Chapter 10 - PEST

economic factors in global market

• economic activity, interest rates, discretionary spending, currency fluctuations

economic activity

• involves the production, distribution, buying and selling of products and services

• measured by country GDP

• fluctuations of economic activity affect - consumer confidence, company entry into market, economic activity of trading partner

interest rates

• indicator of strength of economy, related to cost of borrowing money

• set by RBA

• interest rates affect - consumer ability to purchase, business willingness to invest

discretionary spending

• affected by discretionary income(amount leftover after paying life’s essentials)

• affected by speculation of economic condition

• effect of discretionary spending - stimulate E.G

currency fluctuations

• change that occurs in the dollar value of one country’s currency relative to another country’s currency

• if AUD appreciate - aus exports expensive, tourist think visiting aus is expensive, consumers more likely to buy cheap imports

• if AUD depreciate - imported goods expensive, tourist think visiting aus cheap, aus made goods more affordable than imports

• TALK ABOUT IMPORT EXPORT

types of financial institutions

• commercial banks, merchant bank, finance companies

commercial banks

• financial intermediary between savers who deposit their money into bank and investors who need the money

merchant banks

• company that conducts underwriting, loan services, financial advising, and fundraising services for large corporations and high net worth individuals

• DONT provide services to general public

• experts in international trade, specialist in dealing with MNCs

finance companies

• an organization that make loan to individuals and businesses

• DONT receive cash deposit from clients

• DONT provide common services like checking accounts

• lend to those that dont qualify for bank loan

internal source of funding

retained profit

retained profit

• profit that company keep after paying tax and dividends

• most imp long term source of finance for business

• WHY choose retained profit? - cheap, flexibl, full control

external source of funding

• debenture

• share capital

• trade credit

• venture capital

• secured loan

• financial institutions

• government

debenture

• medium to long term debt format used by large companies to borrow money

• payable on fixed date with agreed interest

• WHY? - debenture holder dont have voting rightd

share capital

• funds raised from selling shares in a limited company

• long term source or finance

• shareholders entitled to a share of company’s profit through dividend payment

• WHY? - long term source of finance

trade credit

• arrangement betwen businesses to buy g/s on account, without making immediate cash payment

• supplier provide customer with agreement to bill them later

• WHY? - assist in managing business cash flow

venture capital

• money provided by wealthy investors to start up firms and small businesses with perceived long term growth potential

• WHY? - company not enough capital

• role of venture capitalist - finance new and expanding business and bring management expertise to business

secured loan

• finance obtained from bank or other financial intermediary that can be for short term or long term

• guaranteed with collateral(eg: home, car)

• if borrower fail to make payment on time, lender can take posession of collateral and sell it to recover loan amount

• WHY? - lower interest rate, secured payment for lender

financial institutions

• provides unsecured loans(not attached to collateral)

• cant posess borrower assets, but can report to credit reporting companies to lower borrower credit rating

• WHY? - company dont need to pledge collateral

government

• gov provide subsidies and grants to build economy, encourage business expansion, commercialization of innovation, R&D or export

• WHY? - gov grants are one off payments that dont need to be repaid

political factors which impact business operation

• stability of foreign gov

• relationship of foreign gov with aus gov

stability of foreign gov

• unstable country have riots, protest

• disrupts business operation

• may hinder production, reduce access to wkilled labour, halt exports

relationship of foreign gov with aus gov

• diplomatic and economic relationships between gov

• FTA and regional partnerships

• similar cultures and shared histories

legal systems/competition regulations that impact business operations

• patent registration and other intellectual property protections

• product liability laws and warranties

product liability

• manufacturers/sellers liability to consumers, users and bystanders for physical harm or property damage caused by goods

• risk include court action, product recall, fines/penalties, loss of market share

intellectual property

• right that is granted for any device, substance, method or process that is new, inventive and useful

• application of the mind to develop something new

• help business maintain competitive advantage

• if protected, no competitor can take sales and market share from company or compete directly with product produced by company

3 types of intellectual property

copyright, patent, trademark

patent

• legal protection for innovaions of all kinds

• through application to patent office of individual countries OR multiple countries through Patent Cooperation Treaty

• max 20 yrs or protection

• EG: pharmaceutical, technology

copyright

• legal protection for any original creative work of authorship in a tangible medium

• no registration needed in aus

• protected through publishing or performing in public

• length of protection - life of authors + 70 years if published

• EG: music, books, film

trademark

• legal protection for any symbols or words representing a company

• through application to Trade Marks Office in individual countries or Madrid Protocol for multiple countries

• 10 years protection, can be renewed every 10 years

• EG: name, brand, logo