supermarkets to try and increase your demand and decrease your competitors’ demand? Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess How businesses can be more competitive Investment in new equipment and technology to improve speed reliability and quality of products Improvements to operational performance e.g. stock control to improve quality and cut costs Effectiveness of the marketing mix Innovation through investment in research and development to improve and broaden product range Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess How businesses can be more competitive Financial planning and control to reduce costs e.g. set clear targets and monitor progress Incentive schemes to motivate staff- improve efficiency leading to lower costs and higher quality Quality procedures- quality assurance- reputation Hire skilled staff or provide training to improve productivity Integrity | Curiosity | Respect  Do Now ‘Big Picture’ New Knowledge Practice Assess When business don’t keep up with the competition (directly or indirectly) they will fail 4 - Gather as many examples from around the room you can in Integrity | Curiosity | Respect  Incomes Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Income People’s wages and salaries Could also include other forms of income such as interest payments, rents, and other forms of earning. Task 5-7 Make a list of at least 5 product types for which demand will increase as general consumer incomes rise and 5 for which demand will fall. Make another list of 5 product types for which demand is likely to be completely unaffected by consumer income changes. Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Incomes Impact on business costs How could a change in income affect a business’ costs? Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Incomes Impact on business costs How could a change in income Minimum wage affect a business’ costs? Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Incomes Impact on business costs Businesses have to follow the national minimum wage- If the national minimum wage rates increase then business costs will increase. (current minimum wage is £10.42 for those aged 25 and over, £10.18 aged 21 to 22, Age 18 to 20 £7.49, Under 18 £5.28 Sometimes businesses may be able to lower their wages in order to lower costs. For example, during a recession where firms are closing and unemployment is rising, businesses may be able to reduce wages as workers may be more prepared to work for lower wages. Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Incomes - Impact on demand A change in income will impact the demand for goods and services. The extent of the impact will depend on the nature of the goods and services in question. Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess How would an increase in incomes affect the demand each of these products? Identify whether each of these is a luxury, an essential or an inferior product Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Incomes - Impact on demand A rise in income… Luxury goods: likely to lead to an increase in demand for luxury products because people can now afford products that were previously too expensive. Essential goods: usually doesn’t affect the demand for essential products such as bread and milk. Inferior goods: may suffer a fall in demand because people can substitute better quality products for them e.g. cheaper cuts of meat, low quality clothing. As demand increases, businesses may need to employ more people in order to meet demand- can become more difficult to recruit suitably skilled or qualified workers. The existing workforce and potential applicants have more bargaining power and firms may be forced to increase wages- this will increase costs and possibly prices- affecting demand and competitiveness. Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Effect of falling incomes When incomes fall the demand for luxury goods will fall, the demand for essential items will remain the same, the demand for inferior products is likely to increase. Additional consequences; Excess stock may eventually lead to reduced prices- lower profits- workers being laid off- business may have to close. Those selling inferior goods may need to increase output and employ more people. Cost-saving strategies may be introduced e.g. by cutting training budget, laying off staff, closing stores, outsourcing production (to another country where labour costs are much cheaper) Integrity | Curiosity | Respect There are Large Differences in Household Disposable Incomes by Region in the UK Disposable income: income left after all taxes have In 2019 London been deducted had the highest income per head, where the average person had £30,000 available to save or spend. The North West had the lowest, with the average person having £18,000 Integrity | Curiosity | Respect  Interest Rates Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Interest rates Interest rates: The cost of borrowing money and the return for lending money. Set by the Bank of England An important tool of government economic policy- the government can influence spending and therefore the rate of inflation (rate at which the general price level is rising), level of employment, the rate of exchange and the level of exports and imports. Disposable income: income left after all taxes