GBE - Week 04

BM461

Global Business Environment

Week 4

Open Ended

What is interest rate, briefly describe in your own words?

Interest rates?

• Interest is the cost of borrowing

money or the reward for saving.

• What are interest rates? | Bank of

England

Open Ended

What is inflation and how interest rate is connected to inflation?

Interest Rate & Inflation

Inflation
• Inflation is the term we use to describe rising prices. How

quickly prices go up is called the rate of inflation.

• Higher interest rates mean people borrow less and spend

less. So, the economy slows down, and companies can’t
put up their prices so quickly. (bankofengland, 2023)

Inflation & Interest Rates Relationship Explained
(investopedia.com)

Inflation and interest rates FAQS | Bank of England

Inflation and 2% Target

• UK Government target inflation rate is 2%

• What is the current inflation rate?

Current inflation rate

• Current inflation rate is 6.7 % (bankofengland,2023)

• How is inflation affecting the economy? Class debate

Open Ended

How do you think inflation can affect the economy?

Govt Plan to control Inflation

• Chancellor delivers plan for stability, growth and public services - GOV.UK

(www.gov.uk)

• CW1 Task Requirement:
• You should choose one government policy to focus upon only, e.g. Interest rates,

changes in tax regime, lower government expenditure etc…

• Policies to reduce inflation - Economics Help
• The Growth Plan 2022 (HTML) - GOV.UK (www.gov.uk)

Will cutting Government expenditure help?

• Does Government Spending Cause Inflation? (forbes.com)

Last Week
• We started to examine the issue of

convergence

and

how

globalization

is

opening markets to business across the globe.

• This week we examine the importance of

international markets and trade in more detail
to understand why free trade is important and
how trade restrictions impact the consumer.

• To develop your comprehension further

please ensure you read chapter 16 of the core
textbook.

Some Theory

•
Specialization

•
Production of video Cameras & wheat

Video Camera

Wheat

Country A 50

50

Country B 10

20

Total Production

60

70

•
Production of video Cameras & wheat

Video Camera

Wheat

Country A 65

35

Country B 0

40

Total Production 65

75

https://www.youtube.com/watch?v=ol4NexZ0iII

Open Ended

What do you think is the theory of comparative advantage in your own words

But not everyone wants to trade?

Government Reactions

Action

• Quotas

• Tariffs

• Exchange controls

• Subsidies

• Qualitative Controls

Meaning

•
Physical limitation of an import of a good
into a country

•
A tax placed upon imported goods

•
Limits the amount of currency that can
be bought

•
Payments to domestic producers to
reduce costs and improve
competitiveness

•
Controls on quality which can cause
increased costs and higher price for
producers who wish to export to another
country

Brexit?

The benefits of the European Union & the Treaty of Rome

• The Single Market

• A free trade area between member states called a Customs Union

• Common External Tariff

• Which sets tariffs on good from outside the EU such as China,

Canada and the USA amongst others

Brexit?

• The Euro Currency

• A common currency used throughout Euro member state nations

• Common Agriculture Policy, CAP

• See next slide!

Brexit?

The Common Agricultural Policy

Activity

• Enlargement of the European Union.

• The benefits of membership of the European Union have dominated much of the

news cycles for the last 10 years but on March 29th 2019 the UK leaves the EU for
good.

• However, does the argument for main economic benefits of membership still hold

today or does the exit of the UK signal a more troubling trend within the EU
member states?

Read the case study provided and answer the question. Be prepared to defend

your answers in discussion with other students in the class.

Open Ended

What are your though on the benefits of EU even after Brexit

The Balance of Payments

• Trade cycles or patterns of trade change over time and can be

influenced by wider macro issues and currency exchange rates.

• Typically, when a country is in recession it buys less imported good and

sells more export goods to other countries so perversely recessions are
good for exports and the balance of payments. Whilst times of
excessive growth or ‘boom’ mean we consume more goods from
abroad as we are more affluent!

The Balance of Payments

Changes in Investment Flows

The theory of investment flows suggest that a floating exchange rate will assist a
country with its balance of payments. If a deficit occurs the exchange rate will
fall and thus make exports more attractive and readdress the imbalance, and
vice versa. Or that’s what we are told by economists!

