What is PESTLE analysis?
It is a strategic management tool used to assess the external environment affecting a business. It enables a business to create a strategy to limit these impacts
What does PESTLE stand for?
. Political
. Economic
. Social
. Technological
. Legal
. Environmental
Describe “political factors”.
These factors take into account the political situation of a country and the world in relation to the country
Despite political decisions being outside the business’ control - gov decisions can have direct impacts on the operations of the business
Common political factors:
. Instability
. National security - governments are trying to protect its citizens by introducing restrictions on the movement of goods, people and capital
. Major trading partners
. Changes in government - different governments and political parties could have different views and attitudes towards business activity and related legislation
. Pressure groups - campaigns for example can lead to changes in legislation impacting business activity
Describe “economic factors”.
This is essentially what areas of the economy will have an impact on business practices. Common economic factors include interest rates, unemployment, inflation and recession.
What is fiscal policy in relation to the economic factor?
Fiscal policy involves changing taxation and gov spending to influence the economy. It is used by the government’s key objectives:
. controlling inflation at around 2%
. stimulate economic growth
. higher rates of employment
. trade balance
What are the two types of taxes in regards to economic factors?
Direct tax - taxes charged to individuals/businesses that are paid directly to the government i.e. tax levied on factors of production such as labour, income tax
Indirect tax - taxes charged on goods and services that are paid to a third party in the first instance such as VAT
Briefly list and describe some types of direct and indirect taxes.
Direct:
. Income tax - tax paid on an individual’s earnings
. National Insurance -contributions paid by employees and employers to fund state benefits
. Corporation tax - tax paid by companies on their profits
. Capital gains tax - tax paid on the profit made from selling an asset that has increased in value
. Inheritance tax - tax paid on the value of a person’s estate when they die, above a certain threshold
Indirect:
. VAT - a percentage tax added to most goods and services at the point of sale
. Excise duty - tax on specific goods, such as alcohol, tobacco and fuel
. Customs duty - tax placed on imported goods entering the country
. Council tax - local tax paid by households to fund local services
. Business rates - tax paid by businesses on commercial properties
What are subsidies?
Subsidies are financial payments made by the government to producers to reduce their costs of production, encourage higher output and support specific industries or policy objectives
What is government expenditure?
Government expenditure refers to public sector spending on goods and services, including payments to private sector firms that supply areas such as defence, infrastructure, education and prisons
What is inflation?
It is the rate at which the general level of prices is rising. The government measure inflation using regular pricing of a nominal “basket of goods”. This basket of goods is used to reflect the spending habits of the average person within the UK economy. The target rate of inflation known as the CPI, RPI, RPIX and a measure of Factory Gate Prices.
What does inflation mean to the consumer?
Inflation is when the price level of goods and services that consumers buy rises - what this means is that their money will not purchase as much as before
Therefore inflation can also be defined as the purchasing power of money
What is cost-push inflation and demand-pull inflation?
Cost-push inflation - occurs when firms have rising costs of production and they respond to these higher costs by increasing the prices they charge their customers
e.g. increase in the cost of raw materials, increasing cost of labour and increases in cost of interest rates
Demand-pull inflation - caused by excessive demand in the economy for goods and services. This means that there is too much money chasing too few goods.
The main causes of increased demand are increased confidence, higher real incomes or higher disposable incomes
What is deflation?
Deflation is the general fall in price levels and can be a problem if not corrected. Some consequences include fall in wage levels and increasing real debt burdens (value of debt increases relative to the value of assets and income)
What are interest rates?
The interest rate is the price of borrowing or saving money. Using interest rates to help control the UK economy is known as Monetary Policy. To dampen demand, rates are increased and vice versa
What are the effects on businesses of changing interest rates?
