Essay: External impacts on business

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  • Subject area(s): Business essays
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  • Published on: July 28, 2016
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  • External impacts on business
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Task 1
Political
politics how can politics impact on business?
Politics can have an impact on businesses through a range of ways, one of these could be through the government increasing the amount of money in which they spend on the country\’s education system. If this were to happen it should generate a larger amount of skilled workers in comparison to the education system with l as spent on it. Therefore making it easier for the upper echelon of businesses (for example: Aston Martin) to recruit as a result of the vast increase of skilled workers. This will also have a direct impact on tesco as they do not need specifically skilled workers in order to carry out the jobs in which they offer, and many of the skilled workers will feel that they are worth more than the jobs in which tesco offer because if they are skilled they should have a higher chance for working for a business that requires a skilled worker and would pay more in comparison to the business that doesn\’t require skilled workers. Another way in which politics can affect businesses is through competition commission, this is where the government set up a commission to make sure that there is competition in a certain market. this is because if there were to be a big takeover it would lead to a company dominating the market, so the government intervene in order to prevent this, it can also stop companies from purchasing other companies to stop them growing. the next way that politics can affect a business is through international trading communities, this is where if a person was to try and import/export or work in another country, there are some barriers to international trade. one of these are through tariffs, tariffs are a tax on imports and exports. within an international trade community there may be a large amount of countries, usually in order to join a trade community the country\’s government would enter an agreement with the other countries in order to help businesses by removing these barriers. But when a government enters this agreement it leads to a freedom of movement, meaning that people that live in the countries within the agreement they can migrate to any country within the agreement.
Taxes
when it comes to taxes for businesses, the government is the ultimate decider of the level of tax that businesses and people pay. the main tax that every employed person receives is income tax, which is a tax on earnings, this determines the amount of disposable income a person has in correlation to their income, this is because a person\’s earnings-income tax= disposable income. So by taxes having such a substantial effect on people if income tax was to increase it would lead to a decrease in disposable income for the public and therefore ultimately having a negative impact on businesses.
A this moment in time the income tax basic rate stands at 20% on salaries up to £31,785 and people with the standard personal allowance start paying this rate on income over £10,600. The higher rate stands at 40% this is for the people on salaries between £31,786 to £150,000, people with the standard personal allowance start paying this rate on income over £42,385. This leaves the additional rate of income tax which is 45% on salaries reaching over £150,000.
there\’s also a corporation tax which is a tax on a business\’s profits, all profit is taxed at 20%. this leads to many businesses using loopholes such as subsidiaries and tax havens in order to avoid this taxation in order for them to maximise the amount of profit and therefore disposable income the business receives. in this case tesco i9s better off in the UK this is because the public of the uk have a higher disposable income, due to their higher average national wage, so that they can charge higher prices to the UK’s public. with aston martin their isn\’t a country that they are better off in, this is because they sell a luxury good, and therefore only target the higher end earners so that there is no massive difference in the amount of high end earners between the UK and china.
Infrastructure
infrastructure can affect businesses through a range of ways, this is because if the trainlines of a country were to be improved by its government it will lead to businesses believing that they can employ people that would have to travel a large distance in order to work for them because they know that their employee can reach the business of ease. In china the government plans to spend a substantial amount of money on their road and rail lines this shows that they care for their infrastructure and understand that it is in need of improvement. on the other hand the UK are attempting to build a trainline that goes from birmingham straight to london, this shows that they also care for the country’s infrastructure.
the effect that this current spending will have on tesco is that because china are spending a lot of money on their roads, it will lead to their customers having easy access to their stores as the can drive their with ease. also if their were more road it will lead to more room for stores to be placed.
For aston martin infrastructure will play a key part in their business, this is because if roads were bad it may lead to customers not buying their product as they feel that they may waste their money as they may not use it due to the bad roads or lack of roads.
