section5:assessingchangesinthebusinessenvironment … · business in focus question: what actions...

BUSINESS IN FOCUS

Question:Why might these large multinational businesses have responded in different ways to the recession?

Answers may include:

• Vauxhall may believe that the downturn in sales is temporary and that it needs to retain its skilledworkforce.

• It may also wish to meet its social responsibilities to maintain employment whenever possible.

• It may be under pressure from its unionised workforce to avoid redundancies.

• Banks may think that their market has changed permanently and that there is no case for maintainingcurrent employment levels.

• The workforce at the banks is unlikely to be highly unionised, weakening the employees’ bargainingposition.

• The two groups of businesses may be pursuing different corporate objectives.

BUSINESS IN FOCUS

Question:Why might Debenhams have been pleased by a cut in interest rates?


• May believe that consumers will spend more money because it is cheaper to borrow and because savingmay be discouraged by low returns.

• Has large debts, which may be cheaper to service given the substantial fall in interest rates.

Do you think that big cuts in interest rates might lead to some companies cutting back on production andinvestment? Explain your view.


• Interest rates being cut on this scale may lead some businesses to believe that the UK is heading for asevere recession and that demand for their products will fall substantially.

• Many business decisions are based on confidence. Reducing rates in this way can damage confidence,especially when there is a reduction on this scale.

© Hodder Education 2009

Businesses and the economic environment

Section 5: Assessing changes in the business environment

19Cha

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BUSINESS IN FOCUS

Question:What actionsmight exporters takewhen,despite a fall in the exchange rate of the pound, sales continue to fall?


• May opt to reduce prices, if profit margins will permit this. The effectiveness of this approach willdepend on price elasticity of demand.

• May opt to rationalise and to reduce production in line with sales until the recession appears to be over.

• May seek new markets for their products. They could target markets such as China, where economicgrowth remains positive.

• Might seek to develop new products for markets where demand is less affected by falling incomes.

BUSINESS IN FOCUS

Question:What effects might this dramatic change in inflationary expectations have on the decisions of major super-markets such as Tesco?


• Supermarkets may seek to place more emphasis on pricing in their marketing strategies.

• May introduce new products, especially competitively priced ones.

• May be more willing to undertake investment decisions, as costs are expected to be stable in the future.

BUSINESS IN FOCUS

Question:Santander is one of a number of businesses cutting jobs in the UK at the time of writing. What are thedisadvantages to businesses such as Santander of taking such decisions?


• Corporate image in the UK may suffer as a consequence of announcing the job losses.

• Motivation levels among the remaining staff may be reduced as they suffer a loss in job security.

• The redundancy programme is likely to be costly in terms of compensation, given its scale.

• The bank may suffer in terms of knowledge management if it loses skilled employees.


AQA Business Studies for A2 19Cha

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BUSINESS IN FOCUS

Question:In 2008 the UK economy moved into recession. How might a net inflow of migrants affect the competi-tiveness of business in such an economic situation?


• Businesses may have cheaper sources of labour, helping to maintain international price competitive-ness.

• The existence of migrants will help to keep general wage costs low.

• The arrival of migrants with relevant skills might reduce training costs.

• Large numbers of migrants might boost demand for a range of products, helping to maintain sales andallow the benefits of economies of scale.

BUSINESS IN FOCUS

Question:What are the benefits and drawbacks of globalisation to smaller car manufacturers such as Tata?

Benefits may include:

• It offers Tata the opportunity to sell in a much larger market, to grow and to benefit from economiesof scale.

• The company has the chance to agree joint ventures and similar deals with other car manufacturers toovercome its shortage of experience or technology.

• Tata should be able to gain experience and develop brands in time to experience the benefits of risingdemand in emerging economies, including its own domestic economy – India.

Drawbacks may include:

• Tata will have to face the full competitive power of established producers such as Toyota, Ford andVolkswagen.

• Tata’s domestic market will become a target for global brands as it develops.

• Tata does not have the benefit of economies of scale that accrue to larger manufacturers.

• The company’s technology is likely to lag behind that of the established manufacturers.



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BUSINESS IN FOCUS

Question:What other benefits might emerging economies offer to Coca-Cola, apart from rising sales?


• The company may benefit from cheaper labour and therefore lower production costs, potentiallyincreasing profits.

• The emerging economies may offer low-cost sources of supplies such as sugar, which are essential inproduction of the product.

• Bringing employment and prosperity to less developed countries may help to improve Coca-Cola’scorporate image.

BUSINESS IN FOCUS

Question:What are the strengths and weaknesses of this response by the house builders to a looming world recession?

Strengths might include:

• The companies can reduce administrative costs.

• The new business may benefit from greater economies of scale.

• It is likely to have greater cash resources.

• The enlarged company will be financially stronger and more able to compete with larger rivals in theglobal market.

Weaknesses might include:

• The merger may face opposition from employees because of job losses.

• The two companies may have similar strengths and weaknesses and so not complement one another.

• Diseconomies of scale may arise.

• Creating more capacity may not be the best strategy when the company’s major market is in decline.

PROGRESS QUESTIONS

1. An economy is in the upswing stage of the business cycle. What are the most common features of thisstage of the cycle? (4 marks)

• Falling (or a slowing of growth in) production levels.



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• A fall in consumer expenditure.

• Postponed or cancelled investment decisions and a lowering of business confidence.

• A rising level of bankruptcies.

2. Outline two ways in which a company manufacturing digital televisions might be affected by a recession.(6 marks)


• substantial decline in demand as it is an income-elastic product

• cheaper labour costs and also cheaper raw materials as global demand falls

• an increased need to make employees redundant

• a fall in interest rates in many countries, cutting the cost of borrowing.

3. Examine two factors that might determine a business’s response to a rise in interest rates. (6 marks)


• the extent to which they sell their goods on credit

• the financial position of the business, e.g. the amount of its retained profits

• the amount of outstanding borrowing the firm has and its gearing ratio

• the size of the firm, its creditworthiness and reputation.

4. Explain two ways in which a UK-based manufacturing business, trading across the EU, might be affectedby a fall in UK interest rates. (7 marks)


• The business will benefit from reduced interest charges on its outstanding debts.

• It may be more willing to invest in new projects.

• The exchange rate may fall as a consequence of declining interest rates.

• The cost of imported raw materials may increase.

• The price of the business’s products overseas could fall, increasing sales (depending on PED).

• The company could maintain its prices overseas (in terms of foreign currency) and benefit from anincreased profit margin.

5. Archer & Sons, based in Norwich, purchase raw materials from overseas and sell half their output inforeign markets. Consider the probable effects on the company of a rise in the exchange value of thepound. (8 marks)

• A rise in exchange rates will mean that the raw materials the company purchases will be cheaper.

• At the same time export sales will decline as the price of the company’s products will increase overseas(though the amount in sterling they receive from each sale will not change).



