Transcript Document 184416

Influences in the
business
environment
Business Studies Preliminary 2012 Course
9.1 Nature of Business
Syllabus
•
EXTERNAL INFLUENCES
 Economic,
 Financial,
 Geographic,
 Social,
 Legal,
 Political,
 Institutional,
 Technological,
 Competitive
Situation,
 Markets.
•
INTERNAL INFLUENCES




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•
Products,
Location,
Resources,
Management
Business Culture
STAKEHOLDERS
3.1 Introduction

The business world is an example of ‘an
environment”

Another environment is “Your School”. It is an
example of a learning environment

What factors do you have control over?



E.g. the subjects you study, extra curricular activities you
participate in and interactions with teachers and other
students.
What factors do you not have control over?
E.g. syllabus subject matter, the introduction of new
technology and the changes in government education
policies.
3.2 Business Environment

The business environment refers to
the surrounding conditions in which
the business operates. It can be
divided into two broad categories:
internal and external.

The external environment includes
those factors over which the business
has very little control.

The internal environment includes
those factors over which the business
has some degree of control.

If the business responds positively to
the external and internal environment it
can achieve profit.
3.3 Lingo List External Influences

The main external influences on business: Economic
 Financial
 Geographic
 Social
 Legal
 Political
 Institutional
 Technological
 Competitive Situation
 Markets
Economic influences

Economic cycles, or
business cycles, are the
periods of growth ‘boom’
and recession ‘bust’ that
occur as a result of
fluctuations in the general
level of economic activity.
Boom Periods 

Characteristics of a boom period:
 High levels of employment –
business sales and profits
stable or increasing.
 Inflation may increase –
consumers more willing to
spend so prices are increased
to improve profits.
 Wages increase – employees
seek to keep wages rising at the
rate of inflation.
 The level of consumer spending
increases – with increased
confidence in the economy and
secure employment.
Recession periods 

Characteristics of a recession
period:
 Unemployment levels rise –
decreased sales leads to
reduced employment levels.
 Inflation may remain stable or
fall – reduced spending means
businesses work harder for
sales.
 Wages are less likely to rise –
employers concerned with
business costs and employees
with job stability.
 The level of spending usually
decreases – consumers save
rather than spend.
Are all businesses affected?

No

Negatively affected can include: Businesses
most susceptible to economic cycles
‘swings’ are those selling consumer or luxury
goods.

Positively – discount warehouses e.g.
Christmas warehouses etc.
Policies & trends

Policies implemented by the government
aim to keep the economy growing steadily
without putting pressure on inflation (prices)
and wages.

Overseas trends including changes in
trade, investment and currency levels affect
Australia’s level of economic activity.
Impacts of spending

Reduced spending results in:
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
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falling profits
cost cutting leading to retrenched workers
and the economy falling.
In a growing economy confidence returns:


spending increases
profits rise.
Financial influences

Deregulation is the removal of government
regulation from industry, with the aim of
increasing efficiency and improving
competition.

In 1983 deregulation began in Australia’s
financial system. This created a more
flexible, market oriented financial sector with
a number of new banking products and
greater competition.

Globalisation meant finance can now be
accessed from worldwide sources due to
developments in communications
technology.
Geographical influences

Three major geographical factors that affect
business activity are:
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Australia’s geographical location
Changing demographic factors
The process of globalisation
Australia's Geographical
Location
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Within the Asia-Pacific region and the
economic growth within a number of Asian
nations especially China
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Provides more challenging opportunities for
business expansion, sales and profit.

Why might this be so?
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Cost of labour?

Cost of raw materials?

More relaxed laws surrounding
manufacturing
Changing Demography

Changes in demography leads to changes
in demand levels and the nature of products
and services:


Demography is the study of particular
features of the population including the
size of the population, age, sex,
income, cultural background and
family size.
Changes in the age structure of our
population as baby boomers reach
retirement will cause shortages in the
workforce and increased demand for agerelated services.
Globalisation

We now live in a world without borders –
from a commercial sense

Globalisation is the process that sees
people, goods, money and ideas moving
around the world faster and more
cheaply than before

This has been enabled particularly due to
rapid telecommunications, information and
transportation technology.
Social influences

Rapid identification and responses to changes in
tastes, fashion and culture leads to sales, profit
opportunities and business growth while no
responses to social change means business stability
and viability is threatened.
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Two key social issues influencing businesses are:
1. Awareness that a number of practices can lead
to deterioration in the environment.
2. Employees particularly women require family
friendly programs
Legal influences

Small, medium and large businesses are faced with
many time consuming and costly regulations that can be
confusing and contradictory.

