GCSE Business Studies The External Business Environment Revision Unit 3 Part 3a 3.5.1 to 3.5.3.
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GCSE Business Studies The External Business Environment Revision Unit 3 Part 3a 3.5.1 to 3.5.3
The market and competition A market is a place where buyers and sellers meet to trade; businesses operate in different types of markets. The two main forms of markets are competition and monopoly Competition markets have may firms and usually offer low prices. They use branding to build customer loyalty. Monopoly markets have one main firm and one main product available. They often have higher prices than under competition
The market and competition Business compete to have a good percentage of the total sales in the market or market share. Market share is calculated by sales of the business x 100 Total sales available in the market Market share information can be used to decide whether a market is competition or monopoly. A market where one business has 25% or more is a monopoly.
Benefits of competition and monopoly Competition can lead to benefits for consumers: – Lower prices – Wider choice – Better services, – Better quality In some cases, monopoly can lead to benefits for the consumer – Lower prices due to economies of scale – Larger organisations can afford to do more research and development.
The changing competitive environment Competition is increased by: ◦ New firms entering the market ◦ Privatisation ◦ Existing businesses selling new products and services ◦ Businesses increasing their advertising ◦ Businesses reducing their prices Competition is reduced by: ◦ Businesses taking over their competitors ◦ Businesses using the marketing mix to develop their brands ◦ Businesses taking out copyrights and patents ◦ Businesses working together ◦ Internal growth
Government and domestic competition The government usually encourages competition because of the advantages it brings. However, businesses can collude with each other and fix prices. The may form a cartel. Disadvantage of monopolies: The do not need to be efficient to survive and may have high cost and prices; as the result of monopolies there may be little or no choice of goods. The Office of Fair Trading and the Competition Commission collect evidence on behalf of the government to decide whether a monopoly business is operating in the interest of consumers or not.
Foreign Competition Business in the UK can be affected by competition from abroad. Developing countries such as China and India have a large supply of low cost labour which can produce goods at a lower cost to the UK. To compete effectively with foreign suppliers, British firms must focus on: ◦ Productivity—increasing output per worker ◦ High value added and Innovation—developing new products and services ◦ Brand development—good use of marketing, including delivering at the right time ◦ Outsourcing-having some parts of the work completed abroad
Foreign competition Inward investment is when a foreign firm decides to setup business in Britain. When foreign firms set up in the UK they create jobs There is a multiplier effect when inward investment takes place. The multiplier effect: the amount of increase or decrease in spending in the economy has a “knock-on” effect on the total spending in the economy.
Immigration Immigration: the movement of people from abroad to live in the UK. The effects of immigration: ◦ Certain cultures have good skills, a strong work ethic, and do not demand high wages, helping British firms produce goods and services at lower costs ◦ Immigrants generate demand by buying goods and services ◦ Immigration can put pressure on schools and the health service ◦ Immigrants may be willing to work for lower wages than British workers, thus British workers may lose jobs.
Business Ethics Consideration on how business behaves; whether they operate polices that are morally right. Issues relating to ethics can relate to all stakeholders and include activities that are discriminatory such as: Price fixing, bribery Poor or discriminatory work practices, (child labour in foreign operations) Selling dangerous or inhumane products or services; selling faulty products Causing pollution, (social costs of production) Infringing copyright, (pirating)
Should businesses engage in ethical activities? Ethical activities may involve an additional cost to the business; Consumers may prefer ethical business and this can bring advantages in terms of sales; Not everyone can afford “ethically” produced products “Fair-trade” is an example of an ethical business activity; however, some consumers criticise “fair- trade” because it does not help farmers develop their technology to increase their productivity.
Environmental influences on business All businesses use the resources of land, labour, capital and enterprise. (Factors of production) Many resources that businesses use are non renewable and can cause damage to the environment. Governments can take action to deal with these “problems”, also known as externalities: A consequence of a business activity that affects other parties without this being reflected in the cost of the goods or services involved
Business and Sustainability Sustainability involves the use of renewable resources, recycled resources and minimising waste and use of energy. Products from “green businesses”, (those using sustainable resources) can sometimes cost more. If most businesses develop their own “green” policies, this can reduce the amount of government intervention in business, such as taxes, legislation, rules and regulations, which can end up costing business more.