External influences – economic, financial, geographic, social, legal, political, institutional, technological, competitive situation, markets
Internal influences – products, location, resources, management and business culture
A business does not operate in isolation, but it is part of a business environment. Successful business managers have a good understanding of the environment in which the business operates. This allows them to respond positively to changes that take place and prepare for the impact such changes will have on their business operations.
Define business environment. (p 51)
Refers to the surrounding conditions in which the business operates.
The business environment can be divided into two broad categories: External environment (p 51) – Includes those factors over which the business has little control, such as government policy, technology, economic conditions and social attitudes. Internal environment (p 51) – Includes those factors over which the business has some degree of control, such as products, location, resources, management and business culture.
The factors that make up the business environment are not constant and certain. They are continually undergoing change, and a business must keep ‘in tune’ with the changes and adapt its operations accordingly. External Influences
The main external influences on a business are …
Define economic cycle. (p 52)
Are the periods of growth and recession that occur as a result of fluctuations in the general level of economic activity. No economic system works perfectly all the time under all conditions. The level of economic activity does not remain at a constant level; it fluctuates (moves up and down) over time. In other words, total production, incomes, spending and employment rise and fall.
Complete the diagram below, which is based on Figure 3.4
The economic or business cycle
Recovery- key features
Increasing consumer spending
Business expectations increasingly optimistic
Increasing business investment
Sales and profits rising
Recession- key features
Decreasing consumer spending
Business expectations increasingly pessimistic
Decreasing business investment
Sales and profits falling
Inflation may remain stable or fall
Complete the table below outlining what the characteristics of both ‘boom’ and recession periods. Refer to Fig 3.5 Characteristics of a Recessionary cycle
Characteristics of a ‘Boom’ cycle
Evidence of a contracting economy is seen with rising unemployment, decreased economic growth and stabilising or falling inflation. Consumers become more cautious. Spending and consumer confidence fall. Reduced spending by consumers affects business as profits fall. Cost cutting must occur. Workers may be retrenched, adding to the economic problems. Evidence of an expanding economy is seen with falling unemployment, increased economic growth and rising inflation. Consumer confidence returns and spending increases.
Increased spending will increase business profits.
Business can increase production and will require workers.
The state of the economy has a great impact on business. The policies implemented by the government are aimed at keeping the economy growing, without putting pressure on inflation (prices) and wages. The economy is also affected by overseas trends — changes in trade, investment and currency levels all affect Australia’s level of economic activity.
Not all businesses experience a downturn in revenue and sales during a recession; nor do they necessarily experience an upswing in trade during a ‘boom’ period. The businesses most susceptible to the ‘swings’ are those selling consumer or luxury goods , as consumers will cut back on these when they reduce overall spending. Some businesses fare...
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