3.7.4 Analysing the external environment to assess opportunities and threats: political and legal change


    3.7.4 Analysing the external environment to assess opportunities and threats: political and legal change

    The impact of changes in the political and legal environment on strategic and functional decision making

    Competition Law:

    • EU and UK laws exist in order to try to prevent the exploitation of monopoly power.
    • Prevent companies agreeing to work together to the detriment of consumers by operating a cartel, agreeing with supposed rivals to hold supply down in order to keep prices artificially high.
    • Monitor the behaviour of any business with a strong enough position within its market to potentially be able to abuse its power eg. investigations into supermarkets paying a fair price to farmers.
    • Ensure that takeovers and mergers do not break the rule of thumb, which is that 25% should be the ceiling on any firm’s share of a UK market.


    Effects of competition law:

    • CMA get involved in any potential takeovers or mergers that will have an impact on the UK consumers. The EU also have the powers to look into anything affecting the EU consumers.
    • This would impact of strategic decision as they may not be able to do takeovers % mergers, may force them to enter new markets, with or without a joint venture


    Labour Law:

    • Employment law is designed to prevent the exploitation of employees by businesses. Therefore, the major areas covered include pay, working conditions such as entitlement to leave and holidays, physical working conditions and the right to trade union representation.
    • The key area of the law governing payment is the need for employers to pay at least the national minimum wage
    • Legislation also exists to prevent discrimination in the workplace


    Effects of labour law:

    • Tightening employment laws may make firms adapt their operations strategies to reduce their reliance on UK-based HR. Strategic options could include offshoring certain operations to countries where wage rates are lower
    • Many employment laws have been influenced by EU attempts to create a ‘level playing field’ among European countries. This ensures that competition between EU members cannot be based on one country offering poor labour conditions


    Environmental Law:

    • Environmental laws exist to try to minimise the negative impacts of business on the natural environment eg. preventing pollution, products packaging and recycling legislation. The environment agency is responsible for enforcing most environmental legislation within the UK
    • It operates at arms length from politicians, yet is funded by government-funded.


    Effects of environmental law:

    • Additional costs
    • First movers benefit from a ‘greener image’ which allowed them to tap niche markets of environmentally conscious consumers. Nowadays, many of the effects of complying with environmental legislation centre on how reducing material and energy use can form part of a lean production programme to reduce costs


    Tax Law:

    • The two most significant taxes are Value Added Tax (VAT) and Corporation Tax. A businesses with a turnover above £81,000 must register for VAT with the HMRC. A VAT registered business can claim back VAT that they have bought.
    • Corporation tax is a tax on profit. A limited company must pay tax on its profits, currently at a rate of 20%. Profits generated in certain ways, including successful R&D, new patents or theatre, film or TV production are exempt from corporation tax.


    Effects of laws governing tax:

    • The major effect of the VAT system is to create more work for accountants. Ensuring VAT is recorded, handed over to HMRC and claimed back on items purchased keeps accounting departments busy all year round.


    Help for enterprises:

    • Enterprise allowance
      • Get a business mentor to help develop ideas and start trading
      • Get a weekly allowance of 26 weeks
      • Apply for a loan to help with start up costs
      • The loan has to be paid back, the allowance doesn’t
      • Any money you get doesn’t affect your housing benefits, tax credits, income tax, universal credit, or access to work grant
    • Funding for lending
      • The bank and HM Treasury launched the scheme in 2012
      • Designed to incentivise banks and building societies to boost their lending
      • Provides funding to banks and building societies for an extended period, with both the price and quantity of funding linked to their lending performance
      • Aimed at small and medium sized enterprises
    • The enterprise finance guarantee
      • A guarantee scheme to facilitate lending to viable businesses that have previously been turned down
      • Can provide finance between £1000 and £1.2million
      • Pay back between 3 months and 10 years for term lending and between 3 months and 3 years for overdrafts


    Regulation = the enforcement of principles of rules that result from the passing of a low or a series of laws

    Self Regulation = some industries have been given the power to regulate themselves such as ASA and CAP

    • Regulation is designed to create free and fair competition within markets
    • Controlling prices prevents prices rising too high, and often sets the current ratio of inflation
    • Restricting ROCE prevents firms from earning excessive profits and prices could increase as companies become less concerned in keeping costs low
    • Unbundled access provides a source of extra income, and means that new firms don’t have to pay high fixed costs


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