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• If the company sells in many countries the effect may be less, as the pound is unlikely to rise against allcurrencies.

6. Explain why price elasticity of demand may partly determine the responses of a business to a substantialchange in exchange rates. (7 marks)

• Changes in exchange rates affect the prices at which products are sold overseas.

• If demand overseas is price inelastic, then a change in exchange rates might have a minimal effect onthe volume of sales.

• In contrast, price-elastic demand will have a significant impact on sales volumes.

7. Consider the responses of a large insurance company to a steady fall in the rate of unemployment. (8marks)

• The company may face higher wage costs and may seek to replace people with technology where poss-ible.

• It may offer higher wages if it is profitable.

• It may consider relocating some of its activities overseas (‘offshoring’) if labour becomes scarce.

• It may take no action if unemployment remains at a relatively high rate.

8. Examine the ways in which an international airline might respond to a large and unexpected rise in therate of inflation in its home market. (8 marks)

• May increase the prices at which it sells tickets to passengers.

• May seek to purchase increasing amounts of supplies of fuel and food in other countries where infla-tion is lower.

• May absorb the increased prices for labour and materials if it wishes to remain competitive.

• It may seek to reduce its operating costs (e.g. buying cheaper meals) to combat the effects of inflation.

9. Outline why a business would be more likely to monitor long-term interest rates. (6 marks)

• Short-term rates may be volatile and have only a temporary impact.

• The majority of a business’s borrowing is likely to be on a long-term basis.

• Major investment projects are likely to take place over a long period of time.

10. In what ways might a hotel chain in the UK respond to a high rate of UK economic growth? (8 marks)

It may:

• expand its capacity, perhaps by building or buying new hotels, as its product is income elastic

• alter its marketing, switching from targeting overseas markets to domestic ones

• increase its price (and its profit margin) to take advantage of rising demand for its products

• offer a higher-quality product to reflect increases in consumers’ incomes.

11. Explain two advantages of globalisation for a major UK supermarket such as Tesco. (6 marks)



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• Offers the company the opportunity to expand into markets that may be less saturated.

• May provide cheaper sources of supplies for the supermarket, increasing potential profits.

• The supermarket may be able to supply a wider range of products by sourcing its products fromthroughout the world.

12. What disadvantages might McDonald’s face as a result of globalisation? (6 marks)

• Has to decide whether to offer different products in different markets (a multi-domestic strategy),which may increase its costs.

• May face direct competition from other global fast-food providers.

• May face opposition (and bad publicity) from ‘imposing’ its products on consumers in countries withdifferent cultures.

13. Why might a car manufacturer opt for a multi-domestic strategy in the face of globalisation? (8 marks)

• May recognise that consumers in different markets have different needs.

• Could charge higher prices (and enjoy increased profit margins) from selling more targeted products.

• Rivals may be using a multi-domestic strategy and the company in question may not be able to avoiddoing the same.

• Multi-domestic strategy could act as a USP for the manufacturer in question.

14. Why might emerging economies such as India and China offer opportunities to multinational busi-nesses such as Vodafone? (7 marks)

• The two economies in question have very large populations and therefore are huge potential markets.

• Levels of real income per head in many emerging markets are rising quickly and so demand forincome-elastic products such as those supplied by Vodafone may rise quickly.

• Wage rates are normally lower in emerging markets, offering cheap manufacturing opportunities forcompanies such as Vodafone that operate in global markets.

• Other aspects of production costs can also be lower in emerging markets.

15. Explain two risks for a clothes manufacturer of locating in an emerging economy. (7 marks)

• The company’s reputation may be damaged by allegations of exploiting workers in less developedcountries by paying very low wages.

• Unexpected changes in exchange rates can reduce or even eliminate profit margins.

• The political system in the country may be unstable, posing a threat to the business.

• Quality standards may not be met – or at least not met regularly.

ANALYSIS AND EVALUATION QUESTIONS

1. (a) Analyse the effects of a rise in the exchange value of the pound for this company. (10 marks)3 marks Application



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• The exchange rate is the price of one currency expressed in terms of another.

• The price of the company’s exports in the EU and the United States will rise as a consequence of theincreasing value of the pound – unless Patten plc decides to accept lower profit margins.

• However, this may be offset to some degree by the falling price of imports – the natural rubber fromMalaysia.

• The effect of falling import prices will depend on the proportion of total costs that is represented bythe cost of rubber from Malaysia.

Content3 marks

Application3 marks

Analysis4 marks

Level 3 3 marksCandidate identifies two ormore relevant points andshows understanding of theterm.

3 marksCandidate applies knowledgeeffectively to the scenario.

4 marksGood analysis of argument.

Level 2 2 marksCandidate offers two or morerelevant points or showsgood understanding of theterm or a combination.

2 marksCandidate makes reasonableattempt to apply knowledgeto the scenario.

3–2 marksReasonable analysis ofargument.

Level 1 1 markCandidate offers singlerelevant point or shows someunderstanding of the term.

1 markCandidate makes limitedattempt to apply knowledgeto the scenario.

1 markLimited analysis of argument.


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• The economic environment is made up of factors that affect businesses, such as exchange rates, interestrates and GDP figures.

• The exchange rate changes are, on balance, disadvantageous to the company because its major marketis the EU and lower costs of imported rubber will not cover this.

• Rising inflation in the UK will increase the company’s costs of production, making it less pricecompetitive.

• However, inflation rates are higher in the EU countries, so Patten plc’s relative cost of production maybe declining.

• An unexpectedly high increase in the growth of GDP in the UK may boost Patten plc’s sales in the UKas the products are income elastic.

• The impact of economic factors affecting price will have a limited impact on the company’s sales as ithas a USP of quality, and price elasticity of demand for its products may be lower than that of rivals.

Content3 marks

Application3 marks

Analysis4 marks

Evaluation5 marks

Level 3 3 marksCandidate identifiestwo or more relevantpoints and showsunderstanding of theterm.

3 marksCandidate appliesknowledge effectivelyto the scenario.

4 marksGood analysis ofargument.

5–4 marksCandidate offersjudgement plus fulljustification.

Level 2 2 marksCandidate offers twoor more relevantpoints or shows goodunderstanding of theterm or acombination.

2 marksCandidate makesreasonable attemptto apply knowledgeto the scenario.

3–2 marksReasonable analysisof argument.

3–2 marksCandidate offersjudgement pluslimited justification.

Level 1 1 markCandidate offerssingle relevant pointor shows someunderstanding of theterm.

1 markCandidate makeslimited attempt toapply knowledge tothe scenario.

1 markLimited analysis ofargument.

1 marksCandidate offersundevelopedjudgement based onevidence.


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(b) To what extent do you think the economic environment in which Patten plc trades has become lessattractive for the company? (15 marks)



• A ‘dramatic improvement’ would mean changes in the economic environment, such as falls in interestrates and increases in growth rates.

