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Unit 1 - M2 - describe the key economic challenges faced by your business
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Unit 1: Business environment - M2: Describe the key economic challenges faced by your chosen business
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In this assignment, I will identify the key economic challenges facing the Coca Cola PLC and Iwill state how these may impact the business in UK and Canada. I will also suggest how the
Econom GDP Inflation Interest Unemploy Exchang Balance
ic Rate ment e Rate of
Indicat Payments
or
UK 2431.589 CPI: 2.7% 0.5% 7.6% £ 1 to -£ 5.2
(Billions of US $1.73 (Billions)
dollars) Canadian
Dollar
Canada 1821.40 CPI: 1% 7.2% $1.73 to -$62,215
(Billions of US 1.52% £1 (Millions)
dollars)
business should respond to the challenges from a functional point of view.
GDP:
Gross domestic product is the overall amount of products and services being produced in a
country in a year.
From the table above, we can note that the GDP in the UK is reasonably high, which is good as
is it indicates that the economy is picking up. It also suggests that there is a reasonable
amount of employment and thus people have more disposable income. This will be an
advantage for the Coca Cola PLC as the higher the GDP, the better quality of life people have
and therefore, they can afford to spend some money on products that are not as essential. If
the GDP is high, more products are being produced. In other words, it means that demand is
high.
In Canada, the GDP is lower, which means that the Coca Cola PLC must have sold fewer
products than in the UK. This can be due to factors like rising costs and unemployment. If
the GDP is low, it means that demand was also low and therefore this might have had an
impact on the Coca Cola PLC. For instance, if there is a decrease in demand, the business will
have to lower its price to encourage people to purchase the products. This is because, people
will have less disposable income, and will opt to spend their money wisely, mainly on basic
products and amenities. On top of that, consumers might decide to purchase substitutes of
the Coca Cola products as they can prove to be cheaper and more cost-efficient. When
reducing the prices of the product being sold, the overall profit being made by the Coca Cola
PLC will also decrease and therefore be a disadvantage.
Inflation:
We can also deduct that the CPI inflation in the UK was considerably high throughout the year.
During an inflation, the prices of products and services being offered shoot up. This can affect
the business activities of the Coca Cola PLC and disrupt processes. As the business will be
paying more for raw materials to manufacture the products, they will obviously have to
increase the selling price to obtain a profit. In times of inflation, people will have to pay more
to buy their day to day essentials and they will have less money to spare. As the price of the
, Coca Cola products will also be rising, people will be less likely to purchase them and this can
affect sales and profit figures of the company.
The CPI inflation of Canada is 1.52% which is a favourable figure and a lot more desirable
than the inflation rate of UK. This means that the Coca Cola PLC must have sold a lot more of
its products as people have more money to spend besides their basic necessities.
Interest Rate:
The interest rate is low and therefore this is an advantage for companies. If the Coca Cola
PLC requires additional funds for manufacturing, advertising, imports of raw materials and or
other similar aspects, it can borrow money from banks and therefore pay less in return as the
interest rate is favourable. As the total amount being repaid to banks and other sources is
less due to low interest rate, the Coca Cola PLC spends less money to produce and promote
its products. If the company decides, they may then slightly lower the selling price as well
and in this case, demand may increase and sales figures may rise.
The interest rate in Canada is only slightly higher. However, as the Coca Cola PLC is a huge
company and deals with large cash sums, even he 0.5% difference has a huge impact.
Nevertheless, overall, it is still a good figure as the company will not have to pay too much
when borrowing money.
Unemployment Rate:
The unemployment rate of the UK is slightly higher than that of Canada. When people do not
have a job, they do not have a constant salary and therefore they can only afford to spend
their saved money on vital products. As the products supplied by the Coca Cola PLC do not fit
in that category, it is very likely that the company will experience a fall in demand, sales and
profit.
The unemployment rate of Canada is 7.2% which is slightly lower than UK’s rate of 7.6%.
Similarly, as there is a considerable amount of people without a job, the sales figures of the
Coca Cola PLC will be less, although more than that of the UK.
However, we should take into consideration that consumers’ wants can play a big role. For
instance, if in a particular country, consumers are fond of the Coca Cola products, they will
still purchase the products, whatever the issue may be.
Exchange Rate:
An exchange rate relates to the rate at which one currency can be exchanged for the other,
between two countries.
The following exchange rate : £ 1 to $1.73 Canadian Dollar – shows that the currency of the
UK is stronger than the Canadian Dollar. Therefore, it suggests that Coca Cola products will
cost more in Canada than in the UK.
Balance Of Payments:
The balance of payments is a summary of all the money transactions between one country
and the rest of the world. This means that the country may then turn into a serious debtor,
especially if big figures are involved. From the table, we can take note that both countries
have a negative balance of payment which above all means that the countries were importing
more than they were actually exporting. This can affect the Coca Cola PLC as if it does not
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