Social
Demographics (age)
in china, the number of young people in the country is decreasing. the company that would find this the hardest would be tescos, as they aim to employ young, unskilled workers. this is because they are willing to work. China have an ageing population, this is because of the 1 child policy that the chinese government brung to througission in 1980. but this law was dropped in 2013, because of this policy the number of people of working age is also decreasing, again making it harder to recruit the workforce in china has dropped by 3 million as a result of these factors. similarly to china the UK’s working population is predicted to drop by 7% by 2036 and the ageing population is predicted to increase.
this will have a vast effect on both tesco and aston martin, it will affect tesco as in china the number of young people is decreasing which is making it harder to recruit young people, and in the UK their is also an aging population which leading to the over 65’s increasing by 8% in recent years. which is leading to their target market increasing so this has a positive effect, but it also means the has a negative effect on tesco as it means that the working force is decreasing which means that there is a lower disposable income so that their wouldn\’t be as many customers willing to spend as much on their products. i don\’t believe that it will have much of an effect on aston martin
demographics (income)
the average yearly wage in the UK is roughly £26,500 in comparison to china where the average annual wage is £3,170. The reason that the Chinese average wage is so low is because there is a larger amount of poverty and farmers in China. This affects tescos because this means they\’ll have to charge different prices in the Uk as their customers have a higher amount of disposable income in comparison to some areas in China. However this wouldn\’t affect aston martin as their product is a luxury product and is therefore aimed at the higher class of both countries, so they will not have to change their prices.
Religion
In China the government restricts their public to be one of five religions. These five religions consist of: Buddhist, Catholic, Protestant, Islam and Taoism. In the UK you are allowed to follow any religion of your choice and to even not have any religious beliefs. This concerns Tesco as they may have to cater for the range of beliefs in the UK, as there are food in which certain religions do not eat, an example of this is muslims who do not eat pork, they replace pork by eating halal meat instead, so Tesco may have to think about selling Halal meat as a replacement to their pork in the highly populated muslim areas so that they maximise their sales as they would not sell pork in an area which has a high population of muslim people. Religion also affects Aston Martin, this is because one of the most popular religions in china, Buddhism, claim that the cow is a sacred animal. this affects aston martin as they may have interior leather seats which is made from cow skin, this would obviously offend a buddhist and therefore tarnish the reputation of Aston Martin, so they may have to make car seats out of a different material in different areas so that they avoid any inconvenient bother.
Education
There is a vast difference in the quality of education systems between China and the UK, this is proven by china being in the top 5 for near enough every academic results table compared to the UK not making the top 10 on near enough any. Although there is many factors which play a part in the difference of quality between the two countries education systems, the first of which being the difference in population, China have one of the largest populations in the world, hosting over 1 billion people where as the UK host around 80 million, this is a vast difference between the two countries. China have one of the highest poverty rates in the world which is due to the high amount of unskilled workers which may be a result of the fees that have to be paid in order for students to enroll at schools in china. Due to China having a good education system it means that a business such as aston martin can flourish, this is because they can employ more people of high skill in china compared to the UK where there isn\’t a high percentage of high skilled workers. This is because they need specialists in their field of work in order to carry out what the business needs in order to be successful. Although a business like Tesco is effective in the UK this is because they employ low skilled workers as it does not take an employee much skill in order to be a successful member of the organisation.
Attitude
In the UK many people are obsessed with branded names and big superstores, this means that businesses like Tesco and Aston martin are successful as they are well known names, also the public of the UK are very much affected by the price of products. This means that people from the UK would go to tescos due to the substantially lower price rather than go to a local store that may charge a higher price than tesco. But as China are a socialist country they tend to choose a homegrown business over that of foreign descent. this causes tesco to struggle as the public will rather go to a local store rather than them, even if tesco have a cheaper price as they would rather spend the extra money in order to help the native businesses.
Legal
Competition law
The competition law is a law put in place by the UK which seeks to maintain competition by ‘regulating anti-competitive conduct by companies’ this can be implemented publicly and privately.
In china they also have a law similar to this, they have a law that some industries are prohibited to have foreign competition industries but some have no restrictions when it comes to foreign competition. This is easily enforced as the government has a list of the industries in which foreigners can invest in and the industries in which they cannot. As a Result of this law many companies can\’t operate to its full capability such as aston martin, also there is many issues containing patents and copyrighting products, this has affected the company BMW, they have a product called the bmw x5 and as they are restricted from operating in china due to the law a chinese brand created a pretty much exact copy of the car and sold it on the market. This was soon brought to the attention of BMW who soon after filed a lawsuit.