• The company may increase the number of holidays that it offers for sale as it expects the market toincrease in size and UK GDP is set to increase more rapidly in the future.

• An increase in prices might be a sensible response to this economic environment and an opportunityto increase profits.

• The management team at Spangles Ltd may decide to increase the range of holidays that the companyoffers in the EU, taking advantage of favourable changes in the exchange rate.

Content3 marks

Application3 marks

Analysis4 marks











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2. (a) Analyse the possible ways that the company may respond to a ‘dramatic improvement’ in the econ-omic environment in which it trades. (10 marks)



• The economic environment comprises factors such as interest and exchange rates, the business cycle,inflation and unemployment.

• The pound is set to fall in value against the euro – this will reduce the cost of holidays (or any othersupplies) priced in euros.

• Rising levels of GDP will assist this company, as it sells luxury products and rates of GDP growth areforecast to increase from 1.5 per cent to 2.9 per cent.

• UK interest rates are forecast to increase, making it more expensive to borrow to finance any new strat-egies and possibly dampening demand for the company’s luxury products.

• The rising value of the US dollar against the pound will increase the cost of any holidays that arepurchased in the United States.

• This data does not relate to all the areas of Patten plc’s activities, e.g. it purchases holidays, hotel accom-modation in Asia.

• There is little evidence of the source of the data, and judgments about its accuracy must take this intoaccount.

Content3 marks

Application3 marks

Analysis4 marks

Evaluation5 marks














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(b) To what extent do you agree with the managing director’s assessment that the economic environ-ment in which the company trades will improve dramatically? (15 marks)



• Globalisation is the trend for many markets to become worldwide in scope.

• The company can receive benefits in terms of sales as its products may be in demand in many coun-tries across the world.

• May benefit in terms of lower production costs as it will have access to resources from many countriesthat may be cheaper.

• May gain the advantage of economies of scale, allowing it to reduce prices and enter new markets.

• Lower costs of production may help to generate sufficient profits to finance the proposed increase inresearch and development.

Content3 marks

Application3 marks

Analysis4 marks











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3. (a) Analyse the benefits to the company that may arise from globalisation. (10 marks)



• The Shanghai factory should allow Damly plc to reduce its costs of production substantially.

• The location in China may help the company to sell in Asian and American markets with lower costsof production.

• The company retains its management and research facilities in Scotland, meaning that communicationand coordination problems may occur.

• The company prides itself on the latest technology, and updating this regularly may be more difficultwith a factory in China.

• Is reducing the cost of production critical to this business, as it can operate a premium pricing policygiven its use of sophisticated technology?

• Lower costs and prices may enable the business to enter new markets where consumers have lowerincomes.

CASE STUDY

Questions1. Explain one possible effect onUKexporters of the pound reaching a record low against the euro. (5 marks)

Content3 marks

Application3 marks

Analysis4 marks

Evaluation5 marks














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(b) Do you think that the risks of locating its factory in China will outweigh the benefits? Justify yourview. (15 marks)


Content2 marks

Application3 marks

Level 2 2 marksCandidate demonstrates goodunderstanding.

3–2 marksCandidate explains effectively in relation tothe scenario.

Level 1 1 markCandidate demonstrates limitedunderstanding.

1 markCandidate attempts to explain in relation tothe scenario.


• Falling value of the pound against the euro means that :

• UK exports to the EU will become cheaper in euros

• the cost of importing products from the EU countries using the euro will increase.

• Companies purchasing goods and services from the EU may expect rising costs and falling sales andmay lay off staff, adding to increases in UK unemployment.

2. Analyse the possible reasons why National Express has decided to cut its costs given the changes in theeconomic environment described in the passage. (8 marks)

Content2 marks

Application3 marks

Analysis3 marks

Level 3 3 marksCandidate applies knowledgeeffectively to the scenario.




2 marksReasonable analysis ofargument.





• The economic environment comprises factors such as interest and exchange rates, the business cycle,inflation and unemployment.

• National Express may expect a fall in sales as unemployment rises and people opt to travel less.Therefore it is necessary to cut costs in expectation of falling revenue.

• May feel that it will need to be able to reduce prices in these particular economic circumstances. Thiswill require it to cut costs if it is to maintain profit margins.

• May have taken the decision to cut its less profitable services in this situation.


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3. Discuss the ways in which the lorry manufacturer Leyland might be affected by the recession in the UK.(12 marks)


• A recession is characterised by falling levels of demand and declining levels of output and employmentover at least a six-month period.

• The company will experience a fall in sales as other businesses seek to reduce costs and delay thepurchase of non-current assets.

• The company may find that it has a build-up of inventories (stocks) of unsold vehicles.

• May be necessary for Leyland to reduce its production levels for some period of time until demandrecovers.

• May attempt to sell more vehicles in markets where growth is still occurring, such as China.

• The impact on the company will probably be significant as it sells expensive products, the purchase ofwhich can be postponed in many cases.

Content2 marks

Application3 marks

Analysis3 marks

Evaluation4 marks

Level 3 3 marksCandidate appliesknowledge effectivelyto the scenario.


4 marksCandidate offersjudgement plus fulljustification.



2 marksReasonable analysisof argument.



1 markCandidate attemptsto apply knowledgeto the scenario.


1 markCandidate offersundevelopedjudgement based onevidence.


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• A recession is characterised by falling levels of demand and declining levels of output and employmentover at least a six-month period.

• Businesses can respond by reducing production levels to match the expected fall in demand, as in thecase of National Express.

• Manufacturing businesses such as Leyland may stock surplus products in anticipation of rising sales atsome future period.

• May decide to cut prices in an attempt to maintain sales.

• May focus its marketing efforts on other countries or markets in which sales might be more buoyant.Banks may seek to sell more savings accounts or manufacturers may seek to sell more goods in coun-tries such as India where demand is not falling.

• The response will depend on the extent to which the company is affected by falling sales in a recession– income elasticity will play a part here.

• Service industries such as banks do not have the option of stockpiling products.


Content3 marks

Application3 marks

Analysis4 marks

Evaluation5 marks














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4. Do you think that all businesses should respond in the same way to the onset of a recession? Justify yourview. (15 marks)


Content2 marks

Application3 marks

Level 2 2 marksCandidate demonstrates goodunderstanding.


Level 1 1 markCandidate demonstrates limitedunderstanding.

1 markCandidate attempts to explain in relation tothe scenario.



• Offers Tesco the chance to increase sales and profits by entering new markets such as China.

• Globalisation of markets offers Tesco the opportunity to purchase supplies of food and other productsfrom different, and possibly cheaper, sources.

2. Analyse the possible disadvantages to Tesco of the globalisation of the groceries market. (8 marks)

Content2 marks

Application3 marks

Analysis3 marks












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CASE STUDY

Questions1. Explain one possible effect on Tesco of the globalisation of world markets. (5 marks)



• Might lack experience in terms of operating a very large retail business.

