3.1.3 Understanding that businesses operate within an external environment

Tighter economic + market condition, greater competitive pressures.

Competitive pressures stem from more than price - eg special experiences/product uniqueness consumers are looking for, therefore, companies need to invest heavily in R&D as well as in creativity of workforce

General expectation is underlying market conditions will be positive, w/ size of markets expanding on regular basis

When market conditions tough, likely to be failures as businesses run out of cash - also may be huge pressures on workforce as people forced to choose between redundancy and real wage cuts - less income, people less likely to spend, therefore sales + demand fall significantly

Other factors affecting market conditions other than economy are:
 - consumer taste and fashion
 - disruptive change resulting in radical innovation or new tech
 - competitive structure

Affected by 3 main things:
 - chances in incomes of main breadwinners
 - number w/in household who work
 - impact of government decisions on taxation + benefits

For every business, invaluable to forceast rate of change in household incomes

Index numbers + household incomes: economic + business data often analysed w/ index numbers - converting series of data into figures that all relate to a base purpose where data = 100. Allows users of data to see % changes + trends. Advantage of this is you can see quickly changes in household income + prices etc. Help you understand trends more easily + therefore take advantage of them to benefit your business as much as possible, or reduce damage done to business as result of this trend, such as a fall in sales or demand - anticipate what will happen more easily

Interest rate is price charged by bank per year for lenidng money or providing credit. Charged by individual banks - different interest rates, but usually influenced by the interest rate the Central Bank charges high street banks for borrowing money (bank rate).

Bank of England committee asked to set interest rates at level that should ensure UK prices rise by 2%/year. If they decide the economy is growing so strongly that prices might rise faster than this, it will increase interest rates -> people feeling worried about borrowing money more + may cut their costs/spending. Should help discourage firms from increasing their prices. 

For firms, level of interest rates important because:
 - affects consumer demand, especially for goods bought on credit (finance) eg houses and cars. Higher the interest rate, lower sales can be expected
 - interest charges affect the total operating costs

Looks at make-up of population eg population size

For businesses, other key population variables include:
 - age - w/ proportion of older people forecast to grow considerable, creates opportunities for companies that can find relevant products or services
 - gender - target market eg cosmetics targeted more towards females
 - ethnicty - may be opportunities for products targeted at specific ethnicities in markets for food, soft drinks etc

Can choose how much they focus on this. Some may do minimum and instead focus on profit maximisation, which would be understandable if threat of survival (Porter's 5 forces) was an issue. 

Others may choose to do more than min for moral/ethical reasons. Some see selling Fairtrade as a marketing tool, eg for chocolate, as people tend to like buying products with a Fairtrade sticker as it makes them feel better about themselves and makes them feel that they are making a difference - viewing it more as a business opportunity

4 factors to consider:
 - immediate effect on environment actions of business take, eg impact on local community
 - sustainability - making sure actions of business will not rob future generations of the availability of key resources eg by planting trees when you use trees
 - global warming - impact business has on greenhouse gases eg co2
 - fairtrade supplies - whether or not business chooses to sign agreement that all raw material will be bought through Fairtrade