Production/quality/safety laws
One of the production laws in the uk is the sales of goods act, which prohibits retailers from selling products that are not fit for purpose, they must be of satisfactory quality and must match the description of the product. This affects both Aston Martin and Tesco as they both sell products so they must make sure that they abide by these rules and avoid breaching the act.
The food safety act makes sure that food being sold is made and manufactured to a certain standards , this affects Tesco as they sell foods in their stores, this also means that they must make sure that all of their foods are up to this set quality before shelving these products.
The quality law is the construction and use act, this means that new motor vehicles must be made at a certain quality, they must be fit with exhaust emissions, this act also made it compulsory to put your car through an MOT test every year so that the car is deemed road safe or not. this affects aston martin as they must make sure that they manufacture their cars in the correct way so that they last a large amount of years on the road as well as the right filters in the car to avoid breaching the standards of exhaust emissions.
Intellectual property rights (copyright law)
The copyright law in the UK was introduced so that it gives the creators of a product the right to control how their product is used and distributed.
The copyright law in China is very much the same as that in the UK, but their is more violation in China this is usually committed in the automotive and electronic industries. This affects Aston Martin as the are an Automotive Company and should pay close attention to the Chinese automotive industry so that they know exactly if these laws are being breached or not. This has in the past this has affected the company BMW, they have a product called the bmw x5 and a chinese brand created a pretty much exact copy of the car and sold it on the market. This was soon brought to the attention of BMW who soon after filed a lawsuit.
Contract law
In China there is a law called the Labor contract law which makes it so that companies with employees from over 10 years can not be dismissed without notice and cause
Task 4
Taken all these issues into account, its shows that for Tesco and Aston Martin to be successful they must be constantly adapting to the ever changing environments of both China and the UK. one of these adaptations that they have made because of politics is that they must be careful when it comes to taxation. Both companies, more than likely have tax haven in a different country. A tax haven is a separate bank account made in a tax free country so that they can transfer all of their profits into this account as an attempt to avoid getting taxed on their profit. This can be illegal though as it may be classed as tax avoidance which is against the law.
In china there is a lack of credit card transactions. Therefore both Tesco and Aston Martin must adapt their marketing techniques when it comes to online shopping. They may have to change their policy so that they can accept cash on delivery in order to have a successful online shopping business. Also as the attitude toward local native businesses has changed in recent years, Tesco attempted to open a range of coffee shop in the UK but was unsuccessful in their attempt as the public of the UK have recently taken a liking to local businesses and then came Tesco’s idea that they can create a partnership with a local native coffee shop and keep the name and aesthetics of the coffee shop but give them the funding to expand and become a brand image in return for a cut of the profits. this adaptation was to their growth strategy, they went from taking over other big stores to opening their own range of small local stores.
The law on minimum wage is an increasingly important topic for both tesco and aston martin, as a result of the varying price of the minimum wage in China Aston Martin have made the decision to move their production back to the UK so that they have stability in the amount of money in which they pay their employees.
Economical
Gdp can be solved by using a certain equation, this equation is:
GDP=C+l+G+(X-M)
This is the abbreviated version of a longer worded equation which is:
GDP= Consumption + Investment + Government Expenditure + (Exports – Imports)
The UK has recently came out of a recession, the term recession means that there has been an economical decline in which industrial and trade activity have reduced, this is generally identified by a fall in a country\’s GDP over two financial quarters.
The screenshot to the left shows a graph of the UK’s gdp ranges from the years of 1960-2013. from analysing the graph it is clear to see that their has been a vast economic growth. this means that the country has good economic growth throughout consecutive quarters. If a country has two consecutive quarters of negative growth it means that the country is in a recession. The UK’s recent recession is because of a massive financial crisis that started in 2007 when the GDP stood at £2.96 trillion but vastly dropped in a matter of two years to £2.3 trillion in 2009. this caused mayhem on the UK market and the UK is yet to fully recover from this crisis.
