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Unit 1 - M2 - The Business Environment
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Essay of 5 pages for the course Unit 1 - The Business Environment at HSFC (Unit 1 M2)
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Xhuljan VUTHAJ 44975Unit 1 M2
M2: Compare the challenges to selected business activities within a selected organisation, in two different
economic environments.
Economic GDP Inflation Interest Rate Unemployment Exchange Rate
Indicator
UK Business The Current The current The interest rate in The unemployment The exchange rate
(Tesco) rate of GDP in inflation rate in the UK is currently rate in the UK at the for the UK in
the UK is the UK is 0%. set at 0.5%. moment is 5.5% relation to China is
$2.678 £1> 9.72 Chinese
trillion. Yuan.
China Business The current The current The interest rate in The unemployment The exchange rate
(Tesco) rate of GDP in inflation rate in China is currently set rate in China at the for China in relation
China is $9.24 China is 1.37%. at 5.1%. moment is 4.1%. to the UK is 1
trillion. Chinese Yuan>
£0.10.
Tesco (United Kingdom)
Gross Domestic Product
The current GDP of the United Kingdom shows us that the health of the economy is lower as the current situation of the GDP
is the lowest it has been in three years. The GDP can have a significant effect on the share prices on the current stock
market, which means for Tesco their share prices will drop which could lead to shareholders cashing in on their shares in
order to prevent further loss, it also makes it less attractive for shareholders to purchase shares. The reason for this is
because it would retract any decisions of investments by any investors because the UK bears a low gross domestic product.
So instead investors would compare previous and current GDP’s of various different countries in order to concentrate on any
key places where businesses may thrive. Banks may also be a bit apprehensive to lending money to business while GDP
growth slows down, the reason for this is because banks may anticipate that business may find it harder to return the
borrowed money given the current rate of GDP. Due to the slow rate of growth in GDP, this could mean that the demand for
Tesco’s products and services may start to decrease slowly which could lead to a fall in revenue, so this could then lead to
, Xhuljan VUTHAJ 44975
Tesco decreasing the prices of their products in order to jump start sales. Due to the decrease in sales, Tesco may have to
start cutting jobs, which would then lead to unemployment rising. The decrease in growth of GDP will have an effect on the
functional areas of marketing and finance. The finance department for Tesco will evaluate how the UK’s current GDP’s effect
on Tesco as a business, so the finance department would then have to draw up a plan of what they will do to try and
maximise profits during this slow growth period. The marketing department will have to make changes to Tesco’s products
and pricing in order to keep customer interest, this can be done through offering special promotions and creating new offers
in order to keep customers spending.
Inflation
The current inflation rate in the UK of 0.0% means that prices are stable and are not increasing or decreasing. Tesco will be
affected in several ways from this both advantageous and disadvantageous, one way in which Tesco will be impacted is that
due to prices not increasing profit margins won’t be increasing either, which is down to prices of goods and services
remaining the same in relation to the current inflation rate. Due to inflation remaining at 0.0%, this means consumers will
have more purchasing power as the value of their money will be higher compared to if inflation was at a higher rate, so
consumer spending will increase while inflation remains at 0.0% because it will be relatively cheaper for consumers to
purchase their products. An advantage of a low inflation rate to Tesco is that it means they can reap the benefits of the prices
of stock from suppliers or even any new technology being introduced into the business being cheaper than it would’ve been if
inflation was above 0.0%.
Interest Rates
The interest rate of the UK will have an impact on a business such as Tesco because if the interest rate is high then the
amount they will have to pay back on the money that they borrowed whereas if it the interest rate is lower it will mean that
they will be paying back less on the money that they have borrowed. The current interest rate in the UK of 0.5% is a suitable
rate for Tesco as this means that they will not be charged a lot on any loan as a finance option, so this means that the cost of
borrowing will cost less. The current rate of interest also influences Tesco’s sales and profits as the rate of 0.5% means that
customers will not benefit from saving as they won’t be receiving a lot on their savings, so instead they may opt to spend it
and also it is cheaper for people to take out loans if they wanted to buy any costly products from Tesco such as a Television
etc. The low interest rate will also mean that people may invest in Tesco as they won’t be making a lot on saving so they may
choose to invest in shares to make money which also benefits Tesco.
Exchange Rate
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