Unit 1.5 : External Environment

Question 1

Steeple Analysis

Answer 1

1. STEEPLE is an analysis that helps to plan for marketing strategies and future business models.
2. Acronym for social, technological, economic, environmental, political, legal, and ethical opportunities and threats of the external business environment
3. These factors, unlike internal ones, affect the business but are beyond the control of any individual organization
4. External factors that present chances for businesses are called opportunities, such as lower tax or interest rates. External factors that can potentially harm a business are called threats, such as economic recession or an oil crisis

Question 2

Pros of steeple analysis

Answer 2

1. It is quite simple to use
2. Helps managers to be thorough and logical in their analysis of the external opportunities and threats faced by the business. They will be more informed and prepared to deal with external shocks
3. A useful brainstorming and discussion tool
4. Promotes proactive and forward thinking rather than static views based on gut feelings
5. It can enable an organisation to anticipate future business threats and take action to avoid or minimise their impact

Question 3

Cons of steeple analysis

Answer 3

1. External forces are subject to rapid and unforeseeable change such as war which can reduce the chances of success despite a STEEPLE analysis
2. It’s easy to use insufficient data and oversimplify the amount of data used for decisions
3. The data used may be based on assumptions that later prove to be unfounded

Question 4

Social factors (steeple)

Answer 4

1. Social factors have to do with people (their lifestyles, beliefs, values etc). This could include demographic, cultural, and religious beliefs
2. The values and attitudes of society towards a wide range of different issues can present both opportunities and threats for businesses

Question 5

Examples of social factors (steeple)

Answer 5

1. Demographic changes in society such as ageing populations
2. Growing support for environmental protection
3. Language (translating marketing messages etc)

Question 6

Technological factors (steeple)

Answer 6

1. Technological environment refers to changes and development in machinery and equipment in order to increase efficiency and innovation in an industry.
2. Changing technology is a big part of the external business environment.
3. Advances in technology and work processes have improved productivity however the high cost of staying up to date with technological progress can cause problems for businesses

Question 7

Examples of technological factors (steeple)

Answer 7

Opportunities

1. Better way to telecommute (video conferencing etc)
2. Increased productivity and efficiency gains - increased automations/robots/machinery (robots are more accurate than humans)
3. New products and new markets (e-commerce)
4. Speed of access to information
5. reducing language and cultural barriers
6. Overcome geographical limitations

Threats

1. Price transparency (customers can easily compare the prices of different businesses without leaving their home)
2. Online crime
3. Technology is not always reliable or secure (computer failure or hacking)
4. Job losses (redundancies due to technology)

Question 8

Economic factors (steeple)

Answer 8

1. Economic factors refer to the determinants of economic performance otherwise known as the state of the economy in which businesses operate.
2. This economic environment is determined by the government’s ability to achieve four key economic objectives: to control inflation, reduce unemployment, achieve economic growth, and have a healthy international trade balacne
3. The level of economic activity is usually referred to as GDP growth per capita.

Question 9

Inflation

Answer 9

1. Inflation is the continual rise in the general level of prices in an economy
2. It can complicate business planning and decision-making such as raw materials costs, wage claims, etc being affected by inflation
3. Essentially, inflation that is not controlled (it should always be controlled) becomes a threat to businesses due to higher costs and high levels of uncertainty
4. Inflation also affects the international competitiveness of a country - a nation with higher inflation tends to be less price-competitive when trading overseas which would generally lead to a fall in export earnings, lower national output, and higher unemployment
5. Inflation can be caused by excessive demand in the economy (too much spending) or by higher costs of production. Any factor that causes a rise in consumption, investment, government spending, or international trade earnings will increase the economy’s aggregate demand

Question 10

Unemployment rate

Answer 10

1. Unemployment rate measures the proportion of a country’s workforce not in official employment
2. There are social costs of high unemployment such as increased poverty and increased crime levels
3. Governments use a combination of policies to tackle unemployment
4. Calculated by: (Unemployed People/Total Labour Force) * 100%

Question 11

Types of unemployment

Answer 11

1. Frictional unemployment
2. Seasonal unemployment
3. Technological unemployment
4. Regional unemployment
5. Structural unemployment
6. Cyclical unemployment

Question 12

Frictional unemployment

Answer 12

Frictional unemployment occurs when people change jobs as there is usually a time lag between leaving a job and finding or starting another

