Business organisation and environment

Table of Contents

1. Topic pack - introduction
2. 1.1 Nature of business activity - notes
3. 1.1 Nature of business activity - questions
4. 1.2 Types of organisation - notes
5. 1.2 Types of organisation - questions
6. 1.3 Organisational objectives - notes
7. 1.3 Organisational objectives - questions
8. 1.4 Stakeholders - notes
9. 1.4 Stakeholders - questions
10. 1.5 External environment - notes
    1. External environment
    2. Introduction - PEST/STEP analysis
    3. The legal and political environment - introduction
    4. The legal environment
    5. Political stability and instability
    6. The social and cultural environment - introduction
    7. Social responsibility
    8. Demographic trends
    9. The technological environment - introduction
    10. The Internet and the World Wide Web (www).
    11. E-commerce
    12. Technological change
    13. The ecological environment
    14. The economic environment - introduction
    15. Economic growth
    16. The Business Cycle
    17. Inflation
    18. Exchange rates
    19. Unemployment
    20. Interest rates
    21. Government fiscal policy
11. 1.5 External environment - questions
12. 1.5 External environment - simulations and activities
13. 1.6 Organisational planning tools - notes
14. 1.6 Growth and evolution - notes
15. 1.7 Growth and evolution - questions
16. 1.7 Growth and evolution - simulations and activities
17. 1.6 Change (HL only) - notes
18. 1.9 Globalisation - notes
19. 1.9 Globalisation - questions
20. Print View

Economic growth

Economic growth is normally good news for business. We normally measure it via the real GDP figure - i.e. the Gross Domestic Product adjusted for inflation.

Gross Domestic Product is a measure of the total amount of goods and services produced in an economy over a period produced by the residents of a country. Income from abroad is, therefore, excluded.

Comparisons of country GDP can be found on the CIA World Factbook or viewed in the window below:

The determinants of economic growth in an economy include:

• Access to factors of production and their productive use.
• Application of technology and the rate of technological progress.
• Development of a competitive advantage.
• Creation of a highly skilled workforce.
• Increasing investment levels (the purchase of capital).
• Positive government policies that support business and aid growth.

Businesses usually experience benefits from economic growth because:

• It delivers new opportunities.
• There is greater certainty in markets.
• Incomes are increasing (businesses with income elastic products will benefit the most in this situation)
• Demand is increasing
• The size of all markets is increasing

However, there are potential negative consequences of economic growth. These may include:

• Externalities - social costs
• Damage to the environment
• Depletion of resources
• Rising prices (inflation)
• Increasing size and monopoly power of firms creating unfair competition
• Increasing inequalities between rich and poor

Growth is essential to provide higher revenues and profits and to improve the standard of living of the population in general. However, a trade-off has to be accepted and growth at all costs may have serious consequences. A mad rush to high and constant levels of economic growth might result in the exhaustion of resources, environmental damage and most certainly the failure to deliver sustainable growth. It can also lead to risk-taking and deregulation in the pursuit of further growth, which can be disastrous as shown by the recession of 2007 - 2010 considered by many economists to be the worst financial crisis since the Great Depression of the 1930s. This recession has had a dramatic, but disproportionate effect on growth rates around the globe. Those countries exposed to the 'credit crunch', such as Europe and the USA have seen sharp declines in economic growth. Other areas, particularly in Asia have continued to grow strongly.

The BRIC countries

The 'BRIC countries' - Brazil, Russia, India and China - are both the fastest growing and largest emerging market economies. They account for almost three billion people, or just under half of the total population of the world. In recent times, the BRIC have also contributed to the majority of world GDP growth.

According to various projections, it is only a matter of time before China becomes the biggest economy in the world probably between 2030 and 2050. Goldman Sachs believes that by 2050 the BRIC countries will be the most important economies, relegating the US to fifth place. GM recently estimated that BRIC countries will account for more than 35% of the total auto market globally by 2014.

Apart from their growth characteristic the BRIC countries have little in common, but political and economic alliances are beginning to develop and in 2010, the leaders of these countries met in Brazil's capital Brasilia for the second BRIC summit.

• Bric countries try to shift global balance of power