Economic
- Economic cycle or business cycle are periods of economic growth (boom) and recession (bust) due to the fluctuations of economic activities.
In periods of economic growth, some characteristics that may occur include:
- Higher employment as businesses are willing to hire more staff
- Higher change of wage rise
- More consumer spending, businesses will increase their price to maximise profit.
In periods of economic recession (2 consecutive quarters of negative economic growth), characteristic include:
- Higher unemployment as business are less likely to hire more staff due to decrease in sales.
- Lower chance of wage rise
- Less consumer spending, businesses will be less likely to increase their price.
Apart from domestic economic influences, foreign economic factors can also affect the business cycle.
For example, the increase in Chinese demand of Australian resources, GFC in 2008-9.
Geographic
- Location of the business or country it is based in, including demographics, influencing demand for its goods and services.
- Australia is close to Asia-Pacific country, which have consistent economic growth.
- Australia has shifted from its original major trading partners US and Europe to China and other Asian countries due to proximity (reducing freight costs).
Globalisation is a process where people, ideas, money and goods are moving globally at a faster, convenient and cheaper rate. This is assisted by the technology revolution, communication and advancement such that we are living in a ‘smaller’ world.
- Good location can determine whether a business will succeed or not. Otherwise, customers cannot identify and access the business.
This is affected by:
- Visibility
- Rent
- Proximity to suppliers
- Proximity to customers or customer convenience
Social
- Relates to change in society and social structures, such as changes in consumer lifestyles and behaviour that affect buying patterns,
- Businesses should identify changes to consumer culture and taste in order to increase sales and hence profit.
Legal and Political
- Laws and regulations can affect the operations of a business. There are certain activities which might be illegal (eg. dumping, tax evasion, advertising)
- Compliance is often time consuming and costly.
- Government policies (local, state or federal) can affect business operations.
Technological
- Invention involves creating something entirely new, for example the first light bulbs or the telephone.
- Innovation, on the other hand, is the process of improving an existing creation or finding new applications for them.
How does technology influence businesses
- Increased productivity
- Improved quality and range of goods
- Reducing costs
- Eliminating boring repetitive jobs
- Increase the speed and volume of communications.
Competitive situation
- Each business aims to achieve a sustainable competitive advantage.
- This is the ability to develop strategies that will ensure it has an ‘edge’ over its competitors for long period of time.
Types of market concentration
- A monopoly is a complete concentration by one firm in the industry, eg. Australia Post
- An oligopoly is where a small number of larger firms have a greater control over a market, eg. car manufacturers
- Monopolistic competition is where there is a large number of buyers and sellers in a particular market, eg. local retailing shops
- Perfect competition is where there is a large number of small firms that sell similar products. They are unable to differentiate products from each other and so can only use price as a way of achieving market share, eg. fruit and vegetable grower
Local and foreign competitors
- Local competitors produce goods and services within the same market and deal with the same variables, such as labour costs, cost of material and the economy.
- Foreign competitors are usually located overseas or offshore, but sell their products in Australia and compete with local businesses.