The Business Environment and Business Economics The Business Environment and Business Economics.
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Transcript of The Business Environment and Business Economics The Business Environment and Business Economics.
The Business Environment
and Business Economics
The Business Environment
and Business Economics
The Business EnvironmentThe Business Environment
• What is business economics?– decision making in business
• external influences on the firm– the business environment
• internal decisions of the firm
• the external effects of business decision making
• What do business economists do?– description
– analysis
– recommendations
• What is business economics?– decision making in business
• external influences on the firm– the business environment
• internal decisions of the firm
• the external effects of business decision making
• What do business economists do?– description
– analysis
– recommendations
The Business EnvironmentThe Business Environment
• Political / legal factors
• Economic factors– the microeconomic environment
– the macroeconomic environment
• Social / cultural factors
• Technological factors
• PEST analysis– relationship between the four sets of factors
– importance of the economic factors
• Political / legal factors
• Economic factors– the microeconomic environment
– the macroeconomic environment
• Social / cultural factors
• Technological factors
• PEST analysis– relationship between the four sets of factors
– importance of the economic factors
The Structure of IndustryThe Structure of Industry
• Importance of industrial structure to the performance of firms
• Classifying production– primary production
– secondary production
– tertiary production
• Shares in GDP and employment of the three sectors– trends over time
– current position
• Importance of industrial structure to the performance of firms
• Classifying production– primary production
– secondary production
– tertiary production
• Shares in GDP and employment of the three sectors– trends over time
– current position
Output of industrial sectors(as % of GDP)
Output of industrial sectors(as % of GDP)
1974
54.9%
2.8%
42.3%
Secondary
Primary
Tertiary
Output of industrial sectors(as % of GDP)
Output of industrial sectors(as % of GDP)
1974
54.9%
2.8%
42.3%
70.9%
5.8%
23.3%
2002
Secondary Secondary
Primary Primary
Tertiary Tertiary
19741974
54.7%
3.4%
41.9%
Secondary
Primary
Tertiary
Employment by industrial sector(% of total employees)
Employment by industrial sector(% of total employees)
19741974
54.7%
3.4%
41.9%
79.8%
1.8%
18.4%
20022002
Secondary Secondary
Primary Primary
Tertiary Tertiary
Employment by industrial sector(% of total employees)
Employment by industrial sector(% of total employees)
The Structure of IndustryThe Structure of Industry
• Classifying firms into industries– nature of an industry
– industrial sectors
– why classify firms into industrial sectors?• helps in analysing trends
• identifying specific needs
• helps to understand relationships between firms
• Standard industrial classification– nature of the system of classification
– sections, subsections• divisions, groups and classes
• Classifying firms into industries– nature of an industry
– industrial sectors
– why classify firms into industrial sectors?• helps in analysing trends
• identifying specific needs
• helps to understand relationships between firms
• Standard industrial classification– nature of the system of classification
– sections, subsections• divisions, groups and classes
Standard industrial classification: 1992Standard industrial classification: 1992
The Structure of IndustryThe Structure of Industry
• Changes in the structure of UK economy
– expanding and contracting sections
• by output
• by employment
• Changes in the structure of UK economy
– expanding and contracting sections
• by output
• by employment
80
90
100
110
120
130
140
150
160
170
180
190
200
210
220
230
240
1980 1985 1990 1995 2000
GDP by industry (1980 = 100)GDP by industry (1980 = 100)G
DP
by
indu
stry
(19
80 =
100
)
C
A/B
80
90
100
110
120
130
140
150
160
170
180
190
200
210
220
230
240
1980 1985 1990 1995 2000
GD
P b
y in
dust
ry (
1980
= 1
00)
C
A/BD
GDP by industry (1980 = 100)GDP by industry (1980 = 100)
80
90
100
110
120
130
140
150
160
170
180
190
200
210
220
230
240
1980 1985 1990 1995 2000
GD
P b
y in
dust
ry (
1980
= 1
00)
E
C
A/BD
GDP by industry (1980 = 100)GDP by industry (1980 = 100)
80
90
100
110
120
130
140
150
160
170