Question 13

Seasonal unemployment

Answer 13

Seasonal unemployment is caused by periodic and reoccurring changes in demand for a product such as a beach having a lack of tourists during the winter

Question 14

Technological unemployment

Answer 14

Technological unemployment results from the introduction of labour-saving (capital intensive) technologies, which can lead to mass-scale unemployment

Question 15

Regional unemployment

Answer 15

Regional unemployment is the different unemployment rates in different areas of a country. Remote rural areas tend to have higher levels of unemployment than busy urban districts

Question 16

Structural unemployment

Answer 16

Structural unemployment occurs when the demand for products produced in a particular industry continually falls, resulting in structural and long term changes in demand

Question 17

Cyclical unemployment

Answer 17

1. Cyclical unemployment is caused by a lack of demand in the economy. It is the most severe type of unemployment because it tends to affect all industries
2. Also known as demand deficient unemployment

Question 18

Economic growth

Answer 18

1. Increase in a country’s economic activity over time
2. Measured by the change in the value of the economy’s total output (known as Gross Domestic product - GDP) per year
3. Higher rates of economic growth suggest that the economy is more prosperous and therefore the average person is earning more income

Question 19

Business cycle

Answer 19

1. the pattern of fluctuations in economic growth is known as the business cycle
2. The stages are boom, recession, trough, recovery, and growth

Question 20

Boom

Answer 20

1. First stage in the business cycle
2. During a boom, the level of economic activity rises with consumer expenditure, investment, and export earnings all increasing
3. At the peak, economic activity is at its highest level, so unemployment is low whilst consumer and business confidence levels are high which results in higher levels of profit for a business

Question 21

Recession

Answer 21

1. Second stage of the business cycle
2. A recession occurs when there is a fall in GDP for two consecutive quarters (half a year)
3. Features of a recession include declining aggregate demand, lower investment, falling export sales, and rising unemployment.
4. Businesses most likely to suffer are those that have a small range of products and those products are sensitive to changes in income (houses, cars, etc)

Question 22

Strategies to Cope with recession

Answer 22

1. Cost reduction to improve cash flow such as efforts to cut energy bills or making staff redundant
2. Price reductions to sustain or increase sales as customers are very price sensitive during a recession
3. Non-pricing strategies (such as repackaging, special offers, or special after-sales care) to sustain or revitalise the volume of sales
4. Branding to maintain sales as customers become or remain loyal to a brand irrespective of changes in price or incomes
5. Outsourcing production overseas where costs are lower to help the business to gain a competitive price advantage which reduces the impact of a recession in the domestic economy

Question 23

Trough

Answer 23

1. Also known as a slump
2. Refers to the bottom of a recession and the last stage of decline in a business cycle, with high unemployment alongside with very low levels of consumer spending, investment, and export earnings
3. Many businesses suffer from poor cash flow and many will have closed down due to poor liquidity
4. Consumers have little confidence in the economy and workers suffer from lack of job security

Question 24

Recovery

Answer 24

1. Recovery occurs when the level of GDP starts to rise again, after the economy has experienced a slump
2. Since national output and income begin to increase again, the level of consumption, investment, exports, and employment will all gradually rise creating opportunities for businesses

Question 25

Barriers to economic growth

Answer 25

1. Lack of infrastructure (transport and communications networks) 2. Lack of basic electricity, road networks, schools etc

Question 26

Healthy international trade balance

Answer 26

1. The internal trade balance records the value of a country's export earnings and its export expenditure 2. Governments strive to avoid a deficit on their international tried balance (e.g. try to avoid import expenditure exceeding export earnings) 3. To correct an imbalance on its international trade balance, governments often attempt to later their exchange rate, which can provide opportunities or threats for businesses 4. Continual and large fluctuations in exchange rates can create threats for business because business planning and forecasting becomes very complex and impractical 5. Alternatively, governments can set up international trade barriers to correct any disparity in its international trade balance or to protect their domestic industries. These are known as protectionist measures

Question 27

Exchange rate

Answer 27

1. Exchange rate measures the value of the domestic currency in terms of foreign currencies 2. A higher exchange rate (known as appreciation of the currency) means that the export prices will be relatively higher which will reduce the exporter's price competitiveness 3. A lower currency rate (known as depreciation of the currency) should give domestic firms a relative price advantage, however it also means they have to pay higher prices for imported raw materials and components

Question 28

Protectionist measures

Answer 28

1. Protectionist measures refer to any government policy used to safeguard domestic businesses from foreign competitors 2. Such measures pose a threat, or barrier to trade, for foreign markets which are trying to establish themselves in overseas market.