• Consumers in China are enjoying rising incomes and their pattern of expenditure might change toinclude products which Tesco has more experience of selling.

• Ting Hsin might have experienced difficulties in competing with companies such as Carrefour andWal-Mart, and an alliance with Tesco might help it to overcome this.

• Tesco may have offered a very attractive financial package.

• Ting Hsin may have been concerned about the possibility of a takeover by a global retailer such asCarrefour.

• The precise reason may depend on the objectives that are being pursed by Ting Hsin – it may be plan-ning to grow.

Content2 marks

Application3 marks

Analysis3 marks

Evaluation4 marks













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• The company can face tougher competition from other large firms operating in global markets, suchas Wal-Mart.

• May be subject to fluctuations in exchange rates, leading to difficulties in forecasting costs and profits.

• Expectations of consumers in different countries are likely to be very different, especially in terms offoods that they eat. This can make expansion more difficult and costly.

3. Discuss the possible reasons why Ting Hsin might have agreed to the deal with Tesco. (12 marks)


• A strategy is a medium- to long-term plan used by a company to achieve its objectives.

• The Chinese market is an attractive one for a retailer because it is very large and incomes are growingquickly.

• Expansion into China fits with Tesco’s strategy of overseas expansion.

• The company clearly has experience of operating in different markets, including Asian ones (SouthKorea, Taiwan and Japan).

• Very competitive market – Wal-Mart and Carrefour are already there and presumably established to agreater degree than Tesco.

• Chinese consumers will not recognise the Tesco brand, and what worked in other Asian countries maynot be successful in China.

• Relatively low-risk strategy for Tesco: the sums involved are small for the company and it is a jointventure with an established and successful Chinese retailer.


Content3 marks

Application3 marks

Analysis4 marks

Evaluation5 marks














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4. To what extent does Tesco’s decision to move to China represent a sensible strategy for the company? (15marks)

BUSINESS IN FOCUS

Question:In what ways might a major UK supermarket, such as J Sainsbury, be affected by the reduction in interestrates mentioned in the article?


• The company might experience rising sales for some of its products, but not basic foodstuffs, althoughthis rise may be minimal in the recession.

• It may be cheaper for the supermarket to fund its borrowing, thereby reducing its expenses.

• However, some consumers may be alarmed by the size of the cut and the very low rate. This may resultin more saving and less sales.

BUSINESS IN FOCUS

Question:Discuss whether the apparent success of the minimum wage suggests that the government should play alarger role in determining pay rates for other groups, such as directors.


• This Act has protected vulnerable people with few employment skills – other vulnerable groups existas well.

• Some groups are considered to receive excessive pay (e.g. some company directors), and governmentcontrols could limit this.

• Labour markets are increasingly global and the UK government cannot interfere without risking theloss of talented employees to less regulated labour markets overseas.

• UK governments may not have the necessary knowledge to set wages in what can be complex andvolatile markets.

BUSINESS IN FOCUS

Question:British Airways won this case, but in what ways might the company have suffered as a result of it?


• Corporate image may have been damaged by the publicity surrounding this case.


AQA Business Studies for A2

Businesses and the political and legal environment 20Cha

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• The workforce may be less motivated following this case.

• May find it more difficult to attract top-quality employees if it is regarded as dictatorial on such issues.

• May suffer increased labour turnover as a consequence of this case.

BUSINESS IN FOCUS

Question:Is a fine the most effective way of controlling pollution by large businesses such as Anglian Water plc?

• The fine will increase the business’s costs of production and may lead to it altering its behaviour.

• The adverse publicity surrounding such cases may also act as a deterrent.

• These fines appear relatively small to a large public limited company and may have little effect.

• It may depend on whether the size of the fine exceeds the financial benefit from the polluting behav-iour.

BUSINESS IN FOCUS

Question:What problems might a business experience when relocating to another country during a period of reces-sion in the UK?


• Likely to be an expensive choice of strategy.

• There will be a range of operational issues – culture and languages may be different.

• A business pursuing this strategy may be criticised for a lack of social responsibility (in terms of directand indirect employment) during a time of recession.

• Given the global nature of many markets, it may be that recession is taking place in other countries too.

PROGRESS QUESTIONS

1. Outline the difficulties a government may encounter when attempting to achieve its economic objectivessimultaneously. (7 marks)

• Policies designed to promote economic growth may make the attainment of price stability trickier toachieve.

• Reducing interest rates to lower rates of unemployment may increase the cost of imported componentsand raw materials, fuelling inflation.



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• Policies intended to suppress imports and improve the balance of payments may result in higherunemployment and lower rates of growth.

2. Distinguish between monetary and fiscal policy. (4 marks)

• Fiscal policy is the use of taxation and public expenditure to manage the level of economic activity.

• Monetary policy refers to controlling the amount of money and/or interest rates within the economyin order to achieve the desired level of economic activity.

3. Outline the possible effects of a fall in interest rates on a multinational business manufacturingconsumer durables such as televisions and freezers. (8 marks)

• The cost of servicing debts for the business would decrease.

• Demand for the firm’s products may rise because consumers are more likely to be employed or feelmore secure in their work and hence are prepared to purchase relatively expensive products such astelevisions.

• Electrical products are income elastic and rising income resulting from lower interest rates are likely toincrease sales.

4. Explain how a government might use fiscal policy to increase the level of economic activity. (7 marks)

• A reduction in direct taxation (e.g. reduced rates of income tax) will encourage spending and increasethe level of economic activity within the economy.

• Cutting rates of VAT or other indirect taxes will also increase sales and the level of activity within theeconomy.

• The government could increase its own spending (e.g. on social services, health or education) to havethe desired effect.

5. Outline two supply-side policies that a government may use. (6 marks)

• Attempting to improve the operation of UK labour markets in a variety of ways, including theprovision of training to reduce unemployment.

• Controlling the activities of trade unions may improve the operation of labour and goods markets.

• The government may reduce the state-owned provision of goods and services through privatisation.

• Freeing the operation of capital markets (as the EU has done) can be an important supply-sidemeasure.

6. Explain two possible employment laws that might increase the costs of UK businesses. (4 marks)


• The Minimum Wage Act will increase the labour costs of businesses, especially those that employ largenumbers of unskilled workers.

• The Disability Discrimination Act may increase costs because employers have to make ‘reasonable’changes to the workplace to allow disabled employees to work there.

• The Employment Relations Act may increase employment costs because by recognising a trade union



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an employer may have to pay higher wages because of the increased negotiating strength (and ability)of its workforce.

7. How might UK health and safety legislation help to make a workforce more productive? (6 marks)

• This legislation might result in fewer absences by employees due to illness or injury arising from acci-dents, thereby improving productivity.

• The levels of motivation of the workforce may be increased, e.g. employees’ safety needs may be met(Maslow), thereby increasing productivity.

