Books

The Business Environment and Business Economics

TextBooks 1. Microeconomics7theditionbyPindyck,Rubinfeldand MehtaPearson 2. EconomicsforBusiness4theditionbySlomanand SutcliffePearson 3. PrinciplesofEconomics4theditionbyN.G.Mankiw Thomson

TheBusinessEnvironment
Whatisbusinesseconomics?
decisionmakinginbusiness

TheBusinessEnvironment
Political/legalfactors Economicfactors
themicroeconomicenvironment themacroeconomicenvironment

externalinfluencesonthefirm thebusinessenvironment internaldecisionsofthefirm theexternaleffectsofbusinessdecisionmaking

Whatdobusinesseconomistsdo?
description analysis recommendations

Social/culturalfactors Technologicalfactors PESTanalysis

relationsbetweenthefoursetsoffactors importanceoftheeconomicfactors

PESTELanalysis
IncludesEnvironmentalandLegalfactors

QAsfarasapubisconcerned,intermsofaPEST analysis,anationwidebanonsmokingwouldrepresent achangeinthe

A. Politicalenvironment.

QWhichofthefollowingwouldNOTbecountedasan economicfactoraffectingafirm?
Thepricessetbythefirms competitors. B. Thecostofrawmaterials. C. Therateofinterestsetbythe BankofEngland. D. Arequirementthatthefirm recognisestradeunions. E. Achangeinconsumertastes.
A.

Economicenvironment C. Socialenvironment D. Technological environment E. AandBabove

B.

TheStructureofIndustry
Importanceofindustrialstructuretotheperformance

Outputofindustrialsectors
(as%ofGDP)

Primary
2.8%

offirms Classifyingproduction
primaryproduction(Minerals,Energy,Agriculture) secondaryproduction(Manufacturing,Construction) tertiaryproduction(Services)
54.9%

Secondary

42.3%

SharesinGDPandemploymentofthethreesectors trendsovertime currentposition

Tertiary

1974

2005

Outputofindustrialsectors
(as%ofGDP)

Employmentbyindustrialsector
(%oftotalemployees)

Primary
2.8%

Primary Secondary
3.5%

Primary Secondary
22.6% 3.4%

Secondary

42.3% 54.9% 73.9% 54.7%

41.9%

Tertiary

Tertiary

Tertiary

1974

2005

1974

2005

Employmentbyindustrialsector
(%oftotalemployees)

TheStructureofIndustry
Primary
1.5% 16.3%

Primary
3.4%

Secondary

Secondary

Classifyingfirmsintoindustries natureofanindustry industrialsectors whyclassifyfirmsintoindustrialsectors?

41.9% 54.7% 82.3%

helpsinanalysingtrends identifyingspecificneeds helpstounderstandrelationshipsbetweenfirms

Tertiary

Tertiary

Standardindustrialclassification(SIC) natureofthesystemofclassification sections,subsections

divisions,groupsandclasses

1974

2005

Standard industrial classification: 2003

Section A Agriculture, hunting and forestry B Fishing C Mining and quarrying D Manufacturing Subsection Section

Standard industrial classification: 2003

Subsection A Agriculture, hunting and forestry B Fishing C Mining and quarrying D Manufacturing

CA Mining and quarrying of energy producing materials CB Mining and quarrying except energy producing materials DA Manufacture of food products, beverages and tobacco DB Manufacture of textiles and textile products DC Manufacture of leather and leather products DD Manufacture of wood and wood products DE Manufacture of pulp, paper and paper products; publishing and printing DF Manufacture of coke, refined petroleum products and nuclear fuel DG Manufacture of chemicals, chemical products and manmade fibres DH Manufacture of rubber and plastic products DI Manufacture of other non-metallic mineral products DJ Manufacture of basic metals and fabricated metal products DK Manufacture of machinery and equipment (other) DL Manufacture of electrical and optical equipment DMManufacture of transport equipment DN Manufacturing not elsewhere classified

CA Mining and quarrying of energy producing materials CB Mining and quarrying except energy producing materials DA Manufacture of food products, beverages and tobacco DB Manufacture of textiles and textile products DC Manufacture of leather and leather products DD Manufacture of wood and wood products DE Manufacture of pulp, paper and paper products; publishing and printing DF Manufacture of coke, refined petroleum products and nuclear fuel DG Manufacture of chemicals, chemical products and manmade fibres DH Manufacture of rubber and plastic products DI Manufacture of other non-metallic mineral products DJ Manufacture of basic metals and fabricated metal products DK Manufacture of machinery and equipment (other) DL Manufacture of electrical and optical equipment DMManufacture of transport equipment DN Manufacturing not elsewhere classified

