Flashcards · 8132 · Topic 2

Influences on business flashcards

52 cards on Topic 2, subtopics 3.2.1 to 3.2.6. Pick a subtopic or study them all.

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3.2.1 Technology

E-commerce: Buying and selling over the internet, giving access to wider markets without a physical presence everywhere.
Effect of e-commerce, and the functional areas it affects most: Access to wider (often global) markets without a physical presence everywhere. Marketing (reach) and operations (order fulfilment).
Digital communication: Electronic channels such as email, social media and messaging that a business uses with its stakeholders.
Effect of digital communication, and the functional areas it affects most: It changes the speed and reach of communication with stakeholders. Marketing (reaching customers) and human resources (communicating with employees).
Benefits of digital communication for a business: Faster responses to customer queries, and wider reach at lower cost than traditional advertising.
Risks of digital communication for a business: A single negative social media post can spread quickly, and the business has to monitor and respond to public comment it does not control.
How to write a strong answer on a technology change: Name the specific technology or channel, say which functional area it affects (operations, HR, marketing or finance) and explain how, applied to the business. Describing the technology alone is a weaker answer.
The single idea that frames all of topic 3.2 Influences on business: External influences affect all four functional areas (operations, human resources, marketing, finance), and businesses must change in response.

3.2.2 Ethical and environmental considerations

Ethical behaviour (as the specification uses it): Acting in ways stakeholders consider both fair and honest.
Trade-off: Giving up some of one thing (such as profit) to gain another (such as reputation).
Examples of ethical behaviour by a business: Fair prices to suppliers, honest advertising, fair pay and safe conditions for staff, fair treatment of customers.
Benefits and drawbacks of behaving ethically: Benefits: reputation, customer loyalty, easier recruitment, steadier supplier relations. Drawbacks: higher costs, possibly higher prices, lower short-run profit.
The environmental considerations listed in the specification: Traffic congestion, recycling, disposing of waste, and noise and air pollution.
Sustainability (the specification's two areas): Global warming and using scarce resources. In general terms: meeting today's needs without harming the future.
Environmental considerations versus sustainability: Environmental considerations are mostly local, immediate effects (pollution, waste, congestion). Sustainability is about global warming and scarce resources. The specification lists them separately.
A firm buys 8,000 units a year and a fair-trade supplier charges 25p more per unit. Annual profit is £8,000. What is the effect?: Extra cost = 8,000 × £0.25 = £2,000 a year, which is 2,000 ÷ 8,000 × 100 = 25% of profit. The firm judges whether reputation or a small price rise can recover it.
A recycling scheme costs £6,000 to set up and saves £2,000 a year. What is the payback period?: £6,000 ÷ £2,000 = 3 years. A short payback makes the scheme easier to justify; a long one is riskier for a small business with little cash.
Structure for a trade-off answer (ethics, environment or sustainability): 1. Name the action. 2. State its cost to the business, using any figures. 3. State its benefit and who gains. 4. Reach a judgement that depends on the business and its customers.

3.2.3 The economic climate on businesses

Interest rate: The cost of borrowing, and the reward for saving.
Level of employment: How many people in the economy have jobs.
Consumer spending: What households spend on goods and services.
Effects of a rise in interest rates on a business: Its loans and overdrafts cost more, squeezing profit and cash flow. Households and firms spend and invest less, so sales fall, especially of items bought on credit.
A business has a £50,000 loan. The interest rate rises from 3% to 5%. What is the extra interest a year?: £50,000 × 3% = £1,500. £50,000 × 5% = £2,500. Extra = £1,000 a year.
Effects of a rise or a fall in the level of employment: Rise: household incomes and demand go up, but recruiting is harder and pay may rise. Fall: incomes and demand go down, but recruiting is easier with less pressure on pay.
How do changes in consumer income affect spending?: Higher incomes raise spending, especially on non-essentials and expensive items. Lower incomes cut spending, with basics falling least. Firms respond by changing price, range or promotion, and output and stock.
Why can a rise in interest rates hit a seller of big-ticket items twice?: Its own interest bill goes up, and customers who borrow to buy its products buy less.
Who gains and who loses when interest rates rise?: Borrowers lose (they pay more interest); savers gain (they earn more). The specification does not require you to explain why rates change.

