Level 1 Business Studies

1
Level 1 Business Studies

• 1.2 - AS90838
• Demonstrate an understanding of external factors
  influencing a small business
• BS 12/2/1

2
Competition and the local business environment

• Students will develop an awareness of the local
  marketplace and identify competition arising from
  this environment.
• Define the local business environment
• Discuss examples of local competition
• Discuss advantages and disadvantages for
  businesses and consumers of local competition

3
Business Environment

• Business Environment may be defined as a setof
  conditions Social, Legal, Economical, Political
  or Institutional that are often uncontrollable in
  nature and affect the functioning of a business.
• Business Environment has two components1.
  Internal Environment2. External Environment

4
Local Business Environment

• Local business is driven by specific local
  conditions and market characteristics.
• It operates in a larger economic context too.
• At the local level, a business must compete for
• employees,
• resources from suppliers at a competitive price,
  
• local advertising and
• marketing channels.

5
Internal Environment

• Includes 5 Ms i.e.
• Usually within the control of business.
• Business can make changes in these factors
  according to how it functions.

6
External Environment

• Those factors which are beyond the control
  ofbusiness enterprise are included in external
  environment.
• These factors are
• Government, legal and political factors,
• Geo-Physical Factors,
• Socio-Cultural Factors,
• Demographical factors
• Technological factors etc.
• There are two Types1. Micro or Operating
  Environment2. Macro or General Environment

7
Micro or Operating Environment

• The environment which is close to business and
  affects its capacity to work is known as Micro or
  Operating Environment.
• It consists of
• Suppliers,
• Customers,
• Market Intermediaries,
• Competitors and
• Public.

8
(1) Suppliers

• They are the people / businesses who supply raw
  material and required components to the company.
• Suppliers must be reliable and business must have
  multiple suppliers i.e. they should not depend
  upon only one supplier.

9
(No Transcript)
10
(2) Customers

• Customers are regarded as the king of the market.
• Success of every business depends upon the level
  of their customers satisfaction. Types of
  Customers(i) Wholesalers(ii)
  Retailers(iii) Industries(iv) Government and
  Other Institutions(v) Foreigners / Tourists

11
(3) Market Intermediaries

• These work as a link between business and final
  consumers. Such as(i) Middleman(ii)
  Marketing Agencies(iii) Financial
  Intermediaries(iv) Physical Intermediaries

12
(4) Competitors

• Every move of the competitors affects other local
  businesses.
• Businesses have to adjust themselves according to
  the strategies of their competitors.

13
(5) Public

• Any group who has actual interest in business
  enterpriseis termed as public e.g. media and
  local public.
• They may be the users or non-users of the
  product.

14
Macro or General Environment

• It includes factors that create opportunities and
  threats to business units.
• Following are the elements of Macro Environment

15
(1) Economic Environment

• It is very complex and dynamic in nature that
  keeps on changing with the change in policies or
  political situations.
• It has three elements(i) Economic conditions
  of the general public(ii) Economic policies of
  the country(iii) Economic systems(iv) Other
  economic factors Infrastructural Facilities,
  Banking, Insurance companies, money markets,
  capital markets etc.

16
(2) Non-Economic Environment

• Following are included in non-economic
  environment-(i) Political Environment - It
  affects different business units extensively.
  Components 1. Political Belief of
  Government 2. Political Strength of the
  Country 3. Relation with other countries

17
(ii) Socio-Cultural Environment

• Influence exercised by social and cultural
  factors, not within the control of business, is
  known as theSocio-Cultural Environment.
• These factors include
• attitude of people to work,
• family system,
• religion,
• education,
• marriage etc.

18
(iii) Technological Environment

• Technological factors represent major
  opportunities and threats that must be taken into
  account while formulating strategies.
• Technological breakthroughs can dramatically
  influence the organisations products, services,
  markets, suppliers, distributors, competitors,
  customers, manufacturing processes, marketing
  practices, and a competitive position.
• Technological advancements open up new markets,
  result in proliferation of new and improved
  product change, the relative cost position in an
  industry and render existing products and
  services obsolete.

http//www.citeman.com/12881-technological-environ
ment.htmlixzz1se5GD4PN
19
(iii) Technological Environment

• Key characteristics
• 1) Technology is changing fast.2) Technology is
  getting cheaper.3) Technology is becoming easily
  available4) Technology is touching lives in more
  and more areas
• Effects
• 1) Customers will expect and accept new ideas2)
  Competition will come from unexpected
  quarters.3) Product life cycles will be
  shorter.4) New things will make old product
  skill knowledge obsolete necessitating continuous
  change.