• Having a good health and safety record might help a business to attract the most skilled (and produc-tive) employees.

8. Outline two ways in which business activities might be constrained by consumer protection legislation.(6 marks)


• Businesses are prohibited from selling unsafe products.

• Legislation prevents businesses from charging excessive rates of interest to consumers.

• Consumer protection laws state that a business must sell products in the quantities stated on packagingor elsewhere.

9. Explain two ways in which employment legislation might make the UK a less attractive location for foot-loose multinationals. (6 marks)


• Legislation such as the Minimum Wage Act will increase costs of production, especially for businessesemploying unskilled labour.

• Health and safety legislation may increase the number of unproductive employees a business needs,reducing the competitiveness of businesses opting to locate in the UK.

• Employment legislation might make it more difficult and/or expensive for an overseas business todismiss employees.

10. Explain two implications for UK businesses of the implementation of the National Minimum WageAct. (6 marks)


• Will increase the costs of employing labour for many businesses.

• May involve differences in wage rate differentials and therefore have knock-on effects on the pay ofother employees.

• Businesses may have to increase prices to maintain profit margins.

• Businesses may decide to reduce the amount of unskilled labour employed as a result of theimplementation of the Act.



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1. Analyse the effects of the expansion of the EU on a UK low-cost airline such as Ryanair. (10 marks)


• The airline might have more destinations as a result of this change – in effect increasing its productrange – as the new member states might provide cheap holiday destinations.

• The expansion of the EU could offer the low-cost airline sources of cheap labour – wage rates are muchlower.

• Low-cost airlines from Romania and Bulgaria will have access to the UK market.

Content3 marks

Application3 marks

Analysis4 marks











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• Businesses will benefit from rising demand for products.

• Incomes in these countries are forecast to rise rapidly in the future, providing important new sourcesof demand for the products of many UK businesses.

• These countries offer low-cost locations for production, or cheap migrant labour, assisting the pricecompetitiveness of UK businesses.

• Other EU businesses (e.g. from Germany or France) will benefit in similar ways to those in the UK,removing much of the competitive advantage.

• Domestic Eastern European businesses (which may have very low costs) could become fierce competi-tors for many UK businesses.

• Much depends on the type of UK business concerned – manufacturers of basic products may be mostunder threat, as demand for their products is likely to be price elastic.

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(b) To what extent do you think that UK businesses in general will benefit from the expansion of the EUeastwards? (15 marks)



• Health and safety legislation is laws intended to provide employees with a safe and secure workingenvironment.

• It might result in fewer absences by employees due to illness or injury arising from accidents – this isimportant for this business, given the risks to its employees.

• The levels of motivation of the workforce may be increased, e.g. employees’ safety needs may be met(Maslow), thereby increasing employee performance.

• Having a good health and safety record might help a business to attract the most skilled (and produc-tive) employees.

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2. (a) Examine the ways in which health and safety legislation might affect Cooper plc. (10 marks)



• Legislation is a framework of rules governing the ways in which businesses operate.

• Legislation in the UK and EU increases the costs of production for businesses that are located here, incontrast with those that may operate in other, less regulated, markets.

• Businesses may need to employ more unproductive employees to meet the demands of legislation.

• Consumers may have more confidence in purchasing goods and services produced under stricter legalguidelines, thereby increasing sales.

• Large businesses such as Coopers plc often operate in countries where UK and EU legislation does notapply.

• The impact will depend on whether the company is competing with companies based in other coun-tries with similar business laws.

CASE STUDY

Questions1. Explain, with the aid of examples, what is meant by the term ‘monetary policy’. (4 marks)

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(b) To what extent do you agree with view that UK and EU legislation always disadvantages businessessuch as Coopers plc? (15 marks)


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• Monetary policy refers to controlling the amount of money and/or interest rates within the economyin order to achieve the desired level of economic activity.

• A ‘big reduction’ in interest rates will increase the level of spending and investing in the economy andtherefore the level of economic activity.

2. Analyse how the government expected its cut in VAT (from 17.5 per cent to 15 per cent) to improve theeconomic environment for high street retailers. (8 marks)

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• VAT is a UK sales (or indirect) tax.

• The cut was expected to lead to a reduction in prices for goods subject to the tax and therefore anincrease in sales for retailers.

• Increased sales should boost the retailers’ profits, as the amount they receive from each sale should beunchanged.

• The cut may also reduce the overhead costs incurred by retailers, e.g. the purchase of new deliveryvehicles.

• It was due to commence in December – a peak sales period for many retailers.


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3. Evaluate the other economic policy decisions the UK government could take to try to improve the econ-omic position of high street retailers. (12 marks)


• Could implement other types of fiscal policy designed to encourage taxpayers to spend more money,e.g. cuts in income tax rates.

• Could cut rates of corporation tax (tax on company profits) that are paid by businesses.

• Could offer subsidies to retailers if, for example, they maintain employment levels.

• Could offer direct financial support, perhaps in the form of loans, to retailers in financial difficulties.

• Many government policies would benefit businesses other than retailers.

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• Retailers may decide to not to change prices in line with the changes in VAT and to enjoy a higher profitmargin.

• They may continue with policies aimed at cutting costs, e.g. through closing less profitable stores.

• Some may succeed through strategies such as low costs.

• Because many retailers expect sales to continue to be weak, they may continue closing branches andeven entire businesses.

• Some may offer deals such as ‘buy now, pay later’ if they are able to borrow credit more cheaply.

• The impact of government policies and likely reactions will depend on the type of business, e.g.retailers selling expensive luxury products may be most heavily affected by the changes in the economicenvironment.

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4. Discuss the actions that major high street retailers might take in response to this economic environmentand the government’s policy decisions. (15 marks)

BUSINESS IN FOCUS

Question:Is it the fine or the fear of adverse publicity that is more likely to influence Shell’s actions?


• A fine of £54,000 is unlikely to deter a company as large as Shell, which makes enormous profits.

• The compensation payment to Anglian Water might have a greater impact on the company’s actions.

• Shell is considered to be part of the ‘polluting sector’ and is therefore vulnerable to claims of pollution.This may put it at a competitive disadvantage.

• Publicity is more likely to shape the company’s actions.

BUSINESS IN FOCUS

Question:Should the management teams at Sainsbury, Tesco and Marks & Spencer pay any attention to the results ofthis survey?


• Being high on this list (or rising up it) is free and positive publicity for the companies concerned.

• Experts have assessed some of the companies’ strategies, including marketing, as well as the quality ofproducts, and the results of these assessments should be treated seriously.

• There are many other criteria by which companies should be assessed, including ethical behaviour,social responsibility etc.

• Much depends on the amount of publicity accorded to this survey and the extent to which it influencesconsumers’ behaviour.

BUSINESS IN FOCUS

Question:What competitive benefits might Morrisons receive from publishing a CSR each year?