E Electricity, gas and water supply F Construction G Wholesale and retail trade, repair of motor vehicles and personal and household goods H Hotels and restaurants I Transport, storage and communication J Financial intermediation K Real estate, renting and business activities L Public administration and defence; compulsory social security M Education N Health and social work O Other community, social and personal service activities P Private households with employed persons Q Extra-territorial organisations and bodies

E Electricity, gas and water supply F Construction G Wholesale and retail trade, repair of motor vehicles and personal and household goods H Hotels and restaurants I Transport, storage and communication J Financial intermediation K Real estate, renting and business activities L Public administration and defence; compulsory social security M Education N Health and social work O Other community, social and personal service activities P Private households with employed persons Q Extra-territorial organisations and bodies

TheStructureofIndustry
ChangesinthestructureofUKeconomy
expandingandcontractingsections

UKGDPbyindustry(1980=100)
260 240

GDP by industry (1980 = 100)

220 200 180 160 140 120 100 80 1980

byoutput byemployment

1985

1990

1995

2000

2005

UKGDPbyindustry(1980=100)
260 240

UKGDPbyindustry(1980=100)
260 240

GDP by industry (1980 = 100)

220 200 180 160 140

GDP by industry (1980 = 100)

220 200 180 160 140 120 100 80 1980

F E

A/B
120 100 80 1980

A/B D C
1985 1990 1995 2000 2005

C
1985 1990 1995 2000 2005

UKGDPbyindustry(1980=100)
260 240

UKEmploymentbyindustry(1980=100)
Employment by industry (1980 = 100)
160 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 1980

GDP by industry (1980 = 100)

220 200 180 160 140 120 100 80 1980

G/H J-Q F E

A/B D C
1985 1990 1995 2000 2005

1985

1990

1995

2000

2005

UKEmploymentbyindustry(1980=100)
Employment by industry (1980 = 100)
160 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 1980 1985 1990 1995 2000

UKEmploymentbyindustry(1980=100)
Employment by industry (1980 = 100)
160 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 1980 1985 1990 1995 2000

F A/B D E C
2005

A/B

E C
2005

UKEmploymentbyindustry(1980=100)
J-O

Employment by industry (1980 = 100)

160 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 1980 1985 1990 1995 2000

QWhichsectorhasseenthefastestrateofgrowthin outputinrecentyears?
A. Primary

G/H

I F A/B D E C
2005

B. Secondary C. Tertiary

TheStructureofIndustry
ChangesinthestructureofUKeconomy
expandingandcontractingsections

TheStructureofIndustry
ChangesinthestructureofUKeconomy
expandingandcontractingsections

byoutput byemployment

byoutput byemployment

Analysingindustrialstructure

Analysingindustrialstructure
changesinindustrialconcentration

Number of businesses, employment and turnover by industrial sector (2004)

TheStructureofIndustry
ChangesinthestructureofUKeconomy
expandingandcontractingsections

Sector

Size of enterprise SMEs a Large firm s b SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s

Num ber of enterprises (and % of sector) 4 276 865 5 980 169 580 20 330 190 1 855 862 310 305 569 895 1 045 136 965 310 263 850 450 69 430 300 1 011 810 1 100 239 935 165 476 025 265 (99.8) (0.2) (100) (0.0) (99.4) (0.8) (100) (0.0) (99.8) (0.2) (99.8) (0.2) (99.8) (0.2) (99.6) (0.4) (99.9) (0.1) (99.9) (0.1) (99.9) (0.1)

Em ploym ent (% of sector) 58.5 41.5 100.0 0.0 54.0 46.0 82.9 17.1 48.1 51.9 55.4 44.6 40.8 59.2 21.0 79.0 68.1 21.9 79.7 20.3 74.1 25.9

Turnover (% of sector) 52.0 48.0 100.0 0.0 35.5 64.5 66.1 33.9 49.8 50.2 59.6 40.4 40.1 59.9 na na 68.9 20.1 86.8 13.2 62.2 37.8

All A, B D F G H I

byoutput byemployment

Analysingindustrialstructure
changesinindustrialconcentration thedistributionofSMEsintheeconomy

J K N O

Number of businesses, employment and turnover by industrial sector (2004)

