PESTLE changes

  • Created by: Leary103
  • Created on: 15-01-21 06:37

UK and EU law on competition

  • Anti-competitive agreements - both the UK and the EU competition law prohibit agreements and arrangements that prevent, restrict or distort competition and which affect or may affect trade within the UK or the EU
  • Abuse of dominant market position - both the UK and EU competition law prohibit businesses with significant market power from unfairly exploiting their strong market position (dominant position  40%). E.g. imposing unfair trading terms; excessive, predatory, or discriminatory pricing; requiring a buyer who wishes to purchase one product to also purchase other products
  • Merger Control - merger, acquisition, or joint venture can be subject to review by UK or EU competition authorities to assess whether it will reduce competition in the market to a significant extent
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Changes in political environment in business

  • Government policy relating to enterprise - a more encouraging approach to enterprise enables more new business to set up and trade and ensures that existing businesses receive more support. This encourages businesses to take strategic decisions that involve more risk-taking and more innovative approaches
  • Government policy relating to regulators - ensure that strategic decisions taken by a business in the relevant area are in the public interest of fair competition. This means that tactical decisions do not exploit a particular business' dominant position in a market
  • Government policy relating to infrastructure - improved infrastructure will allow businesses to benefit in terms of faster and more efficient transport and communication links. This will have an impact on costs and prices charged
  • Government policy relating to the environment - the extent to which government policy protects the government and promotes green and ethical approach to business will have a significant influence on the decisions made by businesses.
  • Government policy relating to international trade 
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UK Legislation

  • Fair trading Act 1973 - considers whether takeover bids should be investigated by the Competition Commission on the grounds of being against public interest; to investigate suspected anticompetitive practices (e.g. market-sharing agreements); to investigate existing monopolies
  • Competition Act 1998 - reformed and strengthened UK competition law by prohibiting anti-competitive behavior and raising the fines substantially that could be imposed on offending companies
  • The Competition Commission - a government-funded organisation that oversees and enforces laws that attempt to eliminate anti-competitive business practices in the UK
  • Enterprise Act 2002 - more transparent and accountable decision making by competition authorities; criminal sanctions to deter cartels; greater opportunities for victims of anti-competitive behaviour to regain redress; strengthening consumer protection measures
  • Competition and Markets Authority (CMA) - the intention is to ensure that more robust enforcement of the competition rules, with higher fines and criminal prosecutions in appropriate cases
  • The Financial Conduct Authority (FCA) - similar powers to the CMA, but in relation to competition in the financial services sector
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UK and EU law on the environment

  • Environment Protection Act 1990 - prevent pollution from emissions
  • Environment Act 1995 - required the secretary of state to prepare a national air quality strategy and a national waste strategy, and to improve the protection of hedgerows
  • The Waste and Emissions Trading Act 2003 - provision about waste and penalties for non-compliance with schemes for the trading emissions quotas
  • Climate Change Act 2008 - improve carbon management and help the transition towards a low-carbon economy in the UK. The introduction of legally binding targets for greenhouse gas and carbon dioxide emissions
  • Energy Act 2013 - makes provisions for reforming the electricity market, encouraging low-carbon electricity generation, and ensuring the security of supply and storage
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Circular flow of Income

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Gross Domestic Product (GDP)

Gross Domestic Product (GDP) Definition: a measure of economic activity; the total value of a country's output over a given period of time, usually provided as quarterly or annual figures

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Economic Growth

The level of economic growth in an economy is influenced by a number of factors:

  • the exploitation of valuable natural resources
  • A well-educated and highly skilled workforce - improves productivity and generates economic growth
  • Increasing investment and new technology - enables firms to keep pace with other countries and so create economic growth
  • Government policy
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Impacts on businesses for changes in economic grow

  • Sales: higher levels of GDP = real incomes are higher = higher retail sales
  • Corporate profits: higher incomes = greater demands for goods and services = opportunities to generate higher profits
  • Investment: higher demand for goods and services = firms more likely to invest in expanding their operations AND higher demand for goods and services = rising share prices = easier to raise funds = higher profitability = greater retained profits
  • Employment: Either: overtime to employees - if the increase in demand is sustainable, then search for more employees OR search for employees with high skill level - if not enough of high skill level, have to pay higher wages = lower costs
  • Expansion
  • New products
  • Repositioning
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Exchange Rates

Exchange rates definition: the price of one country's currency in terms of other currencies

Free exchange rates: also known as floating exchange rates, freely floating exchange rates and flexible or fluctuating exchange rates; rate is determined by the demand for, and the supply of, the currency

Fixed exchange rates: when a government decides to fix the value of its currency permanently in relation to other currencies or to a single currency

An increase in exchange rates can result from:

  • an increase in exports, which increases the demand for the currency
  • a reduction in imports, which decrease the supply of the currency
  • high-interest rates, which attract saving from abroad and therefore increase demand for the currency
  • if speculators expect a currency to increase in value in the future, this is likely to cause an increase in the demand for the currency now
  • If foreign multi-nationals wish to invest in a country, they will need to buy its currency, which in turn will increase the demand for it
  • the government may buy the currency in order to support its value
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Inflation definition: an increase in the general levels of prices within an economy. Also means that there is a fall in the purchasing power of money