To the left is a demand and supply diagram which shows the effects of the recession in the UK, as the amount of money going around in the country was decreasing it meant that the public had a lower disposable income which lead the demand of products down, which will cause a domino effect which will cause the price and supply to drop also.
As there is such a vast difference of GDP’s between the two countries it causes a concern for Tesco as they must stay notified on the changes of both GDP’s so that they know when they can tweak the prices of their products in order to maximise profits, as a result of China’s GDP being higher Tesco may be able to charge a higher price for their products than that of the price they can charge in the UK. This is because the people of China are in a better financial state than the UK so there is more disposable income filtered through the country. Also as the UK’s GDP is lower it means that the wages in which they earn will be lowered to match the GDP, this then forces the hand of tesco and makes them lower the price of their products so that the public can actually afford them. So if a country was to go into a recession it forces businesses to lower their prices to keep them affordable, because if they\’re charging a country the price of £2.9 trillion and the country only has £2.3 trillion, the country will not be able to afford it.
China has recently gone through a period of economic growth. this is shown in the screenshot to the left, the screenshot shows China’s GDP from 1960-2013, it\’s clear to see that China have a rapidly increasing GDP. However if a country was to go into a period of economic growth it allows businesses to raise the prices of their products so that they can make a larger profit.
The diagram drawn on the left is a supply and demand graph that shows the effect on the demand in China after two quarters of economic growth, this is because as there is a larger amount of money to be spent in the country so therefore leading to the demand for products and services to increase and if these products/services demand increases it means that businesses will catch on to this and realise that they can increase the price and this would mean that businesses will buy more of the products so that they can sell them as they are selling for a higher price than they usually can.
For Tesco they must keep on top of this figure so they know exactly what the financial situation of China is so that they can match their prices accordingly.because they do not want to underprice their product as this would be a bad business move due to the fact that they wouldn\’t be making the maximum profit that they can.
Inflation
The term inflation is defined as a sustainable increase in the price of goods or services, this figure is measured via percentage on at an annual rate, so it simply means that as inflation rises the every pound you own buys a lower percentage of that good or service. For the UK and China the rate of inflation that they attempt to sustain is a rate of 2% a year. this is because if it were to be a smaller figure the it could cause deflation which increase the value of its currency.
The inflation rate in the uk is on a rapid downward spiral as it has dropped 0.5% in the last year from 1.6% (close to its target) to 1.1% this affects both Aston Martin and Tesco as the price of their products will not be as valuable and would have to lower their prices as they would not be selling as many products because when prices don\’t rise very much companies do not sell as much as their consumers don\’t feel that they should rush to buy the product as the same price will be available in the future or may even decrease further, so this effectively delays consumer spending which then drives the economy down.
The inflation rate for China in 2011 was at 5.4% this is a vast sum for an inflation rate for a country. This is because it could cause the price for utilities such as water and heating to increase quickly, which could then older people and low income families out onto the streets as they could not afford it. Also it lowers the competitiveness between businesses from other countries as it will make its exports less competitive in world markets, this will then lead to lower profits from international trade as the country’s trade balance will decrease. This will affect Tesco as they would have to cut the wages of many of their staff in order to pay them all, also they will struggle to find a price in which they can sell their products and lower the level of capital they invest.
The Monetary policy is a policy that the monetary authority of a country controls the supply of money, this is often used as an attempt to reach inflation rate targets so that a country ensure price stability. So ultimately it\’s a way that a country controls the size and rate that of the growth of its money supply which results in a change of inflation rates.
The Fiscal policy is a policy that the government control as it adjusts its spending levels and tax rates so it can influence the its economy. similar to the monetary policy as as it uses the banks to influence the nation\’s money supply. The fiscal policy can be used as a way of assisting the nation in many ways, one of these is by improving unemployment rates and interest rates in an effort to control the economy.
Task 6
Tesco face many challenges when trying to be successful in the extremely different environments.
