P1 & D1 Effects of Economic Changes on Business

Topics: Inflation, Monetary policy, Unemployment Pages: 8 (2810 words) Published: January 1, 2013
Impacts of Economic changes on Business

Formed in the year 2000 when companies GlaxoWellcome plc and SmithKline Beecham plc merged and has since developed into a world leading Pharmaceuticals Company, GlaxoSmithKline. GSK are ranked number three in the world in terms of revenues. Headquartered in the United Kingdom, London the company deals in pharmaceutical, biologics, vaccines and other forms of consumer healthcare. The company has a range of products that cover major disease areas such as including asthma, cancer, virus control, infections, mental health, diabetes and digestive conditions. They also have a large consumer health care division which produces well-known products including Sensodyne, Boost, Horlicks and Gaviscon. Reporting profits before taxation of £1.9billion in the fourth quarter of 2011 the company is not one to be underestimated. GSK’s mission statement is to improve the quality of human life by enabling people to do more, feel better and live longer. Since 2008 GSK have set out three new strategic priorities, which are no dou bt influenced by the banking crisis that started that year, they are * Grow a diversified global business

* Deliver more products of value
* Simplify the operating model

GSK say that the aims of focusing their business on these three tasks are to deliver sustainable growth, reduce risk and improve our long-term financial performance.

Economic Environment
The economic environment takes into account the influence of buying behavior by economic factors such as employment, income, inflation, interest rates, productivity and wealth. In the United Kingdom we have a free market economy system which means prices are determined by supply and demand and the market is governed by the laws of supply and demand. It could be argued that in the United Kingdom we do not truly have a free market because there is Government intervention in security, defense, welfare and education. In the United Kingdom, although there is Government intervention our main purpose in business is to make profit so our system has qualities of both a free market and capitalist market.

The Business Cycle
The effects of the 2008 Banking crisis have definitely educated most people of the importance of economic stability not only in terms of business but the whole country. The Business cycle is something that any business should be aware of, after a boom businesses can definitely expect a recession. The economy experiences different trends, these include boom, slump, recession and recovery. Increased demand for products and services will lead to growth in the economy, businesses will see growths in sales and profits and may look to recruit, increase wages and so on, however when a recession hits businesses look to cut wages and employees in order to survive. During a boom output is high due to increased demand, unemployment is low. Business confidence may be high leading to increased investment. Consumer confidence may lead to extra spending. Businesses will produce more goods, increase investment, consumer spending is increased, government revenue increases through income tax and VAT and government spending is reduced. During a Recession though economic growth will slow down and output levels may fall, unemployment is likely to increase, firms will lose confidence resulting in decreased investment and individuals would rather save than spend. Businesses will cut back on production, bankruptcy is often seen, and consumer spending falls, government spending increases and revenue decreases.

Any business is affected by the business cycle ideally, a firm would want to make as much profits during a boom and sustain business during a recession. GSK managed to keep their operating profits rising throughout the recession though; traditionally the pharmaceuticals sector does better than other sectors in recession and as a whole however the 2008 crisis made it increasingly...
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