Business owners are expected to abide by the laws of
the country hence need a sound working knowledge of
the laws affecting their operations.

Laws on taxation, industrial relations, occupational
health and safety, equal employment opportunity, antidiscrimination and protection of the environment.

Trade Practices Act 1974 (Commonwealth) is
administered by the Australian Competition and
Consumer Commission (ACCC).

A breach of consumer protection provisions allows
courts to impose penalties of $1.1 million for
companies and $220 000 for individuals.
Political influences

Political change can lead to business
uncertainty or business confidence.
Political influences continued

Another significant political thrust is:

Deregulation – the removal of government
regulation from industry to increase
efficiency and improving competition.

Privatisation – the process of transferring
the ownership of a government business
to the private sector.
Institutional influences
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The three main institutional influences on
business are:
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Government – Federal, State and Local
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Other – Employee trade associations,
Trade Unions and ASX
Regulatory bodies – Department of
Environment and Conservation, Office of
Fair Trading, ASIC, ACCC
Government

Federal Government:
 pay employee taxes,
 provision of employee superannuation,
 observe custom regulations,
 abide by business legislation.
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State Government:
 provision of employee entitlements like workers
compensation
 pay payroll tax,
 abide by state legislation like trade practices,
 abide by pollution controls.

Local government:
 approve new development and alteration applications
 fire regulations
 parking regulations
 size, location and shape of business signs
Regulatory bodies
DOEC

A regulatory body is one that is set up to monitor and
review the actions of businesses and consumers in
relation to issues like advertising and the appropriate
legislation. This is to ensure businesses conduct
themselves fairly in relation to the consumer, the
community and other businesses.

Regulatory bodies in New South Wales and Australia:
 The Department of Environment and Conservation
 Governed by the Protection of the Environment
Administration Act 1991
 Aims to reduce risks to human health and prevent
environmental degradation by promoting pollution
prevention, reducing harmful levels of discharge
and regulating transport, collection, treatment,
storage and disposal of waste.
Regulatory bodies
OFT/ASIC/ACCC

The Office of Fair Trading
 The NSW Consumer Protection Agency
 Provides information and assistance to consumers and
business owners on areas like business name registration
 Provides services to business like business license
information, business name registration, product safety
standards, trade measurements

Australian Securities and Investments Commission (ASIC)
 Monitors market integrity and provides consumer protection
like financial services
 Aims to ensure businesses comply with industry standards
and codes of practice

Australian Competition and Consumer Commission (ACCC)
 Independent statutory authority that administers the Trade
Practices Act 1974 and the Prices Surveillance Act 1983
including monitoring anti-competitive and unfair market
practices, mergers and acquisitions, product safety and
liability, misleading and deceptive advertising
Other institutional influences
Employers & trade

Employer associations
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Represent the interests of employers by
formulating policies in line with union
activities, acting on behalf of employers in
negotiating enterprise or collective
agreements, promote industry, trade and
commerce, provide submissions, advice
and information to governments.
Trade and industry associations

National bodies representing employees
including the National Farmers
Federation.
Other institutional influences
Trade unions & ASX
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Trade Unions

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Aim to improve working conditions and
pay rates. Membership has declined due
to new legislation outlawing compulsory
unionism, changes in work patterns,
workplace agreements, privatisation and
industry restructure.
Australian Stock Exchange

Operates a share market where
businesses can list themselves to become
a public company and raise additional
capital for expansion and development.
Technological influences
 Global technological innovation
allows increased efficiency and
productivity, creation of new
products and improvements in
the quality and range of products
and services.
 Hi-tech robotics improve
productivity, reduce operating
costs and eliminate boring,
repetitive tasks in manufacturing
industries.
Technological influences
continued
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Advances in information technology ease
communication between suppliers and
customers over long distances.

The introduction of fibre optic cables and
digital information transmission allowed
reorganisation of the structure of workplace
practices.

Businesses slow to use and exploit
technology are likely to fail.
Competitive situation influences

Competition provides consumers with more
choice, a range of qualities and variety of
prices and means businesses can stimulate
greater efficiency in production and have a
better quality product or service at the lowest
cost.

