Asda must take into account all of its competitors and must constantly achieve their aims and objectives, whilst maintaining a competitive price and maintaining the quality of the products and services offered
Economic conditions
Economic conditions can have an effect on even the most well organised and managed of businesses. The economy is all the wealth and resources in one country. One of the government’s tasks is to manage the economy. The Chancellor of the Exchequer is responsible for this. The GCSE Applied Business FOR OCR book, tells us “the economy is affected by the behaviour of people and businesses”. There are three main changes in the economy which are changes in interest rates, inflation and exchange rates. These changes can all have effects on businesses.
The government and Bank Of England use many different methods to try and stop these changes from happening. The two polices that they use are fiscal and monetary polices, these polices help to manage the economy.
Fiscal policies
tells us “fiscal policy refers to efforts by the government to stimulate the economy directly, through spending”. Governments may reduce tax in fiscal polices, this has the effect of increasing government spending and the only difference is that the extra spending is done by individuals. Governments do this to reduce the unemployment rate. Because individuals are spending more, there is a greater demand for products and so businesses will need to employ more workers to meet these demands. This is an expansionary fiscal policy and while it has many benefits, it may cause inflation to occur.
Monetary policies
tells us “monetary policy refers to efforts to fight inflation or otherwise control or stimulate the economy by controlling the availability of spending money to companies and consumers”. A monetary policy is when governments use interest rates to try to manage the economy. Interest rates are lowered making it cheaper to borrow money, but people do not get as much interest when they put money in the bank. This makes individuals and businesses borrow and spend more and save less. This increases spending and the same effect as in expansionary fiscal policies occur. Because individuals are spending more, there is a greater demand for products and so businesses will need to employ more workers to meet these demands. This decreases the unemployment rate, but increases the risk of inflation.
Interest rates
The GCSE Applied Business FOR OCR book, tells us “Interest is the cost of borrowing money” and tells us that interest is “a fixed charge for borrowing money; usually a percentage of the amount borrowed”. However, interest is also the reward for saving money. The interest rate is usually expressed as a percentage. An example of how interest would affect businesses borrowing money is that if a business were borrowing £1000 at an interest rate of 5% then they would be charged an extra £50 by the lender. The Bank Of England sets the interest rate each month, this is called the base rate, and this affects all the other rates set by other banks in the UK.
Increasing or decreasing interest rates can help to manage the economy because it can make it more or less expensive for businesses to borrow or save money. Through this a stable economy can be achieved and this benefits both businesses and customers.
Increasing interest rates mean that it is more beneficial to save than borrow money and so more businesses and consumers are spending less. This can cause a cut in inflation but an increase in unemployment rates. Businesses and consumers that have borrowed money do not like this either as they will have to pay back more in interest.
Changes in interest rates are just one of the economic external influences on Asda. High interest rates mean that consumers usually have less money to spend on products and services. The business will also have less money to spend, as they will have to pay more interest on borrowed money. However, low interest rates mean that consumers usually have more money to spend on products and services. Businesses will also have more money to spend, as they will have to pay less interest on borrowed money.
Inflation
tells us that inflation is an “Increase in the overall level of prices over an extended period of time.” Inflation can cause problems for both businesses and individuals. Inflation happens when there is a demand for a product or service. The more demand there is for the product/ service, the more the price goes up. When this happens we ask for a pay rise and interest increases. Inflation may happen because businesses may choose to raise the prices of products. This may be because employees are asking for higher wages, raw materials may cost more and interest rates may rise. When there is high inflation consumers may save more and spend less. Businesses find it hard to be as competitive during times of high inflation because they are forced to either raise their prices or achieve lower profits. Inflation is another economic external influence on Asda. The current rate of inflation is 2.8%.
Exchange Rates
tells us that exchange rates are “The price of one currency expressed in terms of another currency (or vice versa)”. Exchange rates are the cost of foreign currency. They exchange rate changes in the UK depending on whether the UK has a strong or weak pound. The effects of the strength of the pound are shown below.
A strong pound has both advantages and disadvantages to businesses because although exports are expensive raw materials that have been imported are less expensive. When there is a strong pound this means that usually Britain will have fewer exports and more imports.