180
190
200
210
220
230
240
1980 1985 1990 1995 2000
GD
P b
y in
dust
ry (
1980
= 1
00)
EF
C
A/BD
GDP by industry (1980 = 100)GDP by industry (1980 = 100)
80
90
100
110
120
130
140
150
160
170
180
190
200
210
220
230
240
1980 1985 1990 1995 2000
GD
P b
y in
dust
ry (
1980
= 1
00)
I
G/H
EJ-Q
F
C
A/BD
GDP by industry (1980 = 100)GDP by industry (1980 = 100)
20
30
40
50
60
70
80
90
100
110
120
130
140
150
1980 1985 1990 1995 2000
Employment by industry (1980 = 100)Employment by industry (1980 = 100)E
mpl
oym
ent b
y in
dust
ry (
1980
= 1
00)
C
A/B
20
30
40
50
60
70
80
90
100
110
120
130
140
150
1980 1985 1990 1995 2000
Employment by industry (1980 = 100)Employment by industry (1980 = 100)E
mpl
oym
ent b
y in
dust
ry (
1980
= 1
00)
C
A/B
D
20
30
40
50
60
70
80
90
100
110
120
130
140
150
1980 1985 1990 1995 2000
Employment by industry (1980 = 100)Employment by industry (1980 = 100)E
mpl
oym
ent b
y in
dust
ry (
1980
= 1
00)
E
C
A/B
D
20
30
40
50
60
70
80
90
100
110
120
130
140
150
1980 1985 1990 1995 2000
Employment by industry (1980 = 100)Employment by industry (1980 = 100)E
mpl
oym
ent b
y in
dust
ry (
1980
= 1
00)
E
F
C
A/B
D
20
30
40
50
60
70
80
90
100
110
120
130
140
150
1980 1985 1990 1995 2000
Employment by industry (1980 = 100)Employment by industry (1980 = 100)E
mpl
oym
ent b
y in
dust
ry (
1980
= 1
00)
I
G/H
E
J-Q
F
C
A/B
D
The Structure of IndustryThe Structure of Industry
• Changes in the structure of UK economy
– expanding and contracting sections
• by output
• by employment
• Analysing industrial structure
• Changes in the structure of UK economy
– expanding and contracting sections
• by output
• by employment
• Analysing industrial structure
The Structure of IndustryThe Structure of Industry
• Changes in the structure of UK economy
– expanding and contracting sections
• by output
• by employment
• Analysing industrial structure
– changes in industrial concentration
• Changes in the structure of UK economy
– expanding and contracting sections
• by output
• by employment
• Analysing industrial structure
– changes in industrial concentration
The Structure of IndustryThe Structure of Industry
• Changes in the structure of UK economy
– expanding and contracting sections
• by output
• by employment
• Analysing industrial structure
– changes in industrial concentration
– the distribution of SMEs in the economy
• Changes in the structure of UK economy
– expanding and contracting sections
• by output
• by employment
• Analysing industrial structure
– changes in industrial concentration
– the distribution of SMEs in the economy
Number of businesses, employment and turnover by industrial sector (2001)Number of businesses, employment and turnover by industrial sector (2001)
• Structure conduct performance
– relationship between business structure and business conduct (behaviour)
• competitive markets and competitive behaviour
• limited competition and collusion
– relationship between business conduct and business performance
• different indicators for measuring performance
• profitability, market share, growth, etc.
• Structure conduct performance
– relationship between business structure and business conduct (behaviour)
• competitive markets and competitive behaviour
• limited competition and collusion
– relationship between business conduct and business performance
• different indicators for measuring performance
• profitability, market share, growth, etc.
The Determinants of Business PerformanceThe Determinants of Business Performance
The Determinants of Business PerformanceThe Determinants of Business Performance
• Internal aims and organisation– profit maximisation as the prime goal
– other goals
– distinction between owners and managers
– importance of managers’ own objectives
– “satisficing”
• Internal aims and organisation– profit maximisation as the prime goal
– other goals
– distinction between owners and managers
– importance of managers’ own objectives
– “satisficing”
The Determinants of Business PerformanceThe Determinants of Business Performance
• Other factors affecting performance– internal structure
– information
– competence of management
– quality of the workforce
– systems• information systems
• motivation
• technical systems
• distribution systems
• financial systems
• Other factors affecting performance– internal structure
– information
– competence of management
– quality of the workforce
– systems• information systems
• motivation
• technical systems
• distribution systems
• financial systems