The Effect of Currency

Depreciation

Currency depreciation has both positive
and negative effects. The problem for
some countries are that not all of the
goods and services it needs can be
sourced from within its own market. As a
result despite exports growing and the
balance of payments narrowing some
products and services are still required
that makes non-price sensitive goods
more costly due to changes in the
exchange rate, such as petrol!

Micro and macro

business environment

• Micro-Environment,

refers

to

the environment comprising of all
the actors of an organization's
instant environment which
influences the performance of the
company, as they have a direct
bearing

on

the

firm's

regular

business operations.

• Macro environment includes all

those factors over which a business
doesn’t have any control of and
affect its ability to sever its
customers.

Current trends in business

What do you think are the major trends influencing business
today?
• Social and environmental responsibility.
• Going global.
• Big Data and data protection.
• Personalization.

Current trends in business

• Alternative lending; crowdfunding, Peer-2-Peer lending,

Kickstarter.

• AI (Artificial Intelligence)
• Drones and 3D cameras.
• Convenience.
• Gig economy.

Typical PESTEL Factors that you could consider but

note there could be others!

The PESTEL Model

Aguilar, F.J. (1967)

The Process

•
Identify the relevant industry the firm operates
within. E.g. Fast food, online fashion, hospitality
and tourism, etc.

•
Examine the firms in that industry and identify
how the firm makes money, what it buys from
who and from where in the world and who buys
from them within its operational environment.

•
Then review the factors found under each of the
PESTEL headings in relation to the operational
environment looking for matches between the
operational factors and macro factors.

•
Example: Airlines are dependent on passengers
for sales of seats, but a hot summer can mean
more people take a ‘staycation’ in their own
country!

The Output – Industry
automotive: Firm Jaguar

Political
Factors

Impact on
Automotive
Industry

Impact on
Firm

Trade
Restrictions &
Poor Political
Relationship
with Russia
BBC News
(2018)

Trade
restrictions on
car exports to
Russia from
EU member
states.
EU Trade
Commission
(2018)

High THREAT
– Jaguar
exports 17%
of production
to Russia due
to rising
number of
middle class
population.
Jaguar Land
Rover Annual
Report (2017)

Merging Content and Models

• PESTEL Output provides you information

to use within a SWOT analysis in the
external

Opportunities

and

Threats

sections.

BM461

GLOBAL BUSINESS ENVIRONMENT

CW1 Assignment Briefing

Have you started working on Assignment?

Assignment CW1

•Final Submission Date and time: 17/11/2023, 2:00PM
•Assessment weighting:30%
•Write a short briefing document of no more than 500 words that

explains how successful the UK governments present activities
are, in relation to fighting inflation and identify some measures of
success that you expect to see within the economy as a result of
these policies. The title for your work should be, ‘The UK
Government Response to the Rise of Inflation within the Economy.’

Assignment CW1

• You should choose one government policy to focus upon only, e.g.,

Interest rates, changes in tax regime, lower government expenditure
etc…
• You should reflect on module content and use this as a basis to express

your own ideas, using theory, academic references and practical industry
examples where appropriate

Assignment CW1

• This 500-word (+/-10%) briefing document does not require a cover sheet,

table of contents, executive summary or appendices. All tables, charts and
diagrams should appear within the main body of the briefing document. All
words appearing in tables, charts and diagrams are not included in the word
count. There should be a minimum of 5 references from reputable sources
and referenced using the Harvard system used to support your argument.
The briefing document should be professionally formatted and presentable
to a business manager.

Top Tips

Write in the 3rd person narrative or neutral language; ‘the
evidence suggests…’ not ‘I think this is important because…’.
Write in

Include references for your secondary sources; Economists
fear that Black Swan events could play a crucial role in
accelerating the arrival of the next recession, The Economist
(2018).

Include

Apply models and theories do not describe or explain them…!

Apply

Think about how you can demonstrate your knowledge and
comprehension by using other models within your work.

Think
about

Thank You

See you next week