have been deducted Integrity | Curiosity | Respect The UK had experienced very low interest rates for a 10+ year period In 2022, following the rise in inflation, interest rates were raised -> The Bank of England does this to encourage consumers to save and not spend money Integrity | Curiosity | Respect  Do Now ‘Big Picture’ New Knowledge Practice Assess Interest rates How would interest rates impact business costs? How would interest rates impact the demand for products? Discuss Integrity | Curiosity | Respect  Do Now ‘Big Picture’ New Knowledge Practice Assess Interest Rates Effect of a change in interest rates on business costs A fall in interest rates will likely lead to a fall in business costs; This is beneficial for businesses with a lot of long term loan commitments – fixed costs for these businesses will fall. ( they could then lower their prices to become more competitive) Demand will likely increase for products which may lead to firms considering expanding and needing more employees- leading to increased competition in the labour market- skill shortages and maybe increasing wage costs, A rise in interest rates will lead to a rise in business costs. Prices may have to rise which may mean firms are less competitive or profit margins may have to fall. Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Interest Rates Effect of a change in interest rates on the demand for goods and services The cost of borrowing money changes which affects peoples ability to buy products, especially luxury products. It affects their spending on other products because it affects their disposable income. A fall in interest rates is likely to lead to an increase in demand because… ? Integrity | Curiosity | Respect  Do Now ‘Big Picture’ New Knowledge Practice Assess Interest rates Effect of a change in interest rates on the demand for goods and services The cost of borrowing money changes which affects people’s ability to buy products, especially luxury products. It affects their spending on other products because it affects their discretionary income. A fall in interest rates is likely to lead to an increase in demand because Saving money is less attractive as less interest is received. Customers may prefer to spend than save Mortgage payments and other loans and credit repayments will fall meaning homeowners have more disposable income The cost of goods bought on credit will fall, in particular this will affect expensive, durable items such as cars, furniture and electrical goods Integrity | Curiosity | Respect  Do Now ‘Big Picture’ New Knowledge Practice Assess Interest rates Effect of a change in interest rates on the demand for goods and services A rise in interest rates is likely to lead to a fall in demand for goods and services Saving money is more attractive Mortgage payments and other loan and credit repayments will rise- less discretionary income to spend Cost of goods bought on credit will rise- affecting expensive durable products Integrity | Curiosity | Respect  Do Now ‘Big Picture’ New Knowledge Practice Assess What Might Happen When Interest Rates Start to Rise Again in the UK? Main effect will be through via mortgages Bank of England raises Cost of borrowing rises (higher mortgage interest rates payments reduce household income) Repayments on other And contraction in retail Possible slowdown in debts (e.g. credit cards credit housing market & personal loans) will also increase Higher rates might also Makes UK exports cause currency (pound) more expensive in to get stronger overseas markets Integrity | Curiosity | Respect  Demographic Factors Integrity | Curiosity | Respect  Do Now ‘Big Picture’ New Knowledge Practice Assess Demographic factors Demographics factors are related to changes in the characteristics of the population of a country. These affect the level of demand, the nature of goods/services bought and the structure of the working population How many demographic factors can you think of? Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Demographics factors are related to changes in the characteristics of the population of a country. Changes to the Age Gender Occupation Birth Rates Birth Dates Geographical spread of the population (location) Ethnic balance Size of households Level of public health Immigration Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Population of the UK By Age Group What do you notice about the age of the UK population? Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess The Population of the UK is Forecast to Grow Significantly What products/ services would be the first to be impacted by this growth? Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Population of England Where would you set up your UK distribution centre? Why? Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Why has Amazon chosen these locations? Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Demographics – Research Task What kind of organisations might see an increase in demand due to an ageing population (people living longer)? How might a growing population affect demand? (What kind of products/services will see the biggest increase in demand) How can supermarkets/food manufacturers adapt to growing or shrinking households? (How can they ensure the products they offer appeal to different size markets?) Why would a local business want to know the demographics of the local area? (For example if you knew a lot of children lived locally, or it was an area with a high ageing population, or people of a particular religion) Integrity | Curiosity | Respect  Do Now ‘Big Picture’ New Knowledge Practice Assess Ethnicity Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Ethnicity Integrity | Curiosity | Respect  Environmental Factors Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Environmental Issues Environmental issues cover a broad area and can have a big impact on the way a business operates and its cost of production as well as potentially influencing consumer demand. No longer can businesses carry out production without regard for its local environment. The concern for the environment is being driven by climate change and sustainable development – where businesses aim to meet the needs of the present without compromising the ability of future generations to meet their needs. Integrity | Curiosity | Respect  Do Now ‘Big Picture’ New Knowledge Practice Assess Environmental Issues – Research Task 1. What kind of damage do you think businesses cause to the environment? 2. How can being more environmentally friendly affect business costs? 3. How can being more environmentally friendly affect demand? 4. What do we mean by Fairtrade? Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Environmental Issues & Impacts Issue Resulting In Leading to Pollution Government Increased cost Legislation Global Warming Media attention Damaged reputations Exploitation Media attention Impact on sales Focus on more sustainable development Concern for fair trade Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess BP Oil Rig Disaster What was the impact on BP’s reputation? What happened to their share price? Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess BP's stock fell by 51% in 40 days on the New York Stock Exchange, going from $60.57 on 20 April 2010, to $29.20 on 9 June, its lowest level since August 1996. Integrity | Curiosity | Respect  Do Now ‘Big Picture’ New Knowledge Practice Assess Task 8 - Ryanair article 1. Identify the factors that may be impacting costs for Ryanair and underline them. 2. Identify the factors that may be impacting demand and circle them. Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Ryanair article 1. Identify the factors that may be impacting costs for Ryanair and underline them. Oil prices will be lower Airports will cut charges Purchasing more planes 2. Identify the factors that may be impacting demand and circle them. Price way that Ryanair expects to win Coronavirus restrictions lifted Steep discounts Summer holidays Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Most companies now have a CSR policy which states how they will trade ethically Integrity | Curiosity | Respect  Do Now ‘Big Picture’ New Knowledge Practice Assess Fairtrade Integrity | Curiosity | Respect  Do Now ‘Big Picture’ New Knowledge Practice Assess Fairtrade Fairtrade is about better prices, decent working conditions and fair trade terms of trade for farmers in developing countries. This is likely to mean higher costs for businesses but could lead to greater demand and a better reputation as well as acting as a unique selling point. Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Rain Forest Alliance The Rainforest Alliance certification seal means that the product (or a specified ingredient) was produced by farmers, foresters, and/or companies working together to create a world where people and nature thrive in harmony. Integrity | Curiosity | Respect  Do Now ‘Big Picture’ New Knowledge Practice Assess Task 9 - Car registration article 1. Identify the factors that have led to an increase in demand for new vehicles and underline them. 2. Identify factors that may have impacted costs for car manufacturers and circle them. 3. Analyse how one of the factors you have identified may impact costs for a car manufacturer. 4. Which factor do you think has been the most significant contributor to the increase in the demand for new vehicles? Justify your view. Integrity | Curiosity | Respect  Do Now ‘Big Picture’ New Knowledge Practice Assess Exam Practice Q. Explain the factors that might influence the price at which Morgan sells its cars. [6 marks] Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Q. Explain the factors that might influence the price at which Morgan sells its cars. [6 marks] Examples of how the assessment objectives might be met in this question include: demonstrate knowledge and understanding of relevant issues such as factors influencing price (AO1). be applied to the context of Morgan (AO2). Integrity | Curiosity | Respect Do Now ‘Big Picture’ New Knowledge Practice Assess Q. Explain the factors that might influence the price at which Morgan sells its cars. [6 marks] Indicative Content The production capacity relative to demand; if sales for this type of car are high then a high price and profit margin may be required Income levels of the target market may affect the ability to pay The price of rivals and substitutes. Integrity | Curiosity | Respect Remember! M E D I C I Integrity | Curiosity | Respect Which categories do the topics covered fall into? P POLITICAL E ECONOMIC S SOCIAL T TECHNOLOGICAL L LEGAL E ETHICAL / Integrity | Curiosity | Respect ENVIRONMENTAL