With the UK being in a recession, Tesco are directly affected as they would have to lower the prices of their products as their would be a smaller amount of consumers that can afford their products so that would lead tesco to lower their prices so that they can maximise their potential profits as in the UK the GDP would be substantially lower than that of its chinese counterparts. This is of course indifferent to China who are going through a period of economic growth, which means that they could then increase the price of their products as their consumers would have a higher amount of disposable income so they can spend a larger amount of money than they once could as the Chinese GDP will be a lot higher than the UK’s.
The number of staff that Tesco have would also be affected by the recession in the UK, this is because they could hire a larger amount of employees as the minimum wage would also decrease so they can offer a lower wage to a larger amount of people. On the other hand the number of staff would be negatively affected in a country that is going through a stage of economic growth as the minimum wage would increase so therefore they would have to pay their employees a higher wage and then meaning that if they were to hire more staff they would be losing profit due to the high amount of money they spend on their wage bill.
The expansion plans for tesco would have to take a pause in a country suffering a recession, this is because their profits will be at a very low point and their would be a lower amount of money filtering through the country and they would have to open their stores and then sell their products at a low amount. although if they were to expand in a country that was growing economically they could do it with ease as they could open their stores for relatively cheap and could sell the products in their stores for a nice profit meaning that they can continue to grow and have a large return on their spending for the expansion.
The products on offer at Tesco would also be affected this is because in a recession Tesco’s consumers will be wary on the price of products and would therefore mean that they will choose a cheaper alternative to the luxury goods that Tesco may offer, so Tesco may have to reevaluate the products they offer at their stores as not many people will be able to afford the luxury products so they would have to put their money towards the lower priced foods as that is what the majority of their consumers could buy. But in a growing economy they can offer the luxury products and focus their money on it as Tesco’s consumers will be able to afford it but should also have the option of the lower priced foods so that they have a variation for their consumers.
Marketing strategies would also be affected, this is because they would have to market themselves a business that sells value for money goods in a country with a recession this is because of the disposable income the country has. Also they may have to think about cutting the amount of stores in which operates in this country so that they may not be able to keep all of their stores afloat due to the decrease in profits. In comparison to a country in a period of economic growth Tesco can look at opening more stores as they would have an ever increasing profit as their consumers will be spending more money than they were before so this can benefit the company as this will further increase its profits.
Neither the UK or china have their inflation rate targets, this causes a struggle for Tesco as they are both very different as the UK are struggling to hit the 2% whilst China are way over at 5.4% so this means that Tesco would have to market their value for money products as both China and the UK would have a low value of their currency, this is because in china they will be able to afford a lower percentage of the goods that they sell similarly to that of the UK stores as Tesco’s consumers will be unwilling to spend their money as they would believe that the price may lower in the foreseeable future, so if they offer value for money products, consumers may feel that this is the cheapest that this product will be. The difference lays in the fact that because of the difference in inflation it will cause Tesco to have a variety of prices between the two countries.
China’s basic interest rate currently sits at 4.35% compared to the 1.5% of the UK, the reason that they are so dissimilar is because of the monetary policy of both countries. China currently have a high inflation rate so they have a higher interest rate so that they can lower the percentage that the inflation rate currently sits on. whereas the UK are attempting to steadily increase the rate of inflation so they have a lower interest rate.
Both Aston Martin and Tesco face a challenge in this as if they were to take a loan out in China they would have to pay back a higher fee whereas if they were to take the load out in the UK they would then save money rather than spend more. They could also see an opportunity in this as they could put a larger amount of their money into the Chinese banks as they would gain a larger profit from leaving their money in the Chinese banks rather than the UK banks.
Both China and the UK are planning to spend a large sum of money in the country\’s infrastructure, this directly affects aston martin and Tesco, this is because as Aston Martin are a car company they are interested in the quality of the roads in both countries because if their are a larger amount of roads of good quality, their consumers may feel happier to part with their money so that they can drive a luxury car, so for Aston Martin this is good. Also for Tesco they are also affected by the state of the roads, this is because they offer a delivery service to online customers, so road quality is important this is because it may stop customers from ordering their groceries online if they feel that their purchases may get damaged on travel to their homes. also for Tesco rod quality plays a big factor on the amount of customers they receive in store, this is because their customers may not want to travel to the store if they feel it is a hazardous and may be a harmful journey.
