1.3 Changing business environment 1.3.1: Government influence over decision making by using economic policy measures UNIT 1.1 1.3 Changing business environment Target Learning Objective Outcome Who? Keywords ALL State the role of the government in influencing decisions within local, national and international contexts and explain how business may react Identify need for intervention Show understanding of the impact of intervention in terms of business decisions e.g. what is produced and how Give examples of intervention both to support and control the impact of business activity on people, the economy and the environment • • • • • • Know how interest rates affect business Know how different tax changes affect business Understand how business decisions will be affected by such changes MOST Demonstrate an awareness of the impact that tax and interest rate changes might have on business decisions C B SOME Direct Tax Fiscal Policies GDP Indirect tax Inflation Monetary Policies • Money Supply • Public Expenditure Starter Pg 39 Question 1 - 4 Governments intervene • Many governments intervene in their national economies to achieve four main objectives • low and stable price inflation • high and stable employment • economic growth in national output and income a favourable balance of international trade and balance of payments .. Add from the list on page 39 of your text book Policy instruments • Governments use policy instruments to influence consumer spending and business decisions to help achieve their economic objectives. They include: • varying the level of public expenditure (fiscal policy) • changes in direct and indirect taxes, and the overall level of taxation (fiscal policy) • changing interest rates (Monetary policies) • introducing laws and regulations Policy instruments • Fiscal Policy - Public expenditure (income & expenditure) • Monetary policies (interest rates) In pairs 1. How does a government get its money? 2. How does the government spend its Money? 3. How do changes in taxation affect business? Spider diagram/ bullet point pg 40 Policy instruments • Raising public expenditure, cutting direct taxes and lowering interest rates… • …. can increase total demand for goods and services, boost business investment, output and employment creation. • However, these measures may increase the demand for imports and cause prices to rise. Effect business? • Changes in indirect taxes on the prices of some goods and services can directly influence consumer spending on those products and therefore the sales of busineses supplying them. • Laws and regulations can be used to control or even outlaw some Policy instruments • Monetary policies (interest rates) How is money supply controlled? How do the changes affect business? Pg 42 Gross domestic product (GDP) • The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. • It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory. • It represents the total dollar value of all goods and services produced over a specific time period http://www.youtube.com/watch?v=Aiz6P0Efy bU (5mins) Economic Growth • Gross Domestic Product (GDP) Singapore: $239.7 Billion Explained: Pg 42 p • In every country the government intervenes in economic activity. • Reasons for intervention includes provisions of essential services and protecting weaker members of society • Examples of government intervention include taxes and subsidies and running services such as public transport. • Taxes earn large revenues for governments; they also discourage certain types of activity. • A Subsidy is a payment to encourage certain activities • Rises in interests rates can reduce profits; a fall encourages borrowing and can lead to more spending. 1.3.2 IMPACT ON TECHNOLOGY • What is IT? • Pg 44 1.3.2 IMPACT ON TECHNOLOGY • Technology has affected all aspects of business functions. • How do you think the internet, which has affected Businesses? 1.3.2 IMPACT ON TECHNOLOGY • Human resource management (recruitment process has become online), • Marketing (such as e-commerce), • Finance (annual reports are now publicized online) • Operations management (such as access to benchmarking data). Technological opportunities and threats There are always positives and negatives! …….opportunities and threats 1.3.2 IMPACT ON TECHNOLOGY Research and development (R&D) can lead to: • new products, • processes and • materials • can give a business a competitive advantage over rival organizations. • However, R&D can be expensive and not all new discoveries and developments succeed. 1.3.2 IMPACT ON TECHNOLOGY New technologies can • save labour, • reduce costs, • increase quality and • make production more efficient. However, costs of buying or hiring new technologically advanced machines, like robots and other advanced equipment, can be high. Workers may also need retraining. 1.3.2 IMPACT ON TECHNOLOGY • The increasing speed at which technological change is taking place means many more products and processes are becoming out of date and being replaced with new ones at an increasing rate. Technological opportunities Opportunities presented by technology: • New working practices: • Increased productivity and efficiency • Quicker product development time • Newer products and new markets: • The creation of jobs Technological opportunities • Many large firms use technology to increase efficiency and accuracy. • E.g Toyota Car Production Line, production line is lined with machines which specialize in putting the car components together. Threats presented by technology • Insecurity and risk • Costly • Job loss Business need to ask themselves… • Cost: expensive cost of purchase, installation, replacement and insurance of new technology • Benefits: gains in efficiency and profits by using technology in the production process • Human relations- impact of technology on staff morale, workforce planning and resistance to change. Technology might threaten job security and put people out of work. • Recruitment and training- cost of training employees to use the technology Developments in IT • • • • • • • Write a brief note on the impact of: Internet Email Broadband Mobile phone Network New technology in production & provide services Pg 45 - 46 1.3.2 IMPACT ON TECHNOLOGY • The Internet is a powerful sales and marketing tool in business. Many businesses can reduce their costs, increase sales, and improve their productivity and competitiveness using E-commerce. • E-commerce offers consumers increased choice and increases competition between businesses, but online fraud is increasing. • Threats pg 47-48 1.3.2 IMPACT ON TECHNOLOGY • Workers and trade unions may resist the introduction of new technologies if it threatens their jobs. • New technologies have replaced many tasks originally undertaken by labour but have also created a demand for new skills, for example in computer software engineering, website design and ‘green’ technologies. p • Technology involves the application of new knowledge. Businesses apply new technologies to create new products. • New technology can reduce costs; they change the way in which goods are produced and often lead to saving of labour. • New technologies can damage business that fail to adapt. • Business can use e-commerce to sell to a wider market. • There is an initial cost in setting up a website, but once established it opens the potential to a global market. • The website needs to be easy to operate, and easy for customers to make payments. 1.3.3 Business reaction to market changes Activity: pg 51 1.3.3 Business reaction to market changes • Consumer spending patterns are always changing. • A good business will try to predict the products and product features consumers will want in the future and supply them before rival firms do. 1.3.3 Business reaction to market changes • To analyse market trends it is important to know what is causing them and what factors may cause them to change in the future. • Changes in income, the cost and availability of credit, populations, social and cultural factors, advertising, tastes and fashions, seasonal factors and laws and regulations can all affect consumer demand and spending patterns. 1.3.3 Business reaction to market changes Changes in: • income, • the cost and • availability of credit, • populations, • social and cultural factors, • advertising, tastes and fashions, • seasonal factors and • laws and regulations …..can all affect consumer demand and spending patterns. 1.3.3 Business reaction to market changes • Competition to supply the markets for many goods and services is growing. Business growth in newly industrialized economies, such as China and India, and technological change are driving this trend. • Increasing price competition and non-price competition can lower prices and improve the quality of products and choice for consumers. 1.3.3 Business reaction to market changes • Competition forces businesses to innovate, increase their productivity and cut costs, but not all businesses will survive destructive competition. Activity: • What influences demand? • Activity 8.1 p • Consumer spending patterns change in response to changes in income and life style choices. • In competitive markets, business must aim to offer higher quality and lower prices than rivals.