Assessing Changes in the Business Environment BUSS4 Homework: Find an example of a Business that either prospered or suffered due to the 2008 economic.

Assessing Changes in the Business Environment

BUSS4

Homework: Find an example of a Business that either prospered or suffered due to the 2008 economic downturn and evaluate their strategic response.

The Business Environment

PESTLE

• PESTLE is a framework for assessing the likely impact of external factors.

• What does the acronym stand for?

P

E

S

T

L

E

Political

Economic

Social

Technological

Legal

Environmental

Impact of Economic Factors

• The business cycle• Interest Rates• Exchange Rates• Inflation• Unemployment• Economic Growth

Setting the scene…BMW

• Have a read of the article on P164 and make notes on the questions.

The Business Cycle

• Also known as the trade cycle

• Most economies over time will see an trend of upward progression

• Does not grow smoothly – fluctuate going through ups and downs know as the BUSINESS CYCLE

Real GDP

TimeThe economic cycle in pictures

A B C D E F

G H I J K L

M N O P Q R

T U V W X Y Z

S

B: There are more unfilled job vacancies

C: Increasing hours of overtime

D: Rising homelessness

H: Consumers hit by delays in product

delivery

K: Share prices hit by rise in number of company profit

warnings

E: Rising demand for steel

M: Rising real income

L: Rising lipstick sales

I: Home delivered pizza becomes more popular

J: Rising business class air revenues

G: Car plants decide to reduce the number of

shifts

F: Long-term unemployment

reaches new high

P: Brick manufacturers report a rise in unsold stocks Q: McDonald’s holds prices despite

rise in costs

T: The cost of shipping goods

around the world starts to rise

U: More building skips start appearing on the

streets

V: Sales of milk chocolate start to

decline

Y: More companies attempt to introduce

wage freezes

W: Shops delivering lunchtime sandwiches

to offices raise their prices because of strong demand

R: Imports of sewing machines rise

S: Banks relax credit rules

Z: Rising government

spending

Businesses most affected by the business cycle

• Depends on the income elasticity of demand for the firm’s products (the extent to which demand for a product or service changes as a result in a change of income)

• Give some examples of products that will be impacted by the business cycle

• What about those that might not be?

Businesses most affected by the business cycle

• Firms producing capital goods such as machinery and plant tend to suffer most in a recession because other firms cut back on their orders dramatically if they expect to sell fewer items.

Exam Tip:

• Remember, when analysing the impact of a particular phase of the business cycle on a firm, to consider the organisation and its products. If a firm is producing and selling inferior goods, for example, it may find that it benefits during a recession as incomes fall. Don’t ignore the context of the case study.

Business strategies

During economic downturn or recession

Business strategies

During economic recovery, upturn or growth

• Impact of economic downturn on businesses…The economic downturn in the USA in March 2008 contributed to mixed fortunes for some of the nation’s retailers. Kohl’s stores that are aimed at middle-income America experienced a 15.5% fall in sales compared to the previous year. Gap’s sales fell by 18%. But Wal-Mart, famous for mass discounting of prices, saw sales rise by 0.9%. However Target, an upmarket competitor to Wal-Mart, experienced a 4.4% sales drop.

1. Why would you expect an economic downturn to reduce consumer demand?

2. Analyse ONE possible reason why Wall-Mart saw sales increase during an economic downturn, yet other retailers’ sales fell. (8)

3. Evaluate TWO strategies that Gap might introduce to counter the effects of the economic downturn. (18)