Also Britain are planning to upgrade their train lines so that it creates an ease of travel for the public, this helps both Aston Martin and Tesco as they can employs more people from a larger commutable distance as their minds will be at ease due to the fact that their employees can travel a larger distance quickly and cheaply.
The first news article that i have read is a article that was published by bbc news concerning the chinese minimum wage, its claims that the minimum wage in china is set to increase by 23%, this is because they wish to attract more workers as a result of the rapidly rising cost of living in China. There is also a massive labor shortage in china so this is an attempt to improve the amount of labor workers in the country. The minimum monthly salary was to rise to between 800 to 1,050 yuan which is roughly 80-100 pounds. The effect this has on tesco is that it will increase the amount of disposable income that the core market for tesco have to spend which will then improve the business\’s profits. but it may mean that they will have to improve the amount of money that they pay their employee’s. i recommend that Tesco look at raising the price of their products so that they can maximise their potential profits and this is backed up by the fact that the minimum wage is increasing so their consumers will have a higher disposable income. I believe that this source of information is semi valid, this is because it is published by the bbc which is a highly recognised and respected news website, but the article was published in 2011 which makes this article over four years old meaning that this may have already happened or didn’t go through in the end.
The next news article is also published by BBC news, and claims that the UK’s national minimum wage is also going to increase, but by 20p per hour taking the minimum wage to £6.70. it claims that this law will come to fruition in october, and will then benefit more than 1.4 million workers. this will affect tesco in the future as the majority of their employee’s are on the minimum wage as their job requires next to no skill, so they will have to abide by this law and increase their employee’s wage in order to fit the new law also they can increase the price of many of their products as their customers will now have a higher disposable income to spend at Tesco’s. I recommend that Tesco improve the wage that they pay their employees also that if they can not afford to pay all their staff in the future that they plan to create some job cuts so that they don’t have to pay as many staff, or open a new store so more profits comes into the business so that they can spread the amount of employees they have through more stores and can therefore pay them all their wages. Also another recommendation that i would give to Tesco is that they should maybe look at hiring people of the ages below eighteen as they are entitled to a lower wage than the minimum wage so they can continue paying a lower amount to their staff. This is a valid news article because it is once again created and published by the highly respected bbc news and was only created in may 2015, so we are yet to see if the articles predictions happen or not.
The next article that i read was published by the daily telegraph and claims that the UK’s GDP is set to grow by 2.6% in the next year and then again by 2.8% the following year.
This is a bold prediction, and if it were to come true Tesco will be affected, this is because it will improve the funds that the country has to spend in the coming years, this will cause them to be able to increase the price of their products so that they can maximise the potential profits and look to expand in preparation for the surge of money about to flush through the country. I recommend that in preparation for this predictions outcomes Tesco should gradually increase the price of their products so that if the GDP were to go up their customers will also expect an increase in the price of products they are pleasantly surprised that they have not increased and feel that this is a cheaper price than it actually is. Also I recommend that they look to opening a few more stores across the nation as preparation for this increase in cash flow, this will maximise their profits as they wouldn\’t have to worry about rushing their builds/transactions whilst the GDP is at its peak as they would have planned it all in advance and would have near everything completed with new stores ready to open. This is a reliable prediction as the independent is a news company that have been running for multiple years and published this article in 2014 and judging from the first year of their prediction they were near to correct in their claim.
Another article that i read was published by CNBC.com, they claim that the chinese GDP is set to increase by 6.4% in the next year and then a further 6.1% the following year. this is a massive sum and shows the economic state the country is in. it also claims that the chinese government are targeting a growth of around 7% this year. For tesco this is a bold prediction but may be worth taking a risk because the return could be invaluable. I recommend that Tesco plan ahead again just like with the UK and increase the price of their products so that they can maximise their profits. Tesco should also look at tying their employees to a wage contract so that when the GDP does go up they can continue on the same payroll as they signed up for. The validity of this article is quite high as cnbc is a popular news company in america (also one of the biggest) and created this article on the 31st of august 2015 so this is current news and new found results.

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