Deflation definition: a decrease in the general level of prices within an economy or a rise in the purchasing power of money

Hyperinflation definition: a situation where the value of money decreases so quickly that people lose confidence in it

Causes of inflation:

  • cost-push inflation (increase in costs of production causing an increase in prices)
  • demand-pull inflation (prices rise due to excess demand in the economy)
  • inflationary expectations (views over what will happen to the rate of inflation in the future)
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Impact of inflation

  • encourage borrowing if interest rates are less than the rate of inflation
  • As inflation rises, so do property prices, and the prices of stock - balance sheets look healthier as rising property and stock values boost reserves
  • A firm will find it easier to increase the price of its own products when prices are rising - coast increases can be passed on to the customer more easily
  • higher prices may mean lower sales, depending on the price elasticity of demand for particular products
  • producers of major brands that tend to sell at premium prices may suffer as inflation makes consumers more aware of the prices of different products
  • workers become more concerned about the level of their real wages
  • suppliers may increase prices for the goods and services they supply, adding further to a firm's costs and putting more pressure on a firm to increase its own prices
  • If inflation in the UK is higher than inflation in other countries, the international competitiveness of UK firms may be reduced
  • Forecasts for sales revenue and profits will become very difficult to make, and planning less reliable
  • When prices are changing quickly, businesses find it more difficult to keep track of competitors' pricing strategies
  • Cash flow is squeezed as the costs of new materials and equipment rise
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Impact of low rate of inflation

  • interest rates likely to be low if the rate of inflation is low
  • low rate of inflation relative to other countries is likely to meant that firms become more competitive in their export markets and int heir domestic markets against imports
  • low levels of inflation create more certainty in the economy, meaning businesses are able to plan ahead because prices can be predicted more easily
  • marketing and administrative costs will be lower, as there will be fewer price adjustments
  • more certainty means that there should be more time available for long-term strategic decision-making
  • Efficient firms survive and inefficient firms disappear
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Fiscal and Monetary Policy, Protectionism

Fiscal policy definition: the use of taxation and government expenditure to influence the economy

Monetary policy definition: Controlling the money supply and the rate of interest in order to influence the level of spending and demand in the economy

Protectionism definition: the extent to which a government uses controls to restrict the number of imports entering the country

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Globalisation definition: the increased integration and interdependence of national economies; it involves increased international trade, increased inward investment, and an increased role for global multinational companies

Reasons for greater globalisation of business:

  • growth of free trade areas
  • tariffs and other protectionist barriers have gradually been reduced in countries around the world, leading to an increase in world trade
  • The World Trade Organisation (WTO) has been instrumental in bringing about a more integrated and interdependent global economy
  • increased communication and improved transport have led to reduced barriers between countries
  • growth of large multinational firms creates increased opportunities for economies of scale, leading to lower prices for consumers
  • improved technology makes it easier to communicate and share information around the world
  • improved mobility of capital
  • increased mobility of labour - more people are willing to move between different countries in search for work
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Emerging Economies

Emerging Economies definition: developing countries that have the potential to grow and develop in terms of productive capacity and market opportunities; from an investment point of view, they are seen as developing countries, in which investment would be expected to achieve higher returns but be accompanied by greater risk 


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Social Change

Urbanisation definition: the increase in the proportion of people living in towns and cities

Migration definition: the permanent movement of people from one region to another; migration can be internal, that is within a country or international, that is between countries

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Corporate Social Responsibility (CSR)

CSR definition: the duties of an organisation towards employees, customers, society, and the environment; companies that accept their CSR usually do so by integrating social and environmental concerns into their business operations and their interactions with stakeholders

Reasons for CSR:

  • Improved financial performance
  • Reduced operating costs
  • Enhanced brand image and reputation
  • Increased sales and customer loyalty
  • Increased ability to attract and retain employees
  • Access to capital
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Carroll's CSR pyramid

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Technological Change

Technological change definition: adapting new applications of practical or mechanical sciences to industry and commerce; it includes information and communication technology (ICT), which is the creation, storing, and communication of information using microelectronics, computers, and telecommunications

Benefits of technological change:

  • improved efficiency and reduced waste
  • better products and services
  • new products and materials
  • advances in communication
  • improved working environment
  • wealth creation

Problems of technological change:

  • the cost of keeping up-to-date with the latest technology
  • knowing what new technology to buy and when to buy it
  • Industrial relations between employers and employees
  • Personnel issues
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Business Ethics

Advantages of ethical behaviour:

  • As consumers become better-informed and better educated about products, processes, and companies, they demand products and services that do not pollute, exploit or harm
  • Ethical behaviour can give companies a clear competitive advantage on which marketing activities can be based - offers USP
  • Firms that adopt ethical practises may also experience benefits in relation to their workforce

Problems with ethical positions:

  • Effect on profit - often incur extra costs
  • What is ethical? - people have different views on what is ethical
  • Communication of ethics within an organisation
  • Delegation and empowerment
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