P5- Describe the influence of two contrasting economic environments on business activities within a selected business origination. For this task I will be using the retail store Tesco as my business of choice as to see how they managed in the last 20 years. The two economic environments that effected the company were the recession and growth periods in the UK economy. In 2011 Tesco suffered its worst six months in the UK over the last 20 years. Reasons for this includes customers cutting back on electronics, food and other items that Tesco heavily depends on selling to make a profit. An economic growth is an increase I the production of goods when there is more demand for the products due to income rising from the customers. This affects Tesco in a positive way as the costumers are willing to spend more money on their wants and therefore increasing the profit of the company. Recession is a period of time where there is a general economic decline. It is when the oncome of the costumers decrease and the shops that benefit from the amount of spare money that they have to give to buy their product slow down the production of merchandise. Recession hit the UK in this fashion in 2007&2008, this put many businesses like Tesco in danger as they’ve had to decrease most of the prices of the products that they are selling for their costumers to be able to continue buying their products as people were looking to get more for their money. The customers look for products with a cheaper price as they need to save money due to the emerging economic down fall. Manufactures and sellers cut back on their orders, produce fewer goods and cut back on their costs in general which also include letting employees that they cannot afford go. Recession affects customers because the amount of people without a job would increase drastically and as such it will become be more difficult for the common family to buy essentials to be able to provide for their families. This is why retail stores such as Aldi and Lidl have witnessed I an increase in the amount of costumers has increased during the recession. This is because during a recession these types of company’s provide cheaper services relative to stores such as Tesco’s as people are looking to get more for their pound to be able to save more money. The employees are also affected by the recession as the recession creates a domino effect on the company. Tesco has decided to cut down on the amount of staff they have at the company as they cannot afford to keep excess employees at the company and pay for their wages. The recession also can leave the employees with less working hours making it harder for them to provide their needs. Tesco cannot take out a loan during this time as the banks will believe there is too much risk in giving out loans as the might not be repaid due to everyone struggling. Suppliers can also be affected by the recession as businesses such as Tesco will be more cautious as to how much they are spending on their order of products due to not being able to buy more because of cuts. Suppliers will also sometimes have to offer their services at a cheaper price than they would originally have done. With all of this a ripple effect can be seen. Firstly it starts off with customers spending less money as they are aware of the oncoming recession to save the money they have. To do this customers migrate to cheaper stores leaving large companies such a Tesco with less customers. Producers and sellers then also make cuts on production because they cannot afford for them to make products. This also means that they cannot afford to advertise which can affect how many people come to the store.
A graph showing the economic status of the UK form 1989 to 2009 In this graph we can see when Tesco was hit by the recession due to the large drop in 2008. The graph shows the economic structure between the years 1969 and 2009. We can see a huge decrease in the economy profits and how many people are still buying from the store. The recession caused customers to save their money due to the economic crisis and as such Tesco went through its worst year in 20 years. The difference between economic growth and economic recession is that growth is the increase of goods and services implying a time of prosperity and growth. However a recession is the decline in goods and services implying a time when prosperity is receding and everything is reducing. Customers are effected by the recession as the business increases the prices of their products to stay profitable, therefore people who are trying to save more as their own work is being cut are defecting from higher priced supermarkets to cheaper stores such as Lidl and Aldi. The recession greatly affects employees as Tesco’s will cut more jobs meaning that the workers that stay in the company will have to pick up the work left behind. They are then asked to work more for only a slight increase in income. The people who Tesco decides to cut or let go during this time will have trouble with their own finance and it will also mean that they will struggle to find time and jobs to be able to help their own situation due to the recession and the fact that most business will not be willing to take up more employees. Tesco will also struggle to take loans from banks as want to ensure that they are giving their money to people who are financial stable as they will be willing to pay back the loan with interest
However when there is an economic growth, for example in 1994 where the UK economy had its highest peak in growth. Companies like Tesco’s thrive as there is more money coming into the business and they can then offer more quality products at a higher price to make a profit. They can do this because customers will have more money to spend on the products they want. The staff and employees and customers will be willing to spend more money for products especially for products with better quality at a reasonable price. As Tesco is more financially stable and getting a larger profit size they will be demanding more stock for the customers. This is supply and demand. The suppliers will then benefit form this as they will then be able to get more offers to sell their items to the companies. This will then benefit the employees as they will then have more work for them to do as they will then have more work to do and more people can be employed with the expectation of getting higher wages. This is because they can now afford to pay for their wages. The employees will also benefit from the economic growth as they can be rewarded through bonuses.
M2- compare the challenges to selected business activities with in a selected organisation, in two different economic environments.
Economic growth is used to measure the change in gross domestic product also known as GDP. Economic growth relies on the productivity and investment of companies and businesses. Some benefits that come with economic growth is- increased profits, the creation of new jobs, improved business confidence and increased tax revenues. A strategy of Tesco is to keep lowering the prices of their goods through sales to keep already existing customers as well as at the same time attract new customers from their competitors like Morrison’s. Another attraction to Tesco’s is the fact that with every pound that you spend you increase the amount of points you have on your loyalty card, this is their loyalty scheme.
Recession was the breaking point for Tesco however they unexpectedly didn’t lose as much as they expected. The recession has impacted a lot of large companies like Tesco’s as the sales revenues and profits have declined. This in turn meant manufactures who were demanding more froze their employment process. Advertising has been reduced so the business can save money but this can affect the business because they’re not putting their business out there and they cannot attract customers.
In the guardian there was an article posted on the newspaper about Tesco “surviving the recession” on the 25th of April 2010. The article mention that Tesco was the second business to enter the £1bn profits barrier with only approximately 700 stores in the first year. In 2011 the Tesco’s chief executive decided to cut prices by 10% and 30%on more than 3,000 products. This was a strategy to combat their competitors such as cheap retail store like Aldi and Lidl, who were coming into power due to their extremely low prices during the recession. This started their rivalry with each other but it affected Tesco as it dropped its profits in a short amount of time.
When the recession hit Tesco they received its lowest figures ever in the last 16 years. They lost a lot of customers, staff, suppliers and potential shareholders. However in 2010 Tesco’s tried to expand to America in the hopes of getting help financially. Unfortunately that did not work and was unsuccessful. Tesco then resorted to lowering the VAT on their items to attract more customers which started to benefit them slowly in a few months. They learnt from this recession as they were able to experience and see how serious business financial troubles are. This could be thought of as a valuable experience for the company and they will now know how to effectively deal with such problems in the future. However the disadvantages of the rescission far outweighs the advantages as the lost a large, almost all of their profits since before the recession.
A period of economic growth hit Tesco’s which helped them regain all of the profits lost during the recession and allowed them to attract customers, employ more staff as well as get potential shareholders. The benefits of Tesco going through the recession and growth periods is that it has helped them realise just how crucial business management is from their customers to their shareholders. It also showed that their assets will not always be there to benefit them such as the banks who did not give them a loan during the recession period. They couldn’t demand a loan from the banks as they were not financially stable or able to return the banks money let alone with the interest.