20
(iv) Natural Environment

• It includes
• natural resources,
• weather,
• climatic conditions,
• port facilities,
• topographical factors such as soil, sea, rivers,
  rainfall etc.
• Every business unit must look for these factors
  before choosing the location for their business.

21
(v) Demographic Environment

• It is a study of perspective of population i.e.
• its size,
• standard of living,
• growth rate,
• age-sex composition,
• family size, income level
• education level etc.
• Every business unit must see these features of
  population and recognise their various needs and
  produce accordingly.

22
Characteristics

• 1. The local business environment is constantly
  changing process.
• 2. Local business environment is different for
  differentbusiness units.
• 3. It has both long term and short term impact.
• 4. It includes both internal and external
  environment.
• 5. Unlimited influence of external environment
  factors.
• 6. It is very uncertain.
• 7. Inter-related components.

http//groups.google.com/group/mbaregular2010-12/b
rowse_thread/thread/355e8c5b7702af58/2fa8e6044241f
a1c?pli1
23
(No Transcript)
24

• A local business operates in a larger economic
  context.
• The mood and sentiment of the overall economy
  influences local businesses dramatically.
• Many of these forces are beyond the control of
  local businesses, yet, often determine success
  and failure. E.g.
• Access to capital,
• levels of consumer spending,
• the overall health of the economy,
• ability to lease space and equipment,
• unusual weather,
• all present challenges to local businesses.

25
Dynamic Nature

• Business environment is dynamic in that it keeps
  on changing whether in terms of
• technological improvement,
• shifts in consumer preferences or
• entry of new competition in the market.

26
Uncertainty

• Business environment is largely uncertain as it
  is very difficult to predict future happenings,
  especially when environment changes are taking
  place too frequently as in the case of
  information technology or fashion industries.

27
Local Competition

• Examples
• Restaurants / takeaways
• Kitchen designers and producers
• Website developers
• Mechanics / garages
• Supermarkets
• Builders / electricians / plumbers
• Electrical goods retailers

28
(No Transcript)
29
Business and Competition

• Though a business does not want competition from
  other businesses, inevitably most will face a
  degree of competition.
• The amount and type of competition depends on the
  market the business operates in
• Many small rival businesses e.g. a shopping
  mall or city centre arcade close rivalry.
• A few large rival firms e.g. washing powder or
  Coke and Pepsi.
• A rapidly changing market e.g. where the
  technology is being developed very quickly the
  mobile phone market.

http//tutor2u.net/business/gcse/external_environm
ent_introduction.htm
30
Business and Competition

• A business could react to an increase in
  competition (e.g. a launch of a rival product) in
  the following ways
• Cut prices (but can reduce profits)
• Improve quality (but increases costs)
• Spend more on promotion (e.g. do more
  advertising, increase brand loyalty but costs
  money)
• Cut costs, e.g. use cheaper materials, make some
  workers redundant

http//tutor2u.net/business/gcse/external_environm
ent_introduction.htm
31
Advantages for businesses of local competition

• A greater discipline on producers/suppliers to
  keep their costs down
• Improvements in technology with positive
  effects on production methods and costs
• A faster pace of invention and innovation
• Improvements to the quality of service for
  consumers

32
Advantages for consumers of local competition

• Lower prices
• A greater variety of products (giving more
  choice)
• Improvements to the quality of service for
  consumers
• Better information for consumers allowing people
  to make more informed choices

http//tutor2u.net/economics/content/topics/compet
ition/competition_importance.htm
33
Advantages for consumers of local competition

1. Competitive markets often have to differentiate
   their products from those of their competitors.
2. Differentiated products ensure that consumers can
   choose a product from a company, for example, for
   its unique qualities such as the colour of the
   packaging, size or price

34
Disadvantages for businesses of local competition

• Reduced final price which may only just cover
  costs, and reduce profit
• Possible staff redundancies in order to cut costs
• Businesses have to attract the customers in other
  ways, since the price may not grab the customer's
  interest.

35
Disadvantages for businesses of local competition

• Need to engage in advertising to make businesses
  presence known in order to differentiate
  themselves from other local businesses offering
  the same products.
• Businesses can incur high expenses in marketing
  and advertising advertising is expensive

36
Disadvantages for consumers of local competition

1. Possible lack of product variety
2. Competition requires consumers to become more
   informed about the products and services
   available in the market.

37
(No Transcript)