A2 BUSINESS STUDIES
External Economic Influences
At A2 level you will be covering some of the same economic influences that
you covered at AS level as well as some new ones. The main areas covered
at A2 level include:
The trade cycle and economic growth
Inflation and unemployment
fiscal and monetary policy - Interest rates, exchange rates and
Market structures, market failure and the labour market.
For each of these areas you need to read the relevant section of chapter 3
External Economic Influences of Business Strategy and make notes.
Your tutor will be checking to ensure that you do this. However, the difference
between AS and A2 is that you will be expected not only to know how
changes in the economic climate affect a business, but how a business might
respond in terms of its strategy. Therefore, we will be examining the effects of
a number of changes on different companies.
You will work in groups of three or four and assume the role of the Senior
Management Team for a given company. You will then assess how a series
of changes in the external economic environment will affect your company
and the strategy which it pursues. The changes are:
Week 1 A sustained period of economic growth.
A rapid rise in inflation.
A substantial increase in the level of unemployment
Week 2 A rise in interest rates.
A depreciation in the value of the £ against foreign currencies.
A rise of 2% in income tax.
Week 3 A reduction in government spending.
A new competitor entering the market.
The introduction of a minimum wage of £6 per hour.
Week 4 Presentations to the rest of the class.
For each change, you must analyse in detail how the change will affect the
company and how the company will respond to that change. In week 4,
using suitable visual aids such as posters, PowerPoint, OHP‟s etc, you will
make a presentation to the rest of the class of your findings. The rest of the
class will make notes in the summary table.
Tasty Pies and Co (TPC) – is a family owned private limited company which
has been established for 40 years, producing ready prepared foods, mainly
meat pies. These are either sold under their own brand name, “Crusty”, or via
the own brand market. The company employs 400 production employees who
are highly skilled in operating the complex automated manufacturing
machinery. The company has relatively low bank borrowings, as money
needed for re-investment has always been provided internally from retained
profits. In recent years, the company has found the market increasingly
difficult to operate in due to the BSE scare and foot and mouth disease which
have considerably affected the sales of meat based products. Also, they are
facing increasing competition from imported pies from large foreign
manufacturers. This has led to a decrease in their market share and their
main objective has been survival during this period.
The Elms Country Club (ECC) – has just opened on the outskirts of a market
town. Formerly a large country house, the owners formed a partnership and
have borrowed a large amount of capital to refurbish the site. The hotel is
luxuriously appointed to meet the expectations of its target market: corporate
guests and weekend luxury breaks. Currently, customers and suppliers are
largely located in the UK but the company has ambitions to become an
international destination. It employs around 20 staff who are mainly semi and
unskilled providing the cleaning, maintenance and catering facilities for the
hotel. Its main objective at the moment is to attract a large enough customer
base to allow the hotel to break even in its first year.
DKN Yachts (DKNY) – was established in 1958 as a private limited company
manufacturing luxury motorboats. Its products range from the entry level
duckling „15 at £125,000 to the top of the range Swan ‟62 at over £750,000
and are supplied to may foreign markets. Because of the high build cost of
the products, a significant amount of working capital is needed to fund the
business and an overdraft is often used. The employees are highly skilled
craftsmen from the local area, many with years of experience at the company.
The company imports raw materials and engines from America and Sweden
respectively. In this global market, the company faces stiff competition from
Italian and American manufacturers of luxury boats. One of its main
objectives for this year is to launch a new yacht aimed the top end of the
Brill Builders PLC (BBP) – is a public limited company which has two main
activities: speculative house building and maintenance for the public and
private sector. Ownership of the company is dominated by the Arch family
who own 51% of the shares and demand a return on investment of the bank
base rate plus 4% annually. The company employs 200 full time employees
ranging from relatively unskilled labourers to highly skilled craftsmen. The
market for house building has been relatively buoyant over recent years with
demand outstripping supply. This has lead to an increase in house prices and
a substantial increase in profitability and sales growth within the company.
The main objective is to continue the current level of sales growth.
TPC ECC DKNY BBP
Rise in interest
the value of the
A rise of 2% in
A reduction in
of £6 per hour