Question 29

Types of protectionist measures

Answer 29

1. Tariffs 2. Quotas 3. Subsidies 4. Embargos 5. Technological and safety standards

Question 30

Tariffs

Answer 30

1. Also known as customs duties 2. These are taxes placed on imported products which will raise their price to give domestic firms a price advantage 3. e.g. Japan has a tariff on rice to protect its agricultural industry

Question 31

Quotas

Answer 31

1. Quotas are quantitative limits on the volume or value of imports 2. e.g. Hong Kong, China, India, and the UK place quotas on the number of Hollywood movies that are released in their countries in order to protect their respective film industries

Question 32

Subsidies

Answer 32

1. Subsidies are payments made by a government to domestic businesses as a form of financial aid to reduce their costs of production, thereby giving them a competitive advantage

Question 33

Embargos

Answer 33

1. Embargos are physical bans on international trade with a certain country. These are usually due to strategic reasons, severe health and safety concerns, or political conflicts 2. e.g. Coca-cola was able to open its bottling plant in Rangoon after the Burmese government lifted its embargo 3. Embargo means that none of the item can enter the country at all

Question 34

Technological and safety standards

Answer 34

1. Technological and safety standards are strict administration and compliance costs in meeting industrial and health and safety regulations which are imposed on imported products 2. Compliance therefore raises the production costs, and probably prices, of foreign producers

Question 35

Environmental factors (steeple)

Answer 35

1. Environmental factors are the ecological aspects that can have negative or positive effects on a business. 2. There is a growing expectation for many businesses to act in the best interest of the environment 3. Without government intervention, private sector businesses are unlikely to consider the external costs of business activity - the costs incurred by society rather than by the buyer or seller such as noise pollution or global warming

Question 36

Examples of environmental factors (steeple)

Answer 36

1. Adverse weather conditions 2. Businesses ecological footprint 3. Health scares/epidemics

Question 37

Political factors (steeple)

Answer 37

1. Political factors is the role that a government plays in business operations. 2. The political stability of a country and government policies (such as taxation and interest rate policies) can provide both opportunities and threats for a business 3. e.g. a laissez-faire government adopts a free market approach and rarely intervenes in business affairs 4. In general though, more countries adopt an interventionist approach to manage the economy by using legislation and policies which are broadly categorised as fiscal policy and monetary policy 5. Governments may also use deregulation to help provide opportunities for businesses to prosper

Question 38

Fiscal policy

Answer 38

1. Fiscal policy is the use of taxation and government expenditure policies to influence business activity. 2. The government spends the tax revenue that it raises (along with other sources of government revenue) on a number of areas including social security, health care, education, transport, and infrastructure 3. These can be split into deflationary fiscal policy and expansionary fiscal policy

Question 39

Deflationary fiscal policy

Answer 39

1. Deflationary fiscal policy is used when the economy experiences high rates of economic growth and inflation, so it needs to be slowed down via a combination of higher taxes and reduced government expenditure policies

Question 40

Expansionary fiscal policy

Answer 40

1. Expansionary fiscal policy is used to boost business activity, perhaps to get the economy out of a recession 2. This is done by a combination of tax cuts and increased public sector spending, which will create business opportunities

Question 41

Common examples of taxes

Answer 41

1. Income tax 2. Corporate tax 3. Sales taxes 4. Capital gains tax 5. Inheritance tax 6. Excise duties 7. Custom duties 8. Stamp duty

Question 42

Income tax

Answer 42

1. a tax on personal incomes from wages, salaries, rent, interest, and dividends 2. It is the key source of tax revenue for most governments

Question 43

Corporate tax

Answer 43

1. a tax on profits | 2. small businesses tend to be charged a lower tax rate on their profits than large multinational companies

Question 44

Sales tax

Answer 44

1. Tax on an individual's expenditure such as Value Added Tax (in European countries) and the Good & Services Tax (used in the USA and other places)

