Flashcards · 9225 · Topic 2

Influences on business flashcards

48 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

ICT: Information and Communication Technology. Its use keeps changing, and that changes what businesses do.
e-commerce: Buying and selling over the internet. It gives a business access to wider markets.
Digital communication: Electronic contact with stakeholders, for example email, video conferencing, a website or social media.
How does ICT influence business activity?: Selling (online orders), buying (ordering from suppliers online), communication (faster contact), staffing (new skills and training needed), and costs (set-up and security against savings on travel, printing and premises).
e-commerce: benefits to a business: A wider market beyond people who can visit a shop, open at all hours, possible savings on premises, and sales to other towns and countries.
e-commerce: drawbacks to a business: Delivery, packaging and returns costs, set-up and security costs, customers cannot see or touch the product, and some sales just move from the shop.
Video conferencing: use and drawback: Use: meetings with people far away, saving travel. Drawback: poor connections, and it is less personal.
Online sales rise from £8,000 to £11,000 a month. Calculate the percentage increase.: (11,000 − 8,000) ÷ 8,000 × 100 = 37.5%

3.2.2 Ethical and environmental considerations

Ethical behaviour: Conduct that stakeholders regard as fair and honest. It is a choice beyond the legal minimum, not the same as obeying the law.
Examples of ethical behaviour named in the notes: Fair prices and prompt payment to suppliers, honest labelling and advertising, fair treatment of staff, charitable giving, and respecting staff religious observance where possible.
Ethical behaviour: benefits and drawbacks: Benefits: customer loyalty, better reputation and recruitment, stronger supplier relationships, fewer complaints. Drawbacks: higher costs and lower profit per unit, undercutting by cheaper rivals, uncertain and slow payback.
Environmental considerations named in the specification: Traffic congestion, recycling, disposing of waste, noise pollution and air pollution.
Sustainability: Serving today’s demand without leaving later generations short of what they will need. Issues include global warming and the use of scarce resources.
Why can sustainability conflict with profit?: Spending now (equipment, dearer inputs, training) cuts profit now, while savings and reputation gains arrive later and are uncertain.
10 staff paid £9 an hour each get an extra 20 minutes a day for prayer, five days a week. What is the weekly cost?: 10 × (20 ÷ 60) × 9 × 5 = £150 a week, or £7,800 a year over 52 weeks.
A machine costs £9,000 and saves £3,000 a year in energy. What is the payback period?: 9,000 ÷ 3,000 = 3 years

3.2.3 The economic climate on business

Rate of interest: The price of borrowing money, shown as a percentage of the amount borrowed each year.
Loan and overdraft: Loan: a fixed sum borrowed and repaid with interest over an agreed period. Overdraft: spending more than the bank balance, up to an agreed limit, with interest on the amount overdrawn.
The two channels by which a rise in interest rates affects a business: Direct: higher repayments on its own loans and overdrafts, so costs rise and profit falls. Indirect: households and businesses face higher borrowing costs, so spending and sales fall.
A £50,000 variable-rate loan: the rate rises from 4% to 6%. What is the extra interest a year?: £2,000 rises to £3,000: an extra £1,000 a year.
Sharia compliant finance: Finance that does not charge or pay interest. It can be structured through leasing, profit sharing or agreed-price sales. The business still has payments to make.
Effects of a rise in the level of employment: Demand rises as more households have wages, but it is harder to hire and wages may rise. Businesses selling non-essentials tend to gain.
How do changes in consumer incomes affect spending?: Income up: more spending, especially on items people can postpone. Income down: luxuries and postponable items fall most, necessities change little, and cheaper alternatives may gain.
2,000 units sell at £12. Sales volume falls by 25%. What is the new revenue?: Original revenue = £24,000. New volume = 1,500, so revenue = £18,000, a fall of £6,000.

3.2.4 Globalisation

Globalisation: The growing links between countries through trade, investment, people and communication.
The five forms of globalisation in the specification: Specialisation by country, relative cost advantage, movement of labour, larger markets, and international competition.
Relative cost advantage: Being able to produce at lower cost than other countries or firms, so production tends to move to the lower-cost site.
Globalisation for a developed-country business: Benefits: bigger markets and cheaper inputs. Drawbacks: low-cost rivals and jobs moving abroad.
Globalisation for a developing-country business and economy: Business: export orders, investment and skills, but strong multinational rivals and dependence on a few buyers. Economy: jobs, tax and technology, but profits leave, local firms close and skilled workers leave.
Home currency strengthens: effects on exporters and importers: Exporter: overseas prices rise, so sales may fall. Importer: inputs are cheaper, so costs may fall. A weaker currency has the reverse effects.
Effects of severe exchange rate fluctuations, and responses: Unpredictable costs, difficulty setting prices, uncertain profit and harder investment decisions. Responses: agree prices in advance, use home suppliers, sell in several countries.
Exchange rate: The price of one currency in terms of another. (Exchange rate conversions are not required on 9225.)

3.2.5 Legislation

The three areas of law in section 3.2.5: Employment law, health and safety law, and consumer law.
Legislation and ethics: the difference: Legislation is a legal requirement, with fines or legal action for failing to comply. Ethics is a choice beyond the legal minimum.
The four effects of legislation to assess: Cost, training needs, recruitment, and the consequences of failing to follow the law.
Consequences of failing to comply with the law: Fines and legal costs, compensation to staff or customers, forced changes to operations, reputation damage and lost sales, and trouble recruiting and keeping staff.
National minimum wage: benefits and drawbacks for a business: Benefits: better motivation and lower turnover, workers have more to spend, rivals face the same floor. Drawbacks: a higher wage bill, pay pressure above the minimum, higher prices or lower profit.
Laws requiring a safe working environment: benefits and drawbacks: Benefits: fewer accidents, less absence, better morale and reputation, a level playing field. Drawbacks: equipment and training costs, time on checks and records, disruption.
Consumer protection laws: impacts on a business: Quality checks, clear product information, refunds and repairs, staff trained in complaints. They build customer trust and protect honest firms from rivals who mislead.
10 workers each work 35 hours a week for 52 weeks. Their pay rises by £0.50 an hour. Extra yearly cost?: 10 × 35 × 52 × 0.50 = £9,100

3.2.6 Competitive environment

Market and competition: Market: where buyers and sellers trade a good or service. Competition: two or more businesses trying to win the same customers.
Impacts of competition on a business: Prices or margins pushed down, lost sales or market share, more spending on marketing and service, pressure to improve quality and range. How big the impact is depends on loyalty and how different the product is.
When might a business face minimal or no competition?: It is the only seller in an area, holds a patent, licence or exclusive right, start-up costs are very high, the product is highly specialised, or supply is government-controlled.
Risk and uncertainty: Risk: a chance of something harming the business. Uncertainty: the future cannot be known, so outcomes are unpredictable.
Why do all businesses face uncertainty?: Tastes change, rivals act, costs, interest rates and exchange rates move, technology develops and the economy shifts.
Why do entrepreneurs take risks?: For profit, independence, turning an idea into a business, meeting a need and personal satisfaction.
Ways to minimise business risk: Market research, a business plan and forecasts, insurance, a wider product or market range, cash reserves, and good relations with suppliers and customers.
How can developing-country businesses compete with developed-country rivals?: Through a lower cost advantage (often lower labour costs) and local materials, skills or niche products. Limits: transport times, quality consistency, exchange rates, and rivals’ brands and service.