Businesses aim to achieve a sustainable
competitive advantage, an ability to develop
strategies that ensure it has an ‘edge’ over its
competitors for a long time period.
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Factors influencing a business’s
competitiveness:
 Number of competitors
 Ease of entry to the market
 Local and foreign competition
 Marketing strategies employed
Number of competitors

The size and number of firms within an
industry is termed market concentration.

The four main types of market concentration:
 Monopoly
 Concentration by one firm in the
industry
 Firm decides price, customer is price
taker
 For example Australia Post, Railcorp
 Oligopoly
 A small number of larger firms dominate
the market
 Control market because lots of money
spent on advertising which restricts
entry of competitors
 For example Banks, Oil companies, Car
Types of market concentration
continued
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Monopolistic Competition
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Large number of buyers and sellers in a
particular market

Goods and services differentiated from
competitors by packaging, advertising,
brand names and quality.

For example Clothing manufacturers,
Local retailers
Perfect Competition
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A large number of small firms that sell
similar products
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Market share increased not through
advertising but instead through price
competition
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For example fruit and vegetable
Ease of Entry

Ease of entry refers to the ability of a
person to establish a business within a
particular industry.

Entry is difficult when there are a few firms
(oligopolies) dominating an industry and
easier when there are many small firms
(perfect competition and monopolistic
competition).

When one firm (a monopoly) dominates an
industry no competitors can enter the
market.
Local and foreign competitors

Local competitors produce or sell a good or
service in the same market. They deal with
variables including labour and transport
costs, the economy and cost of stock/raw
materials

Foreign competitors are businesses located
overseas or offshore.
Marketing strategies

Businesses are influenced by the type of
marketing measures taken by a competitor.
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The type and extent of marketing depend on:
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The size of the market – the number of
existing and potential customers

The size of the business – larger businesses
use a range of activities and smaller
businesses simple marketing methods

Number of competitors – the more
competitors the greater the need for
marketing to maintain or increase market
share

The nature of the product – this refers to the
type of product and whether it requires
extensive marketing
Changes in markets

Changes in financial/capital markets
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The mobility and easy flow of finance
means the world capital market is more
integrated than before.

Individuals and businesses can access
overseas share markets and purchase
equity in foreign companies.

The 2008/09 global financial crisis saw
shockwaves being sent through global
financial and stock markets creating
changes in domestic and international
financial markets.
Changes in labour markets

The labour market has become less global
in the last 60 years due to political barriers
resulting in restrictions being placed
especially on the movement of low and
unskilled workers.

Two trends have resulted in the movement
of workers:
1. Movement of large numbers of
temporary skilled migrant
workers has been important in
Australia, Europe and Asia.
Australia increased the number
of temporary work visas during
the mid 2000s to support the
expanding mining sector.
2. The growing demand for highly
trained employees mean people
are increasingly mobile.
Changes in consumer markets

From 1995 to 2005 global trade in goods
and services increased by 150% but fell with
the onset of the global financial crisis.

Countries achieve cost savings by
specialising in products they produce
efficiently. This results in cheaper prices on
the world market, increased sales in existing
markets and the emergence of new
consumer markets.

The internet has enabled businesses to
reach larger markets and take advantage of
economies of scale.
Internal influences on the
business

Internal influences relate to the specific
factors within the business that affect its
operations.

The internal influences on business are:

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Product
Location
Management
Resource management
Business culture
Product influences

The main product influences on a business
are:

The type of goods and services produced
affect the internal operations of a
business. Physically large goods or those
requiring raw material inputs need
structures to organise and monitor
processes in production. The larger the
number of goods and services produced
by the business the more internal
structures required to accommodate
changes.
Product influences continued
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Different types of businesses (service,
manufacturer or retailer) are structured
differently as some goods and services
require extensive preparation while others
are just deliverers.

The size of the business affects the range
and type of goods produced, the level of
technology used and the volume of goods
and services produced and hence the
internal structures and operations of the
business.
Location influences

Location can make the difference between success
and failure.

The two most important considerations are
summarised in the equation:
 Prime location = customer convenience and
visibility.
 Avoid low rental areas instead locate near
complementary businesses, one that sells a similar
range of goods and services.
 Location factors need to be considered separately
for retail and non-retail businesses like
(manufacturing or wholesale).