3.2.4 Globalisation

Globalisation: The growing connection of the world's economies and markets, so goods, services, money and ideas cross borders more easily.
Exchange rate: How much of one currency buys a unit of another.
Stronger pound and weaker pound: Stronger pound: each pound buys more foreign currency. Weaker pound: each pound buys less foreign currency.
How the specification says UK businesses compete internationally: Better designs, and higher quality products at lower prices.
Benefits of globalisation for a UK business: A bigger market through exports, cheaper components and products, lower unit costs from larger output, new ideas, skills and suppliers, and less reliance on the UK economy.
Drawbacks of globalisation for a UK business: More overseas rivals in the UK market, longer supply chains and transport costs, exchange rate risk, cultural, language and legal differences, and reputation risk from unethical overseas suppliers.
Effect of a stronger pound on UK exporters and importers: Exporters: goods become dearer abroad, so sales or profit per item may fall. Importers: imports become cheaper, so costs fall and profit may rise.
Effect of a weaker pound on UK exporters and importers: Exporters: goods become cheaper abroad, so sales may rise. Importers: imports become dearer, so costs rise and profit falls unless prices rise.
Imported parts cost £150,000 a year and the cost rises 4%. Profit was £40,000. What happens to profit?: Extra cost = 4% × £150,000 = £6,000. Profit falls to £34,000, a fall of 6,000 ÷ 40,000 × 100 = 15%.
Do you have to convert currencies in AQA exchange rate questions?: No. You explain the direction of the effect on price or cost, then sales, then profit. A firm that both imports and exports is partly protected.

3.2.5 Legislation

The four examples of the impact of legislation given in the specification: Cost, training needs, recruitment, and the consequences of failure to comply.
National minimum wage / living wage: what it is and its effects: The legal minimum hourly pay (rates change, so do not quote a fixed figure). Effects: a higher wage bill, possible price rises or fewer hours, but better motivation and lower staff turnover.
The Equality Act (2010): meaning and effect on a business: Unfair treatment because of characteristics such as age, sex, race, disability or religion is unlawful in areas such as hiring, pay and promotion. Needs fair recruitment, manager training, possible adaptations; gives a wider pool of talent.
The Health and Safety at Work Act (1974): Employers must keep the workplace reasonably safe, and employees must take care. Spending on equipment and training is set against fewer accidents, less absence and better morale.
Consumer law (trade descriptions): meaning and effect: What is said about a product must be accurate and not misleading. The business must check labels and adverts and control quality, or face refunds or recalls; compliance builds customer trust.
Benefits to a business of a safe working environment: Fewer accidents and less absence, better motivation and loyalty, a stronger reputation that helps recruitment, and avoiding compensation and legal action.
Consequences of failing to follow the law: Financial penalties and compensation claims, legal costs and management time, forced changes to how the business operates, bad publicity, lost customers and difficulty recruiting.
8 staff each work 15 hours a week for 52 weeks. The legal hourly rate rises by 40p. What is the extra annual wage cost?: Hours = 8 × 15 × 52 = 6,240. Extra cost = 6,240 × £0.40 = £2,496 a year.
Law versus ethics: The law is the minimum a business must do. Ethical behaviour can go beyond what the law requires.

3.2.6 Competitive environment

Market and competition: A market is anywhere buyers and sellers come together to exchange goods or services, physical or online. Competition is rivalry between businesses selling similar goods or services to the same customers.
How can operating in a competitive market affect a business?: Pressure to keep prices down, improve quality and customer service, innovate and cut costs. It may spend more on promotion, and its market share and profit can fall if rivals do better. Customers gain more choice and lower prices.
When might a business face little or no competition?: When it is the only supplier in an area (such as the one shop in a remote village), has a new or unique product rivals cannot yet copy (for example patented), the market is very costly to enter, or the market is small and specialist.
Why do all businesses face uncertainty?: The future cannot be known and the business environment keeps changing: competitors, customer tastes, the economic climate, technology and laws, so sales, costs and profit cannot be predicted with certainty.
Why do entrepreneurs start businesses despite the risks?: The objectives in the specification: to be their own boss, flexible working hours, to pursue an interest, to earn more money, to fill a gap in the market, and dissatisfaction with their current job. Higher possible reward usually means higher risk.
Activities a business can undertake to minimise risk: Market research, business planning, cash-flow forecasting, starting small or testing first, insurance, limited liability, selling a range of products or in several markets, keeping cash reserves. These reduce risk but cannot remove it.