If interest rates rise, the cost of borrowing increases which will limit demand in the economy. If interest rates fall, the cost of borrowing also falls and so, demand will increase. Businesses are not generally impacted by small changes in interest rates. However, if there is a significant increase over time, the cumulative impact can be significant
Increasing interest rates:
. People spend more on paying mortgages, so they have less money left over for spending other goods/services
. People are less likely to borrow, as the cost of loans has increased, so there is less spending
. Businesses borrow less for investment as it is too costly
. The value of the pound may increase against other currencies
Decreasing interest rates:
. People spend less on paying mortgages, so have more money left over for spending on goods/services
. People are more likely to borrow as the cost of loans has fallen, so there is more spending
. Businesses borrow more for investment as they have a greater chance of success
. The value of the pound may fall against other currencies
What is economic growth?
GDP (Gross Domestic Product) measures the level of output in the UK. GDP is a measure of the annual output of an economy. An increase in real GDP has always been important for the UK. Without growth, people’s standard of living will not increase. Growth also reduces the real level of government debt.
What is the business cycle?
This shows the fluctuations in the level of economic activity over time compared to the trend/average rate of growth . Fluctuations in GDP affects both business and consumer confidence as well as their ability and willingness to spend. There are 4 main elements of the business cycle:
. Boom
. Downturn
. Recession
. Recovery
Explain the boom period of the business cycle.
If the economy is booming:
. Unemployment levels are low
. Consumer demand is high
. Business profits are high
. Budget surplus for the government is high, due to high tax revenue and lower expenditure on social security
. Business confidence is high
However, high levels of demand can increase prices, workers will often demand higher wages, further pushing costs up and increasing prices
Explain the downturn phase of the business cycle.
During an economic downturn:
. There is less investment by a business
. Business owners and managers become nervous about the future
. Higher inflation in a boom may have caused the BoE to increase interest rates (contractionary monetary policy)
. Economy may still be growing but at a much lower rate
Describe the recession phase of the business cycle.
Sometimes a downturn could turn into a recession (two consecutive quarters of negative economic growth) - this is where the economy starts to shrink in size.
There is:
. Increasing unemployment
. Falling demand from consumer
. Falling investment by businesses
. A decline in the levels of inflation and interest rates
Describe the recovery phase of the business cycle?
Hopefully the recession turns into a recovery ( slowly rising levels of economic growth after a recession). Businesses may start to see new opportunities, the cost of borrowing may stabilise/lower, businesses may start to invest, new jobs created and lower overall unemployment levels.
What are exchange rates?
The exchange rate is the value of one currency expressed in terms of another currency. There is an impact on businesses when the price of these currencies change in relation to one another. The price of a currency is largely determined by market forces (supply and demand)
What is the definition of unemployment?
It is the number of unemployed people in the UK measured by the LFS (Labour Force Survey) and includes people who meet the international definition of unemployment, specified by the ILO (International Labour Organisation)
What is the ILO definition on unemployment.
It includes those:
. without a job, have actively been seeking work in the past four weeks and are available to start work in the next two weeks
. out of work, have found a job and are waiting to start it in the next two weeks
-
Unit 1 - Markets25
-
Unit 1 - Business Finance9
-
Unit 1 - Business Structure17
-
Unit 1 - Market Research14
-
Unit 1 - Revenue, Costs and Profit11
-
Unit 1 - Business Plans3
-
Unit 1 - Enterprise13
-
Unit 1 - Business Location2
-
Unit 2 - Operations Management68
-
Unit 2 - Marketing44
-
Unit 2 - HR96
-
Unit 2 - Finance40
-
Unit 3 - Analysing financial and non-financial measures or performance36
-
Unit 3 - Aims and Objectives9
-
Unit 3 - Strategy and Implementation66
-
Unit 3 - Decision-making models35
-
Unit 3 - Investment Appraisal11
-
Unit 3 - Market Analysis21
-
Unit 3 - Special Orders5
-
Unit 3 - Sales Forecasting21
-
Unit 3 - Data Analysis11
-
Unit 4 - Managing change42
-
Unit 4 - Risk management19
-
Unit 4 - PEST Analysis42
-
Unit 4 - International trade19
-
Unit 4 - Globalisation20
-
Unit 4 - Ethical, legal and environmental factors30
-
Unit 4 - The EU25
