Jordan Blacker
M2 – Compare the challenges to selected business activities with a selected organisation, in two
different economic environments.
Tesco and McDonalds can be affected by several factors within the economic environment. These
include interest rates, inflation, recession and exchange rates. I will be discussing how each of these
affects the individual businesses and making a comparison between the two. Through research into
both businesses I have found that the impacts of each economic factor have a very similar effect on
both of the businesses.
Tesco can be affected by interest rates in several ways. If interest rates are made higher, then
customers with debts will have less disposable income and will be repaying the lenders more money.
Also, if Tesco have an overdraft they will have higher costs because they need to pay more interest.
Tesco will also be affected because businesses sometimes take out short term loans to make up for
any shortfalls in wages or other expenses, but higher interest rates make it harder for Tesco to be
able to pay back the lenders and they have to pay a larger amount. Tesco may also take out a longer
term loan to repair parts of the store that are going to take a long time and a large team to do so.
Higher interest rates would mean that Tesco may end up paying much more than the service is
worth. Tesco may also have to re-evaluate their strategies due to profit losses. They may also not be
able to sell their stocks on the market as people won’t want to invest in to a failing business.
McDonalds is also affected by interest rates. They face the same issues as Tesco regarding their
customers having less of a disposable income. Many of their customers will choose not to shop there
anymore as the interest rates will make the prices higher than they already are and fast food is
already expensive. Many customers will not be able to afford the new, higher prices and will return
back to supermarkets for cheaper alternatives. If McDonalds wanted to take out a loan to repair
infrastructure, they would pay back a lot more money than they borrowed.
Tesco and McDonalds are affected similarly by interest rates. Customers will be paying more on any
debts they have and will have less money to spend on luxury items. Taking out loans also becomes
difficult for the businesses because they will be paying back a much larger amount than what they
borrowed which isn’t good for the businesses. They may also find that as interest rates rise, the cost
of imports also rises and they may not be able to import as many items as they previously have.
The current inflation rate in the UK is 1.20% as of September 2014. The target that government has
set for inflation is 2.0% so we aren’t far off their goals. Tesco is impacted by inflation because it
decreases their sales and income. Their sales will decrease because although inflation rises, the
wages that people are paid doesn’t increase. Therefore they become unable to buy the products that
they would usually buy. Tesco would then lose a lot of money because customers aren’t spending as
much in store because the prices have risen and consumers are switching to cheaper alternatives.
The customers also lose their confidence in the business as it begins to decline so they are even less
likely to shop there and Tesco will suffer more because of this. They will also need to cover stock costs
and may not be able to do this if their income is decreasing due to less demand.
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M2 – Compare the challenges to selected business activities with a selected organisation, in two
different economic environments.
Tesco and McDonalds can be affected by several factors within the economic environment. These
include interest rates, inflation, recession and exchange rates. I will be discussing how each of these
affects the individual businesses and making a comparison between the two. Through research into
both businesses I have found that the impacts of each economic factor have a very similar effect on
both of the businesses.
Tesco can be affected by interest rates in several ways. If interest rates are made higher, then
customers with debts will have less disposable income and will be repaying the lenders more money.
Also, if Tesco have an overdraft they will have higher costs because they need to pay more interest.
Tesco will also be affected because businesses sometimes take out short term loans to make up for
any shortfalls in wages or other expenses, but higher interest rates make it harder for Tesco to be
able to pay back the lenders and they have to pay a larger amount. Tesco may also take out a longer
term loan to repair parts of the store that are going to take a long time and a large team to do so.
Higher interest rates would mean that Tesco may end up paying much more than the service is
worth. Tesco may also have to re-evaluate their strategies due to profit losses. They may also not be
able to sell their stocks on the market as people won’t want to invest in to a failing business.
McDonalds is also affected by interest rates. They face the same issues as Tesco regarding their
customers having less of a disposable income. Many of their customers will choose not to shop there
anymore as the interest rates will make the prices higher than they already are and fast food is
already expensive. Many customers will not be able to afford the new, higher prices and will return
back to supermarkets for cheaper alternatives. If McDonalds wanted to take out a loan to repair
infrastructure, they would pay back a lot more money than they borrowed.
Tesco and McDonalds are affected similarly by interest rates. Customers will be paying more on any
debts they have and will have less money to spend on luxury items. Taking out loans also becomes
difficult for the businesses because they will be paying back a much larger amount than what they
borrowed which isn’t good for the businesses. They may also find that as interest rates rise, the cost
of imports also rises and they may not be able to import as many items as they previously have.
The current inflation rate in the UK is 1.20% as of September 2014. The target that government has
set for inflation is 2.0% so we aren’t far off their goals. Tesco is impacted by inflation because it
decreases their sales and income. Their sales will decrease because although inflation rises, the
wages that people are paid doesn’t increase. Therefore they become unable to buy the products that
they would usually buy. Tesco would then lose a lot of money because customers aren’t spending as
much in store because the prices have risen and consumers are switching to cheaper alternatives.
The customers also lose their confidence in the business as it begins to decline so they are even less
likely to shop there and Tesco will suffer more because of this. They will also need to cover stock costs
and may not be able to do this if their income is decreasing due to less demand.
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