The Business Environment and Business Economics

The 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

The 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

The 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

Output of industrial sectors (as % of GDP) Primary 2.8% Secondary 42.3% 54.9% Tertiary 1974

Output of industrial sectors (as % of GDP) Primary Primary 5.8% 2.8% Secondary Secondary 23.3% 42.3% 54.9% 70.9% Tertiary Tertiary 1974 2002

Employment by industrial sector (% of total employees) Primary Secondary 3.4% 41.9% 54.7% Tertiary 1974

Employment by industrial sector (% of total employees) Primary Primary Secondary 1.8% 3.4% Secondary 18.4% 41.9% 54.7% 79.8% Tertiary Tertiary 1974 2002

The 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

Standard industrial classification: 1992

The Structure of Industry Changes in the structure of UK economy expanding and contracting sections by output by employment

GDP by industry (1980 = 100) GDP by industry (1980 = 100) C A/B

GDP by industry (1980 = 100) GDP by industry (1980 = 100) C D A/B

GDP by industry (1980 = 100) E GDP by industry (1980 = 100) C D A/B

GDP by industry (1980 = 100) E GDP by industry (1980 = 100) F C D A/B

GDP by industry (1980 = 100) GDP by industry (1980 = 100) I G/H J-Q E F C D A/B

Employment by industry (1980 = 100) A/B C

Employment by industry (1980 = 100) A/B D C

Employment by industry (1980 = 100) A/B D E C

Employment by industry (1980 = 100) F A/B D E C

Employment by industry (1980 = 100) J-Q G/H I Employment by industry (1980 = 100) F A/B D E C

The Structure of Industry Changes in the structure of UK economy expanding and contracting sections by output by employment Analysing industrial structure

The 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 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

Number of businesses, employment and turnover by industrial sector (2001)

The Determinants of Business Performance 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 Performance 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 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