• It may receive positive publicity, as long as it achieves its targets.

• It may help to differentiate the company from the UK’s other large supermarkets.


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• It may allow the company some limited freedom in setting higher prices.

• The extent of the benefits depends on whether other supermarkets such as Tesco also publish CSRs.

BUSINESS IN FOCUS

Question:What risks might Renault be taking in responding to a change in the social environment in such a positivemanner?


• It has to invest heavily in research and may not be able to build on that carried out by other companies.

• Patterns of demand and preferences for cars might change, reducing potential sales.

• Other companies may produce better technology for electric cars and outperform Renault.

• This is a long-term strategy which is unlikely to offer any returns before 2012. Much can change oversuch a long timescale, increasing the degree of risk.

BUSINESS IN FOCUS

Question:Why might it have been easier for a relatively new business, such as Google, to operate ethically throughoutthe organisation?


• It can operate ethical policies from the start and devise an appropriate culture.

• As the small company grows it can hire staff with the right attitudes and expectations.

• All training programmes can contain ethical elements – the cost of this should not be excessive.

• Large businesses, especially those with high degrees of delegation, may experience difficulty in imple-menting ethical policies throughout the organisation.

PROGRESS QUESTIONS

1. What is meant by the term ‘social responsibility’? (3 marks)

• A business philosophy that emphasises that firms should behave as good citizens.

• Socially responsible businesses should not merely operate within the law, but should consider theeffects of their activities on society as a whole.



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2. Identify the interests that consumers and employees may have in a business. Why might these interestsclash? (7 marks)

• Consumers may want to have good-quality products at a reasonable and fair price.

• Consumers may want products that are technologically sophisticated and advanced.

• Employees are likely to seek safe and comfortable working conditions.

• Employees are likely to look for high rates of pay, training and secure employment.

• Paying employees higher wages or offering other benefits to them is likely to lead to higher costs andtherefore higher prices.

3. Outline the responsibilities that a retailer such as Tesco might have to its suppliers. (7 marks)

• It should pay its suppliers within a fair period of time and not cause cash-flow problems.

• It should pay fair prices to suppliers and not use its size to force unfair terms on smaller businesses.

• It has the responsibility to offer sufficient notice of changes in orders.

4. Explain two advantages that a business may receive from operating in a socially responsible manner. (6marks)


• May use its socially responsible behaviour as a unique selling point – can be useful when products inan industry are undifferentiated.

• Socially responsible businesses can often use this stance as a basis for charging higher prices, as demandfor their products may become less price elastic.

• It can be an effective strategy in attracting more able and productive employees.

5. Explain the possible ways in which a multinational manufacturing business might fulfil its social respon-sibilities. (7 marks)

• May seek to produce in its home country (thereby maintaining local employment) rather than relo-cating to countries with lower wage costs.

• May use sustainable resources in its manufacturing process, thereby protecting the wellbeing of futuregenerations.

• May treat its suppliers fairly, e.g. by paying promptly and reasonable prices.

• May take steps to minimise pollution, going beyond its legal obligations. By investing in the localcommunities in which it operates, e.g. building playschool facilities in less developed countries.

6. Outline the possible reasons why the business in question 5 might want to fulfil its social responsibili-ties. (7 marks)

• May assist the business in winning customers, especially if it is not as competitive in terms of prices asother firms in the market.

• Senior managers and owners may have a genuine desire to meet social needs.

• Customers may expect it to behave in a socially responsible manner.



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7. Explain the differences between a business that operates legally and one that operates ethically. (6 marks)

• A business operating legally avoids infringing any laws, e.g. those relating to employment.

• Ethical behaviour entails taking decisions and behaving in a way that is morally correct, e.g. a multi-national firm might take a decision to pay very low rates of pay to employees in a less developedcountry. This is not illegal, but may be regarded as unethical.

8. What difficulties might a large multinational business face when trying to implement an ethical code ofconduct? (8 marks)

• May face substantial training costs to provide employees with the necessary skills.

• It if operates wide spans of control and uses delegation widely, then implementing a centralised policyof ethical behaviour may be difficult.

• Will face practical difficulties in implementing an ethical policy in different countries and also prob-lems concerning what different cultures consider to be ethical.

9. Explain why ethical behaviour by businesses is increasingly important as a competitive weapon. (8marks)

• Increasingly, consumers in western economies are expecting businesses to behave ethically in all aspectsof trading.

• It can be a cost-effective form of differentiation for businesses.

• Governments expect businesses to behave ethically and have ‘pushed’ them in this direction by, e.g.setting up the Cadbury Committee.

• Behaving ethically reduces (or may eliminate) the chance of a business receiving adverse publicity as aresult of unethical actions.

10. What factors might prevent an ethical business from being highly profitable? (6 marks)

• Ethical behaviour might increase the business’s training costs.

• It might increase other costs, e.g. using sustainable resources in manufacturing.

• Behaving ethically may mean that a business has to charge lower prices.

• An ethical business might contribute towards community schemes, especially in less developed coun-tries.



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• The adverse publicity (and possible loss of sales) that arises from the business’s air pollution.

• Falling sales and profits may make it more difficult for the company to maintain its level of employ-ment, given that it operates with slim profit margins.

• Low profit margins may also mean that the company may not be able to afford the more expensive, lesspolluting aircraft.

• The company may be forced to raise its prices, excluding customers on lower incomes.

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1. (a) Analyse social factors that may affect a low-cost airline based in the UK, such as BudgetFly, over thenext few years. (10 marks)



• Social responsibility is a business philosophy that emphasises that firms should behave as good citizens.

• By being seen as socially responsible, the company may be able to win customers from other airlinesthat may not be viewed in this way.

• Being socially responsible may assist the airline in attracting high-calibre employees who want to workfor such a company.

• The company does not need to be socially responsible and to use this as a USP, as it differentiates itselfthrough low prices.

• The company may not be able to afford to implement other socially responsible policies, as its profitmargins are so slim.

• Opting to be socially responsible may muddle the company’s strategy in the public’s eye – MichaelPorter warns against this.

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(b) To what extent do you think it is essential for BudgetFly to be seen to be a socially responsible busi-ness? (15 marks)



• An ethical business takes decisions on moral grounds rather than simply seeking to make the highestpossible profits.

• Rickshaw Graves is a smaller business than many of its rivals and cannot compete in terms of price(commission levels) and so needs a USP.

• Ethical investment is a niche market in which larger investment companies may not be interested, less-ening the degree of competition.

• Taking this ethical stance has allowed Rickshaw Graves to engage in premium pricing, with positiveimplications for its profits.

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2. (a) Examine the reason why Rickshaw Graves might have decided on a policy of ethical investment. (10marks)



• The company may be able to invest in profitable companies, as some ethical businesses are financiallysuccessful.

• Rickshaw Graves may attract higher than expected numbers of customers because of the increasingpopularity of ethical consumerism.

