Assessing Changes in the Business Enviroment; Unit 4 - Notes

Notes made from a combination of resources including the Malcolm Surridge text book and Philip Allan revision guide.

Covers the 'assessing change' in the external enviroment third of the course; economic, political, legal, social, technological, competitive, enviromental,

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Economic Environment
Economic Environment and Business Strategy:
Long term plans through which it seeks to obtain its corporate objective.
Plans may be:
Increase innovation
Enter new markets
Takeover or merging
Unemployment varies according to the shape of the business cycle
Inflationary pressures more likely in a boom
Inflation and interest…

Page 2

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Income/Output falls
Labour and materials cost more and increase in demand
Costs rise
Government increase interest rates to prevent inflation
Falling profits / High interest
Delayed investment
Space capacity
More firms fail

Some firms skip a slump and start rising
Increase in government spending
Lower interest rates

Page 3

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Slump: cut interest rates and taxes
Boom: Increase interest rates and availability of resources
Firms need to take into account the likely effects of the counter-cyclical policies and help avoid the
worse extremes of booms and slumps
Business Strategy:
Firms selling demand sensitive to income goods: rise in boom/fall in…

Page 4

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An increase in the supply of £ will lower its price

Exchange Rate:
Price of a currency expressed in terms of another
Varies regularly according to balance of supply and demand of currency

Why Buy Foreign Currencies:
Pay for goods and services bought abroad
Expected to pay using the currency…

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Requires supplies to price their products in a different currency to minimise fluctuations and
lessen effects and ensure it pays, in some currency it receives

Persistent rise in the price level and the associated fall in the value of money
Major problems when inflation is high
Historically lower over…

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Demand-Pull Inflation: Demand for goods and services exceed its ability to supply these products

People not in work who are seeking work
Represents a waste of resources as labour is unused
8.3% rate of unemployment

Each type requires a different remedy

Occurs due to change in the…

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Assist with the provision of state training schemes
Develop relevant vocational courses
Business Action:
Replace labour with technology ­ boost productivity
Give junior / unskilled employees more skills to carry out more jobs

Economic Growth:
Increase in the value of goods and services produced by a nation's economy

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Trends towards Globalisation:
Increased free trades between nations
Increase in global food production
Decrease in malnutrion
Less developed countries have access to healthcare
Leaders in major economies and firms protect and promote global trading and its benefits

Increased gales revenue and profit
Cheaper resources
Economies of scale…

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Rapid growth rates
Natural resources

Poor transport infrastructure
Important restrictions (tax)
Lack of appropriate workforce
Vulnerability to responsibility

Retrenchment or cost cutting
Merger or takeover
Joint ventures
Depends upon a range of factors:
Financial position of the firm
Change in economic environment
Extent of…

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Altering interest rates
Controlling money supply
Manipulating exchange rates
Government tends to rely on altering the interest rates to affect the level of economic growth
Increased unemployment as production declines
Falling demand and reduces inflationary pressure
Reduced economic growth as output drops
Increased value of the pound
Improved current…




This is a 22 page document which provides excellent notes on the economic aspects of unit 4. It includes the business cycle, economic indicators and a full précis on PEST analysis. It can be adapted for revision purposes in many ways.

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