Retail businesses must be convenient for potential
customers and have passing customer traffic.

Manufacturers need to be close to transport facilities
for shipping goods to customers and receiving
supplies.
Location factors

Visibility

Cost

Proximity to suppliers
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Proximity to customers

Proximity to support services
Visibility and Cost

Visibility


Businesses wanting high visibility locate in a
prime shopping area. Manufacturers can
choose low visibility areas and advertise
their location.
Cost

Is unavoidable for businesses like coffee
shops relying on passing customer traffic
and maximum exposure.

Mechanics, car yards, solicitors require
large, low cost premises.

Communication through computers
especially the internet allow telemarketers or
businesses to sell via the web hence
location becomes unimportant.
Proximity to suppliers and
customers

Proximity to suppliers


Businesses that rely on bulky raw
materials or finished goods locate near
suppliers to reduce transport costs.
Proximity to customers

Retail businesses need to locate close to
their customer base.
Proximity to support services

Proximity to support services

Support services are activities needed to
assist the core operations or prime
function of a business including
accountants and solicitors.

Traditionally small businesses rely on
external services and medium to large
businesses provide internal support.

Technology has enabled businesses to
access support services through
computers, faxes, mobile phones, phone
and video conferences.
Resource influences

The four main resources available to
businesses are:

Human resources – employees, most
important asset

Information resources – knowledge and
data required by the business including
market research, sales reports and
economic forecasts.


Physical resources – equipment, buildings
Financial resources – funds the business
uses to meet it obligations to creditors
Management influences

Technological advances and increased
competition due to globalisation has meant
flatter business structures.

Flatter structures mean fewer levels of
management, greater responsibility for
individuals, faster adaptation to changing
consumer needs.
Copy figure 3.24 Traditional
organisational structures vs. new and
emerging organisational structures
Business culture

Business (corporate) culture refers to the
values, ideas, expectations and beliefs
shared by members of the organisation.

Revealed officially in policies, goals or
slogans of the business OR seen in
unwritten or informal rules that guide how
people behave.
Business culture continued

The four essential elements of a business
culture:
1. Values – basic beliefs including
honesty, hard work.
2. Symbols – events or objects used to
represent the things the business
believes are important for example
competitive sport.
3. Rituals, rites and celebrations –
routine behaviour patterns like social
gatherings to develop a sense of
belonging.
4. Heroes – successful employees who
model business values.
Business culture continued

Culture and organisational structures
 A businesses culture is often evident in its
organisational structure.
 Formal businesses with emphasis on bureaucracy,
hierarchical management and defined job titles
emphasise accountability, communication and
cooperation and expect loyalty and respect for
supervisors.
 Less formal businesses with flatter management
structures exhibit flexible, innovative and risk taking
cultures.

Management’s role in developing a business culture
 Positive business structures once established need to
be kept alive.
 Staff members need sufficient training to reflect the
values of the business.
 Successful and sustainable change in a business
culture is achieved through staff being role models of
important values.
Stakeholders

A stakeholder is any group or individual
who has an interest in or is affected by
the activities of a business.

Stakeholders in business




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
Employees
Shareholders
Customers
Environment
Managers
Society / general public
Responsibilities to Shareholders
& Managers

Responsibilities to shareholders – maximise
return on shareholders’ investment in a
sustainable way. An annual general meeting
needs to be held for questions of the Board,
shareholders need to be allowed to buy and
sell shares and surplus assets need to be
divided upon company closure.

Responsibilities to managers – give an honest
and accurate account of their management of
the business’s resources. Senior managers
need to provide managers with commitment
and support, corporate policies, a code of
conduct, extensive training and development
and effective auditing programs.
Responsibilities to Employees &
Consumers

Responsibilities to employees – provide a
safe and psychologically rewarding work
environment. This includes providing
encouragement and professional
development, respecting privacy of political,
social and religious beliefs, eliminating
discrimination, promoting equality and
eliminating harassment.

Responsibilities to consumers – respect and
satisfy them and do not exploit.
Responsibilities to Society &
Environment

Responsibilities to society – be good
corporate citizens and give back something
to the community.

Responsibilities to the environment – adopt
ecologically sustainable operating practices.
Ecological sustainability occurs when
economic growth meets the needs of the
present population without endangering the
ability of future generations to meet their
needs.