Conor Cunningham P5 M2
Task 1: Economic Environment
The Chamber would like you to prepare Notes on one of your chosen organisations,
identifying how their business activities have been influenced by two contrasting economic
environments (in a time of a recession and in a time of boom) in the economy.
You are required to complete the following for P5 and M2:
Prepare Notes which will:
a) Identify and briefly explain two contrasting economic environments. (e.g. growth
and recession). You should include economic factors that could affect your chosen
business. Describe how these economic factors are affecting one of your
organisations and their stakeholders. This means that you should give real examples
of economic factors such as pay levels, cost of credit (interest rates) competitive
pressures, globalization, energy prices, supply and demand and labour. You may
choose those that are significant at the moment eg the cost of credit. However, you
need to explain how they would affect the organisation in a time of recession and
during an economic boom. (P5)
b) Compare the challenges and the problems faced by key functional areas (outlined
below) in the different economic environments. This means that you should give
examples of how economic factors have influenced your business in the recent
recession, and how a boom would affect them in the future. This will also help you
with the D2 task. (M2)
o Marketing
o Production
o Customer Service
o Sales
o Human Resource
o Finance
This provides evidence for P5 and M2
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,Conor Cunningham P5 M2
Task 1 P5 and M2
In order to identify how business activities have been influenced by 2 contrasting economic
environments (in a time of recession and in a time of growth) in the economy, I will outline
what the business environment is. The business environment is all of the internal and
external factors that influence the business. This includes factors such as customers,
suppliers, competitors, technology, legal issues, government activities as well as social and
economic changes. This is known as the economic environment.
The Economic Environment
The economic environment is the external factors that influence the business. The economy
is made up of buyers, sellers, the government, bankers and another investors. The economic
factors have the largest impact on any business. A stable economy is important for Tesco
because;
Prices stay stable and do not vary
There is steady growth within the business
Unemployment figures remain constant
Exchange rates stay stable
There is good customer confidence and they buy more goods.
Changes in the Economic Environment
The business environment can change frequently which change the ways in which business
operate on a daily basis. The following changes could occur;
Changes in the business growth rate
An increase in the price of goods and services
Changes in credit available and the cost of credit to businesses
Changes in the supply of labour
Government policy changes, and
Changes in business leglislation.
The Business Cycle
The economy is seen to follow a cycle (typically
every 30 or so years). Growth in the economy
means that there is an increase in GDP from one
year to the next. Recession in the economy means
that there is a decrease in GDP from one year to
the next.
Considering full 2015, the current growth rate is
2.2%, down from 2.9% in 2014. Although it fell,
this figure is positive and shows that the economy is on the way to recovery.
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, Conor Cunningham P5 M2
Growth/recession result from an increase or a decrease in GDP (Gross Domestic Product).
Gross Domestic Product means the value of goods and services produced within the nation’s
borders. For example, UK borders.
Growth in the economy means that there is an increase in GDP from one year to the next.
Recession in the economy means that there is a decrease in GDP from one year to the next.
Economic growth will affect Tesco as it would increase their profits due to more people
wanting more products and wanting to spend more money. As people have more money to
spend on luxuries, they will buy more of what they want, more so than what they actually
need. Higher value products will also be purchased. For example, the Andrex toilet rolls will
be bought instead of Tesco value toilet rolls and because of this, Tesco benefit as more
money is being spent with them. Increase in demand affects many departments within
Tesco such as production, finance, human resources, marketing and distribution.
The Ripple Effect
The ripple effect is what happens when there is a trend within the business environment
and this has an effect across many areas within the business environment.
Generally, when there is growth – more people will be employed, income levels will rise and
people will have more money to spend. Economic growth leads to a ripple effect. Below
shows an example of the ripple effect taking place;
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