Question 45

Capital Gains tax

Answer 45

1. a tax on the surplus (known as capital gains) made from investments such as shares and property

Question 46

Inheritance Tax

Answer 46

1. tax on the value of assets (such as cash or property) which is passed onto a third party after the death of the owner of the assets

Question 47

Stamp duty

Answer 47

1. Tax paid when commercial or residential property is bought 2. It tends to be progressive so the higher the property value, the greater the tax rate tends to be

Question 48

Monetary Policy

Answer 48

1. Monetary policy is the use of interest rate policy to affect the money supply and exchange rates to influence business activity 2. The interest rate is the price of money (cost of borrowing money and return for saving money in a bank account) 3. If the economy is believed to be growing too fast, the government is likely to raise interest rates to combat the effects of inflation and vice versa 4. Raising interest rates makes borrowing less attractive because households and businesses face higher interest repayments on their loans 5. An increase in interest rates in a country also tends to stimulate demand for its currency since foreign investors are attracted to better returns on their savings

Question 49

Deregulation

Answer 49

1. Deregulation is the removal of government rules and regulations which constrain business activity within a particular industry 2. It should therefore enhance efficiency and encourage more competition within the industry

Question 50

Political corruption

Answer 50

1. Political corruption can be a major and ongoing threat for businesses

Question 51

Legal factors (steeple)

Answer 51

1. Legal factors are the laws that affect the way a business is run or how consumers and customers behave. 2. The government imposes rules, regulations, and laws to ensure that the general public is protected from business activity or to protect the interests of businesses

Question 52

Common legislation affecting businesses

Answer 52

1. Consumer protection legislation 2. Employee protection legislation 3. Competition legislation 4. Social and environmental protection legislation

Question 53

Consumer protection legislation

Answer 53

1. Consumer protection legislation are laws that exist to make it illegal for businesses to provide false or misleading descriptions of their products and services 2. Products must meet certain quality standards and be fit for their purposes 3. They also state that businesses are held liable for nay damage or injury which are caused by defective products

Question 54

Employee protection legislation

Answer 54

1. Employee protection legislation are laws that protect the interests and safety of workers 2. These ensure that all businesses act fairly towards their employees, regardless of age, gender, religion, or ethinicity

Question 55

Types of employee protection legislation

Answer 55

1. anti-discrimination laws makes it illegal to discriminate against individuals because of gender, race, religion, disability, marital status, or age 2. equal pay legislation make it unlawfull to reward employees differently if they are doing work of equal value 3. Health and safety at work acts cover the provision of safe and adequate working conditions 4. Statutory benefits are legal benefits that all businesses are required to give their workers such as maternity leave, sick pay, or retirement pension scheme 5. National minimum wage legislation requires all businesses to pay a legal minimum rate of pay to their workers which gives incentives to work for the poorest paid workers in the country

Question 56

Competition legislation

Answer 56

1. Competition legislation are laws that ensure anti-competitive practices that are prohibited to protect consumers and smaller business from firms with monopoly power 2. The government takes action against businesses which are acting against public interest such as price fixing or charging unjustifiably high prices 3. Competition laws can also present opportunities such as patent laws give businesses legal protection against competitors replication their inventions

Question 57

Social and environmental protection legislation

Answer 57

1. Social and environmental protection legislation are laws that exist to prevent or reduce the consumption of demerit goods such as alcohol, gambling, tobacco 2. The social costs of consuming demerit goods outweigh the private costs of consumptions 3. Without government legislation, the consumption of these products would be higher

Question 58

Ethical factors (steeple)

Answer 58

1. Ethics refers to the moral beliefs and values that affect how a business operates. 2. They have to think about and balance the needs of many stakeholder groups. 3. This many times includes the businesses CSR (corporate social responsibility) 4. Although there are compliance costs in acting ethically, firms that are socially responsible can benefit greatly 5. Examples include fair treatment of workers and suppliers and observing intellectual property rights

Question 59

Benefits of acting ethically

Answer 59

1. Attracting and retaining good quality workers 2. Attracting new customers and retaining existing ones 3. Social responsibility generates good publicity and public relations

Question 60

Social audits

Answer 60

1. Reports on the ethical and social stance of a business which is examined by an external agency 2. The social audit reports both external matters and internal issues