• Some investment opportunities will be excluded to Rickshaw Graves and these could be exceptionallyprofitable, e.g. if businesses are not using more expensive sustainable resources.

• Bigger competitors may be able to win more customers because of lower charges for commission andfees.

• What is successful in this context? Is it measured solely by financial returns?

CASE STUDY

Questions1. Explain, with the aid of examples, what is meant by ‘unethical actions’. (6 marks)

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(b) To what extent do you agree with view that Rickshaw Graves is certain to be less successful than itscompetitors? (15 marks)



• Unethical actions do not take into account any moral dimension of the situation.

• An unethical action for Wal-Mart might be to open a large store and to set prices very low, leading tothe closure of smaller competitors’ shops.

• An unethical action might be for the company to pay minimum wages to its employees while earninghigh levels of profits.

2. Analyse the social responsibilities that Wal-Mart might have during a period of recession. (8 marks)

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• Wal-Mart could have a responsibility to maintain its level of employment wherever possible, even atthe expense of profits.

• The company could be expected to treat its suppliers fairly during difficult times, e.g. by paying fairprices and settling accounts promptly.

• It should not increase the prices of its products without good reason, especially for basic foodstuffs.


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3. To what extent is it impossible for a business the size of Wal-Mart to implement an ethical code ofconduct successfully. (11 marks)



• An ethical code of practice states how a business believes that its employees should respond to situ-ations that might challenge the values of the business.

• The business is very large, with 1.2 million employees worldwide, and the size and different countriestogether make it difficult to operate such a centralised policy.

• This is a very recent decision at a senior level and will take time (and money invested in training) tomake decision making at all levels within the business ethical.

• The company is very profitable and can afford to invest in training, if necessary.

• Wal-Mart has been criticised for allegedly lacking an ethical dimension in its decision making. Thismight be a very effective way of improving the company’s performance.

• If senior managers are committed and make resources available, this is a feasible strategy.

• Is this just a PR exercise to keep sales up as far as possible in a recession?

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• The company is seeking to expand in countries other than the United States where social responsibilityis more important to gain customer loyalty.

• It may help the company to increase its profitability in the long term if it can increase its prices as aresult of this new strategy.

• Wal-Mart’s customers expect low prices and their demand may be strongly price elastic, suggesting thatsocial responsibility may not be effective if it results in higher prices.

• The chief executive is due to retire and his successor may have an entirely different attitude towardssocial responsibility.

• Much depends on what objectives the company is pursuing. If, for example, they emphasise short-termprofitability this may not be appropriate.

• However, if its objectives relate to overseas growth, social responsibility may be an important part ofits future strategy.

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4. Discuss the case for and against Wal-Mart’s apparent decision to become more socially responsible. (15marks)

BUSINESS IN FOCUS

Question:In what ways does Google’s culture assist the business in embracing technological change?


• The company recruits the most able employees, helping with the development of new technologies.

• The culture that allows employees to communicate freely can help to develop new ideas and to becomefamiliar with new technology.

• The flat hierarchy and task-based approach assist in disseminating new ideas and in discussing andaccepting them.

• Employees feel that they have the ability to comment on and contribute to all types of changes,including those relating to technology.

BUSINESS IN FOCUS

Question:How might Shop Direct Group Ltd have lessened the impact of this change on the business through plan-ning?


• The company is beginning its negotiations with employees at a very late stage in the process, allowinglittle time for adjustments in the workforce.

• Involving employees in the planning process may have reduced the chances of the company’semployees rejecting the training, as they would feel some ownership of it.

• The company may have been able to be more proactive in increasing online sales, lessening the impacton employment levels.

BUSINESS IN FOCUS

Question:Why does the emergence of Li Ning represent a significant change in the competitive environment ofcompanies such as Nike and Adidas?




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• Li Ning’s domestic market (China) is very large, enabling the company to achieve high sales (andeconomies of scale) without operating in overseas markets.

• Many Chinese consumers will prefer to buy Chinese products and there are many millions of theseconsumers!

• Li Ning is targeting the US market, as is evidenced by the company’s sponsorship deals.

• The company’s prices appear to be lower than major rivals such as Nike and Adidas.

BUSINESS IN FOCUS

Question:Why might the Chinese authorities oppose this takeover bid?


• The Chinese authorities may want to maintain a high level of competition in the domestic market forsoft drinks.

• The Chinese may not wish profits from the sale of drinks in China to be sent back to America –especially as this market is growing quickly.

• The government of China may wish to have its major industries owned by Chinese people rather thanforeigners.

• If Huiyan can increase its size it may become another successful Chinese exporter.

BUSINESS IN FOCUS

Question:What benefits might small suppliers receive from dealing with large supermarket chains?


• Large supermarkets may place very large orders, offering an outlet for a high proportion of smallsuppliers’ output.

• High sales may compensate for low profit margins.

• Supermarkets may take time to pay, but are creditworthy and not high risk.

• Being on sale in a large supermarket can help to develop brand recognition.

• Supermarkets may offer advice on product range and presentation.



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PROGRESS QUESTIONS

1. Outline two major technological changes that have affected UK businesses since 2000. (4 marks)

• The development of the internet as a means of advertising and selling products.

• Advances in mobile phone technology based on 3G phones.

• The innovation of hybrid vehicles using a mix of petrol and electricity as sources of power.

• Self-cleaning glass for use in tower blocks and other inaccessible places.

2. Technological change can affect products and processes. Carefully distinguish between these two typesof technological change. (4 marks)

• Change in products provides new goods and services for firms to sell, e.g. digital televisions.

• Technological change in relation to processes provides more efficient or cheaper ways to produce goodsand services, e.g. computer-based stock control or robotic methods of production.

3. Examine the ways in which technological change can result in opportunities for businesses offering serv-ices. (6 marks)

• It can offer a wider market, e.g. by using the internet.

• Offers new methods of providing services, e.g. internet banking.

• Offersnewprocesses,suchasdigitalphotographybeingusedindentistry,givingimmediatepicturesof teeth.

• Mobile phones represent a service that is relatively new and based entirely on technological develop-ments.

4. Explain the difficulties a business might face if trading in a market subject to rapid changes in tech-nology. (6 marks)

• Considerable capital outlay on new technology.

• Further costs in retraining of staff to use the new technology.

• The possibility of its products rapidly becoming obsolete.

• The need for substantial investment in research and development to maintain position in market.

5. Explain what is meant by a business’s ‘competitive environment’. (4 marks)

It is made up of a number of factors:

• the power of rivals and potential rivals in a battle to win customers and market share

• but also customers and suppliers and the influence that they wield.

6. Why might the entry of a new firm into a market change the competitive environment for establishedproducers? (6 marks)

• Poses an obvious threat to existing firms.

• A new business is likely to take at least some customers from the firms already trading on the marketand this becomes more likely if the market is not growing.