Sector Size of enterprise SMEs a Large firm s b A, B D F G H I J K N O SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s Num ber of enterprises (and % of sector) 4 276 865 5 980 169 580 20 330 190 1 855 862 310 305 569 895 1 045 136 965 310 263 850 450 69 430 300 1 011 810 1 100 239 935 165 476 025 265 (99.8) (0.2) (100) (0.0) (99.4) (0.8) (100) (0.0) (99.8) (0.2) (99.8) (0.2) (99.8) (0.2) (99.6) (0.4) (99.9) (0.1) (99.9) (0.1) (99.9) (0.1) Em ploym ent (% of sector) 58.5 41.5 100.0 0.0 54.0 46.0 82.9 17.1 48.1 51.9 55.4 44.6 40.8 59.2 21.0 79.0 68.1 21.9 79.7 20.3 74.1 25.9 Turnover (% of sector) 52.0 48.0 100.0 0.0 35.5 64.5 66.1 33.9 49.8 50.2 59.6 40.4 40.1 59.9 na na 68.9 20.1 86.8 13.2 62.2 37.8

Number of businesses, employment and turnover by industrial sector (2004)

Sector Size of enterprise SMEs a Large firm s b A, B D F G H I J K N O SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s Num ber of enterprises (and % of sector) 4 276 865 5 980 169 580 20 330 190 1 855 862 310 305 569 895 1 045 136 965 310 263 850 450 69 430 300 1 011 810 1 100 239 935 165 476 025 265 (99.8) (0.2) (100) (0.0) (99.4) (0.8) (100) (0.0) (99.8) (0.2) (99.8) (0.2) (99.8) (0.2) (99.6) (0.4) (99.9) (0.1) (99.9) (0.1) (99.9) (0.1) Em ploym ent (% of sector) 58.5 41.5 100.0 0.0 54.0 46.0 82.9 17.1 48.1 51.9 55.4 44.6 40.8 59.2 21.0 79.0 68.1 21.9 79.7 20.3 74.1 25.9 Turnover (% of sector) 52.0 48.0 100.0 0.0 35.5 64.5 66.1 33.9 49.8 50.2 59.6 40.4 40.1 59.9 na na 68.9 20.1 86.8 13.2 62.2 37.8

All

All

Number of businesses, employment and turnover by industrial sector (2004)

Sector Size of enterprise SMEs a Large firm s b A, B D F G H I J K N O SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s SMEs Large firm s Num ber of enterprises (and % of sector) 4 276 865 5 980 169 580 20 330 190 1 855 862 310 305 569 895 1 045 136 965 310 263 850 450 69 430 300 1 011 810 1 100 239 935 165 476 025 265 (99.8) (0.2) (100) (0.0) (99.4) (0.8) (100) (0.0) (99.8) (0.2) (99.8) (0.2) (99.8) (0.2) (99.6) (0.4) (99.9) (0.1) (99.9) (0.1) (99.9) (0.1) Em ploym ent (% of sector) 58.5 41.5 100.0 0.0 54.0 46.0 82.9 17.1 48.1 51.9 55.4 44.6 40.8 59.2 21.0 79.0 68.1 21.9 79.7 20.3 74.1 25.9 Turnover (% of sector) 52.0 48.0 100.0 0.0 35.5 64.5 66.1 33.9 49.8 50.2 59.6 40.4 40.1 59.9 na na 68.9 20.1 86.8 13.2 62.2 37.8

All

QWhencomparingSMEswithlargecompanies,SMEs asawhole
A. B. C. D. E.

aremorenumerous,employmore peopleandhavealargerturnover. aremorenumerous,employmore people,buthavealowerturnover. aremorenumerous,butemployfewer peopleandhavealowerturnover. arelessnumerous,employfewer peopleandhavealowerturnover. aremorenumerous,havealarger turnover,butemployfewerpeople.

QInwhichsectoristherethehighestratiooflarge firmstoSMEs?
A. Primary B. Secondary C. Tertiary

TheDeterminantsofBusinessPerformance
Structureconductperformance
relationshipbetweenbusinessstructureandbusiness

conduct(behaviour)

competitivemarketsandcompetitivebehaviour limitedcompetitionandcollusion

relationshipbetweenbusinessconductandbusiness

performance

indicatorsformeasuringperformance profitability,marketshare,growth,etc.

QTheStructureConductPerformanceparadigm impliesthatbusinessperformanceisstronglyaffected bythe

A. aimsofthefirm. B. competenceofmanagement. C. internalorganisationofthe

TheDeterminantsofBusinessPerformance
Internalaimsandorganisation
profitmaximisationastheprimegoal othergoals distinctionbetweenownersandmanagers importanceofmanagersownobjectives satisficing

firm. D. degreeofcompetitionthe firmfaces. E. technologythefirmuses.

TheDeterminantsofBusinessPerformance
Otherfactorsaffectingperformance internalstructure information competenceofmanagement qualityoftheworkforce systems

informationsystems motivation technicalsystems distributionsystems financialsystems