AQA A2 Business Studies Unit 4: The business environment and managing change

Assessing changes in the business environment

Unit 4: The business environment and managing change Assessing changes in the business environment

The relationship between businesses and the economic environment (1) The business cycle is the regular pattern of variation in demand and output within an economy, or of gross domestic product (GDP) growth over time. It is characterised by four main phases: boom, recession, slump and recovery. In small groups discuss: • why some firms are more vulnerable to changes in the business cycle than others • in which circumstances recession might have a positive impact on business • the strategies a business might deploy in response to changes in the business cycle

Unit 4: The business environment and managing change Assessing changes in the business environment

The relationship between businesses and the economic environment (2) Economic growth means an increase in the level of economic activity or real gross domestic product (GDP). Business strategies suited to an environment of economic growth include expansion, new products and repositioning. In small groups discuss: • why the strategies noted above might be suited to a situation of economic growth • why economic growth might be problematic for some businesses

Unit 4: The business environment and managing change Assessing changes in the business environment

The relationship between businesses and the economic environment (3) Interest rates are the cost of borrowing money and the return for lending money. They also measure the opportunity cost, both to individuals and firms, of spending money rather than saving it. In small groups discuss the implications of a fall in the rate of interest in relation to: • the demand for consumer goods and capital goods • the prices of exports and imports • the level of costs and profits Then discuss possible strategies a business might deploy in response to a rise in the rate of interest.

Unit 4: The business environment and managing change Assessing changes in the business environment

The relationship between businesses and the economic environment (4) The exchange rate is the price of one country’s currency in terms of another. In small groups, discuss how price elasticity of demand might influence the extent to which a fall in the exchange rate affects export sales and import purchases. Then discuss how an increase in the exchange rate might affect businesses that: • export their goods to consumers in other countries • sell their goods in the UK, competing against foreign imports • use imported raw materials and components in their production process

Unit 4: The business environment and managing change Assessing changes in the business environment

The relationship between businesses and the economic environment (5) Inflation is an increase in the general level of prices within an economy and means the purchasing power of money is falling. In small groups: • discuss why deflation is likely to be a problem for borrowers, banks and businesses • identify any positive effects of inflation for individual firms or consumers and three negative effects • discuss how a firm's response to inflation might vary depending on its context

Unit 4: The business environment and managing change Assessing changes in the business environment

The relationship between businesses and the economic environment (6) Unemployment means the number of jobless people who want to work, are available to work, and are actively seeking employment. Both high and low levels of unemployment affect business strategy. Implications of a high level of unemployment include: falling incomes, which lead to falling demand, which results in the introduction of costsaving strategies, and the cancellation of investment projects. In small groups discuss: • the implications of low levels of unemployment for business • the strategies businesses might deploy in response to changes in the level of unemployment

Unit 4: The business environment and managing change Assessing changes in the business environment

The relationship between businesses and the economic environment (7) Some people argue that the spread of globalisation is the best way to beat poverty, others argue passionately that it is not. In small groups research the pros and cons of globalisation and decide where you stand on this issue. Present your view to the rest of the class.

Unit 4: The business environment and managing change Assessing changes in the business environment

The relationship between businesses and the economic environment (8) Emerging markets have the potential to develop their productive capacity, market opportunities and competitive advantage. In small groups research one emerging market and discuss the likely positive and negative impacts it might have on UK businesses.

Unit 4: The business environment and managing change Assessing changes in the business environment

The relationship between businesses and the political and legal environment (1) Government intervention is based on the belief that government should exert a strong influence on the economy, rather than allowing market forces to dictate conditions. Laissez-faire policy is based on the belief that the free market will maximise business efficiency and consumer satisfaction; government therefore tries to avoid interfering in the running of business or any other part of the economy. In small groups discuss the extent to which you feel that government should intervene in the economy. Share your views with the rest of the class.

Unit 4: The business environment and managing change Assessing changes in the business environment

The relationship between businesses and the political and legal environment (2) Monetary policy means controlling the money supply and the rate of interest in order to influence the level of spending and demand. Fiscal policy is the use of taxation and government expenditure to influence the economy. In small groups, assume that the economy is in a period of recession. Discuss: • how government might make use of monetary and fiscal policy to encourage the economy out of a recession • what the impact of these policies is likely to be on business

Unit 4: The business environment and managing change Assessing changes in the business environment

The relationship between businesses and the political and legal environment (3) Legislation is intended to protect those with weaker bargaining power. It ensures that employees are treated fairly, that consumers receive a fair deal, that firms pay due attention to the impact of their actions on the environment and that products meet health and safety standards. In small groups, each group should discuss the positive and negative implications of one area of legislation on a business. Share your findings with the rest of the class so that all are made aware of the implications of all areas of legislation on business.

Unit 4: The business environment and managing change Assessing changes in the business environment

The relationship between businesses and the social environment (1) Demographics describe the characteristics of populations, including age, ethnicity, gender, religion and sexual orientation. In small groups, discuss recent demographic changes in the UK, and how these might affect business.

Unit 4: The business environment and managing change Assessing changes in the business environment

The relationship between businesses and the social environment (2) Externalities are the environmental effects of a firm’s activities, which may be positive or negative. In small groups discuss whether firms should operate at the lowest cost level or at the most environmentally responsible level.

Unit 4: The business environment and managing change Assessing changes in the business environment

The relationship between businesses and the social environment (3) Business ethics are the moral principles that should underpin decision making. In small groups select one of the following ethical dilemmas. Discuss the issues involved and make a brief presentation to the rest of the class. • Should an advertising agency accept a cigarette manufacturer as a client? • Should a firm relocate to a low-wage economy? • Should a firm always pay suppliers on time? • Should a firm try to minimise its production costs and prices by using environmentally polluting processes?

Unit 4: The business environment and managing change Assessing changes in the business environment

The relationship between businesses and the technological environment ‘Technological change and information technology are reshaping the global economy, making the location of business irrelevant, levelling the playing field on which business operates and eliminating barriers to participation.’ In small groups: • explain the above statement • discuss the benefits of technological change to business and the problems business encounters when introducing new technology

Unit 4: The business environment and managing change Assessing changes in the business environment

The relationship between businesses and the competitive environment (1) Competitive structures include monopolies, oligopolies, monopolistic competition and perfect competition. In small groups identify: • the characteristics of each competitive structure • businesses that exemplify each of the competitive structures

Unit 4: The business environment and managing change Assessing changes in the business environment

The relationship between businesses and the competitive environment (2) Michael Porter’s five competitive forces are: • intensity of competitive rivalry • threat of entry to the industry by new competitors • threat from substitute products or services • power of suppliers • power of buyers In small groups, and using Porter’s five forces, discuss how a business might cope successfully with its competitors.