Influences Owner/business needs Customer needs Competition Legal environment Social environment Economic environment Political environment
Legal Environment Minimum wage – the least employees can be paid Competition laws - eg Fair Trading Act 1973 - through this, the Director of Fair Trading can ask the Monopolies and Mergers Commission to investigate any type of ‘unfair’ competition Advertising Standards Authority (ASA). This ensures that British advertising and sales promotion is legal, decent, honest and truthful The Sex Discrimination Act 1975 The Race Relations Act 1976 The Equal Pay Act 1970 The Health and Safety at Work 1974 lays down standards of health and safety that must be met. There have been updates to this Act - dealing with the use of computer VDUs or with RSS (Repetitive Strain Syndrome) It is essential that each employee has a Contract of Employment
Social Environment Changing work patterns eg more working mothers, more part-time workers Green issues – effect of pollution on the environment Recycling – use of recycled materials to make products or packaging for products Pressure groups – eg anti-smoking groups led to new laws
Economic Environment FACTOREXPLANATION InflationInflation is when prices are increasing quickly. This will inevitably affect how people choose to spend their money. People will not have money for expensive products Unemploy- ment In times of high unemployment, the spending power of the country is much less – people buy cheaper options so manufacturers may choose to make value for money, cheaper to run items RecessionIn times of recession, generally unemployment is high and people have less money to spend. Costs are high and spending slows down Value of £ sterling It may be cheaper to buy imported products depending on the value of other currencies compared to the £.
Political Environment – Decisions made by Governments FACTOREXPLANATION Interest ratesWhen interest rates are high, it is expensive to get and repay loans and if they are low it is easier to repay loans. If loans are easy to obtain, manufacturers may choose to make high value products as people are more likely to buy expensive items TaxationIf taxation is high, this can discourage people from buying unnecessary items. For example, the increase in VAT to 20% raised more money for the government but increases the amount people have to pay for luxury products SubsidiesGovernments sometimes give subsidies to manufacturers to produce particular products, eg to encourage people to install solar panels which helps both the economy and the environment European Union Decisions made by the European Union can impact on manufacturers, eg can a product be given a particular name (Champagne, Arbroath Smokies etc)
EXAMPLE A car manufacturer decides to produce a completely new model of car What are the factors which will influence the manufacturer’s decision about what kind of car to produce?
Manufacturer’s Needs Low costs High profits High demand Availability of finance to expand Availability of skilled labour force
Customer Needs Good-looking car Reliability Good price Low running cost Safety eg air bags
Legal Requirements Exhaust system which meets anti-pollution requirements Seat belts
Social Environment Condition of infrastructure,ie roads Environmental issues – emissions, environmental pressure groups, use of alternative fuel sources Living standards of potential customers
Economic Climate Interest rates for borrowing Employment levels Value of pound sterling
Political Environment Government/local council attitudes: Taxation levels Small cars Motorway tolls Road fund licence (car tax)
To sum up, the factors influencing decisions include: The owner/business needs, eg do they have enough finance, is there availability of labour Customer needs – price and quality Competitors – how competitors actions can affect business (reduces price, launch new advert) Legal environment – eg minimum wage, competition laws, HR laws, smoking ban Social environment – green issues, recycling, pressure groups Economic environment – eg inflation, unemployment, recession Political environment – eg taxation changes, interest rates, EU regulations