Transcript Government Aiding and Controlling business activity

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:
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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:
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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 “fairtrade” 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.