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• Might lead to price reductions and lower profit margins.

• The new business might provide more advanced products, meaning that price becomes a lessimportant element in competition.

7. How does the existence of a small number of large supermarkets in the UK affect the competitiveenvironment of small suppliers to the UK grocery market? (8 marks)

• Makes it difficult for small retailers to compete in terms of price because the larger businesses benefitfrom economies of scale.

• Small grocery retailers may not be able to provide the range of services offered by large supermarketchains, e.g. free cash-point facilities.

• Small grocery retailers might be forced to develop USPs such as customer service or opening hours.

8. In what ways might the UK government influence the competitive environment in which businessesoperate? (6 marks)

• Operates rules relating to monopoly power through the work of the Competition Commission and theOffice of Fair Trading.

• UK and EU laws on price fixing will affect the competitive environment in which most businessestrade.

• It can fund vocational training for employees in the retail industry, thus offering some support tosmaller retailers.

9. What possible effects might a dominant and large supplier have on a small manufacturing business? (8marks)

• Controls prices, and this power is increased if the product it supplies has few or no substitutes.

• A policy of increasing prices as the supplier’s market power increases can squeeze the business’s profitmargins.

• The quality of the supplies may not always be of the standard required by the small manufacturer.

• The supplier may be under little pressure to meet the small manufacturer’s delivery deadlines.

10. What factors make the UK airline market highly competitive? (8 marks)

• There is a relatively large number of airlines operating in the UK.

• Some businesses compete in terms of price – others compete through differentiated products.

• There is more than a single airline operating on most routes (or very similar routes), so consumershave choice.

• The internet and comparison websites make it easy for consumers to compare prices and products.


1. (a) Analyse the benefits that MyTravel might receive from being one of the biggest businesses in the UKtravel agency market. (10 marks)



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• It will be able to determine prices to a great extent as the price leader.

• Will receive the benefits of economies of scale, allowing it to offer lower prices or to enjoy higher profitmargins.

• May be large enough to negotiate exclusive deals with popular hotels, buying up all their rooms andpreventing rivals from offering these holidays.

• Able to offer tourists a wider range of services such as free resort guides, increasing its competitiveness.

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• The technological environment refers to the ways in which businesses can use all forms of technology,in production processes as well as the basis for new goods and services.

• MyTravel has benefited operationally in that technology provides it with instant booking systems withairlines and hotels, allowing it to confirm prices and availability for customers immediately.

• The internet has allowed the company to promote and sell its products without the costs of main-taining and operating shops.

• It can use its website to sell other businesses’ products, e.g. car hire. It will receive commission fromsuch sales.

• Other small travel agencies can take advantage of the same technological systems and compete directlywith MyTravel. In effect, technological change has led to lower barriers to entry to this industry.

• MyTravel may have higher overheads than some new entrants to the industry.

• Much depends on the extent to which MyTravel embraces the new technology and uses it to reducecosts and improve its performance.

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(b) To what extent do you think MyTravel has benefited from recent changes in the technologicalenvironment? (15 marks)



• Technological change relates to the use of technology in innovative ways in producing goods and serv-ices and in the products themselves.

• Danton plc’s productivity levels have declined below those of other similar manufacturers – the use ofproduction-line technology may be one way to remedy this.

• It could seek to develop new innovative products based on the latest technology (e.g. biodegradablepackaging) to compete with larger and more efficient rivals.

• May use the latest technology to assist in effective stock control, reducing its holdings of stocks andassociated costs.

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2. (a) Examine the ways in which technological change may provide an opportunity to Danton Ltd. (10marks)



• A business’s competitive environment includes the power of rivals and potential rivals that the busi-ness faces in a battle to win customers and market share, and also its customers and its suppliers andthe influence they exercise.

• Danton plc may need to develop a strategy based on differentiation given its lack of scale, e.g. providingenvironmentally friendly products.

• May seek to operate in less competitive markets, e.g. the EU.

• Could seek to merge with a competitor to increase its market share and market power.

• Might abandon its plans to expand to the EU and seek to implement strategies to strengthen itsposition in its existing market.

• The choice of action will depend on the objectives of the business and the attitudes of senior managers.

CASE STUDY

Questions1. Explain how the changing technological environment in which UK supermarkets operate might influ-

ence their marketing activities. (7 marks)

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(b) Discuss the actions that Danton Ltd might take in response to its changing competitive environ-ment. (15 marks)


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• Marketing is the process of identifying, anticipating and satisfying the needs of customers in a mutu-ally beneficial exchange process.

• The supermarkets may use technology to collect market research information, e.g. through loyaltycards.

• The supermarkets are investing more marketing resources in attempting to attract customers to usetheir online shopping services.

2. Analyse how Tesco, as the dominant business in the grocery market, influences its competitive environ-ment. (8 marks)

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• A business’s competitive environment includes the power of rivals and the potential rivals that thebusiness faces in a battle to win customers and market share, and also its customers and its suppliersand the influence they exercise.

• A dominant business is able to have a substantial influence over market prices and in some cases maydetermine them, with other less powerful firms following its lead.

• Tesco is arguably the market leader in terms of setting prices. It is likely to initiate changes in prices.

• The company is at the forefront of new developments in grocery retailing – this is why it is the marketleader in online retailing.

3. Discuss the major factors that make up Asda’s competitive environment. (11 marks)

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• A business’s competitive environment includes the power of rivals and the potential rivals that thebusiness faces in a battle to win customers and market share, and also its customers and its suppliersand the influence they exercise.

• The company’s suppliers are an important part of its competitive environment. Asda sells a wide rangeof products and will have a large number of suppliers – some large and some small.

• The supermarket’s rivals are arguably the most important element of the competitive environment forthis company. It is not the dominant business in its market.

• Customers are an important part of this environment. Their buying power is slowly increasing andtheir demands change over time.

• The government and EU authorities influence Asda’s competitive environment, e.g. by preventingrivals such as Tesco from becoming even more dominant.


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• The situation is clouded to some extent as Asda is owned by Wal-Mart (the world’s largest retailer).This gives Asda more competitive power than might be apparent at first.

4. Do you think that the technological environment poses a threat or an opportunity for Sainsbury’s?Justify your view. (13 marks)

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• Sainsbury’s sales in the online market are lower than Tesco’s, which must offer a chance for growth.

• The company can use technology to provide grocery supplies in areas where it may not have a super-market, thereby expanding its market.

• Tesco has a lead in this element of the market and Sainsbury’s may struggle to compete, as it appearsto have been a later entrant to this particular market.

• Tesco and Asda are both larger than Sainsbury’s (remember Wal-Mart) and this gives them more accessto funds for technological developments.

• In the short term it may pose a threat; longer term it could offer an opportunity, depending on thestrategies that Sainsbury’s adopts.


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section5:assessingchangesinthebusinessenvironment … · business in focus question: what actions...

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