Lectura: 6 minutos

IB Business Exam Papers made easy. Evaluation Part 2 E-R-S

In the last article, we covered long vs. short run, changes in objectives and stakeholder positions. We worked out that stakeholders are internal and external and that with every business change individual as well as group stakeholders can be implicated. Often conflicts between stakeholders arise and the business must set priorities. In this article, the other three letters E (external environment), R (resources) and S (synergies) will be explained.
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Nicole Baudisch, IB Ambassador of Business & Economics at IB Wave, CAS & Advisory Coordinator. Head of I&S Department.

LOSERS Paragraphs

It is recommended to use at least three letters from the LOSERS acronym.

External environment, resources or factors of production and corporate synergies will be further discussed in the next paragraphs. 

External environment

The fact that elements in the external environment can have direct as well as indirect effects on the operations, employees, and revenue of a firm makes these considerations for any business crucial.

The external environment of a company is continually shifting in ways that are outside of the organization’s control; nevertheless, leadership teams may monitor these shifts and take steps to mitigate the negative effects of them.

It is obvious that each company will encounter numerous possibilities and difficulties as it responds to its external environment

External environmental traits are the factors outside the company’s direct reach. These often include the social and cultural, natural environment, political, legal, technological, and economic factors.

Social factors

Companies have always taken on significant impacts on society, and throughout history, it has been the primary driver of many societal shifts.

These changes have ranged from the way businesses interact with society to the kind of products and services they provide to customers.

Particularly in this age of technology, enterprises are the primary agent of social change because of its influence on customers.

The internet and social media have become the hub of everything in the twenty-first century, and business practices have been created to reflect this.

Consumer perception has evolved as a result of business strategies that leverage digital connections.

In the past, businesses set their own business hours, and customers had to accept them or forgo that specific product.

With the advent of e-commerce and smart phones, this has completely changed since buyers may now access things 24/7.

They have increased standards for what constitutes good customer service. Businesses must adapt to the altered consumer behavior or risk going out of business.

The pursuit of profits is the major motivation behind the establishment of enterprises.

The term “sustainability” refers to a company’s capacity to remain profitable for an extended period of time, as well as its innovative and consistent practices, as well as the process by which those profits are obtained.

The profitability of a company, both now and in the future, as well as the means by which this profitability may be maintained, are important to growth. 

Emerging economies, who are known at first offering most products to lower prices, with the availability and the application of new technologies, help accelerate economic growth, have an effect on consumption behavior and companies overall pricing strategies

Economic factors

Apple announced an accelerated plan for its US investments in April 2021, raising its commitments to more than $430 billion and pledging the creation of over 20.000 new jobs.

Apple has decided to increase its level of investment by 20% over the next five years in order to encourage American innovation and promote economic growth across the board.

Through direct employment, purchases from US suppliers and manufacturers, Apple sustains more than 2.7 million jobs nationwide.

Almost $45 billion in corporate taxes have been paid by Apple, making the corporation the highest taxpayer in the US. 

Source: Apple 

Inquiry Question: How does a business impact the local economy?

Natural environment

Almost all companies, through their activities and supply networks, release pollutants.

Likely causes usually involve emissions from distribution and delivery vehicles, and emissions from burning fuels used to heat buildings. 

Here is a good article for IB students to read on the impact large corporations have on the natural environment: “Coca-Cola, Pepsi highlight the 20 corporations producing the most ocean pollution.”

Political factors

Today, corporations have a significant impact on world politics.

Through effective, high-level lobbying, the business sector may nonetheless play a key role in the creation of governmental policy, even in those nations that tightly restrict corporate involvement on political advertising.

For instance, major corporate individuals spent close to $7 billion campaigning state officials during the 2018 election cycle and $500 million on campaign contributions to U.S. federal election candidates. 

Source: The Conversation

In 2019, “Chinese government officials helped Tesla secure loans worth around $1.6 billion” for building its Shanghai factory.

Moreover, during the global pandemic in 2020, the Shanghai government-assisted Tesla to “get back to normal operations quickly” despite widespread lockdowns.

Source: JingDaily

Resources or Factors of Production

Increases in the output of products from over a period of time is referred to as economic growth. As a result, the price of these products rises, increasing corporate profits.

It has a snowball effect that frequently causes stock values to rise and employment levels to increase.

Businesses benefit from retained and reinvested profits and consumers from higher disposable incomes and spending power. 

The inputs required by businesses to create products are known as the factors of production. Land, labor, capital, and entrepreneurship make up the four factors of production

Any change within a company directly either affects or depends on the availability of factors of production.

Capital investments might be required to automate new processes. Managerial economies of scale achieved by hiring experts who are also qualified to increase entrepreneurial thoughts and actions within a business.

The business might source more natural resources to be able to meet increasing global demand. 

Any decision a business makes certainly depends on the availability of the factors of production

For IB students a big key term to use here is the concept of economies of scale

The corporation can get financing more affordably thanks to financial economies of scale.

A larger firm may use an initial public offering to raise money on the stock market. Large companies typically receive loans at cheaper interest rates since they have better credit ratings.

The ability of large companies to hire specialists’ results in managerial economies of scale. They are better able to handle certain business units due to their expertise and qualifications.

Expanding companies are more likely to have the resources (cash flow and demand) to justify purchasing commodities in much larger quantities, which can result in cost benefits per unit that smaller companies are otherwise unable to attain.

They profit from economies of scale in purchasing.

Synergies

Synergies can be divided into three different categories: revenue synergies, cost synergies, and financial synergies.

Combining factors of production, employees, and data via synergy strategies enables businesses to run their operations and marketing campaigns more successfully.

Strategic alliances can help these synergized businesses access more efficient supply networks and expand their market reach.

Companies usually compete with one another for revenues and market share. Working together can occasionally generate higher efficiency through combining strengths and resources.

It is possible for a firm in Barcelona that makes women’s clothing to collaborate with a company in Madrid that makes men’s clothing.

Both businesses can benefit from having access to each other’s market share thanks to this kind of synergy. Each business will be able to increase sales and income as a consequence.

A hair dresser could partner with a trending hair shampoo producer. Both businesses benefit from the synergy by selling more. 

It’s normal practice for businesses to patent their products in order to protect them from competitors stealing their authentic work.

However, synergy allows businesses to use each other’s patents. This can encourage creative cooperation and assist the teams from merged firms in producing superior goods.

It is common that large companies share R&D costs, risks and later revenues. That leads to faster product development.  

Look out

The next article should be just in time with the release of the May_2023 case study – Paper 1 SL/HL.

There will be a summary on the case study, a short first analysis and in detail the topics that the case study could potentially be linked to.

I will give you preparation strategies and a few revision key pointers


Happy Revisioning! 

IB Wave

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