Unit 1: The Business Environment.
Task 3 Part 1: In this report I’ll be writing about the influences of two contrasting
economic environments on business activities.The business I be writing about is
McDonalds. I will also compare the challenge faced by the McDonalds for two different
economic environments.
McDonalds is the world’s largest fast food hamburger chain in the world. It is a large
scale business as it serves over 60 million customers on a daily bases, is located in 119
countries worldwide that have 35,000 outlets and still growing rapidly. McDonalds is
recognized not only for fast food, but also for their good customer relationship which has
earned them a positive reputation in the market.
Economic environment are external factors that have an effect on the performance of a
business and the economy as a whole in both good and bad ways.Some of these external
economic factors are interest rate, inflation ,GPD (Gross Domestic Product) and
consumer confidences. These economic factors affect an organization like McDonalds act
like an external constraint over a business. That means that business has little control over
these factors and also the economic environment.
Below are some examples economic environments:
Boom is a period of time in which the economy is at the highest or could also be a period
of rapid growth. During this time the sales of product and service for a business is at its
highest point.As a result of increased demand of its product or services from consumers.
This helps the business to boost up its morale and as a result leads the business to
increases their investments.It also helps the business to build up customer confidences for
them to purchases more products and services from them. This leads to higher profit
margins for business.
Recession is period of time where economic growth slows down and the level of output
may actually decrease. This results in unemployment and companies losing confidence
resulting in reduced investment. During this period, business experiences a fall in their
sales and business tend to save rather than spend their capital.
Downturn/Slump is a period of time in which there is a prolonged decline in the GPD in
the economy. This results in more unemployment. During this period during this period,
business experiences a fall in their sales and business tend to save rather than spend their
capital.
Recovery is the period of time where things start to get better.It happens when the
consumers begin to increase in their spending on goods and services. This enables
businesses feel a little more confident as consumers are helping to increases sales of the
business products and services. That then allows business to increases in there invest
again and build stocks.
1|P a g e
,Source:http://www.tutor2u.net/business/strategy/economy-business-cycle.html
The first economic environment I will be writing about is how the recession influences
McDonald’s business activities.
Economic factors for The influence of this economic environment on McDonalds.
the recession economic Business activities.
environment.
Interest Rates Interest rate is the percentage of a loan which is added on as interest
to either lender or borrower. Interest rates either continue to
increase and decrease overtime.Interest rates tend to fall during
recessions. A decrease in interest rates during a recession makes it
easier for McDonalds both invest in business opportunities as well
as to borrow money which is able to promote economic growth as it
becomes cheaper to borrow money. Within the recession, interest
rates reduce the chances for people to save money as they will get
less money on their saving and would rather spend money then save
because of low interest rates. This aspect of the recession will help
McDonalds with a recovery or even economic growth within
business. This is because more consumers are spending on
McDonalds products. This will result in the sales revenue to
increasee. Also, a decrease in interest rates makes it cheaper for
McDonalds to borrow money in both the short and long term and as
a result it is a lot easier for them to spend and invest .For example,
if money is being borrowed more of a regular basis due to low
interest rates so people have more money to spend in McDonalds
products, so McDonalds profit increases. Also, a decrease in
interest rates makes it cheaper and easier for investors or
shareholders to invest in McDonald’s business opportunities.This
may help further expand and strengthen McDonalds as a business.
Inflation Inflation tends to fall in a recession as the prices of goods and
services increase.The same happens to McDonalds pricing due to
the prices of raw materials increasing. McDonalds then have no
2|P a g e
, other choice than to raise the prices of their products so they offer
customer less value for money. During recession the consumers are
less willing to spend more their money on products that offer little
value for money and may be offered at a better price and quality by
a competitor. These are influences by higher unemployment rates as
customers will have less disposable income due to the rising prices
in business such as McDonalds and will be reluctant to spend their
money on their products. Also the amount of profit made by
McDonalds during this period decreases. Also, falling inflation may
well have a good influence on McDonalds during a recession as if
there is less demand for goods that are often used by McDonalds
then, so businesses or groups of people that operate in the primary
sector may be able to supply these goods at a lower cost in an
attempt to increase demand for a product and encourage more sales
revenue. Therefore, even though the cost increased within
McDonalds that may reduce profit. It’s still likely that the
McDonalds will be able still save money too due to the lack of
demand for some products during an economic recession.
GDP (Gross Domestic Gross Domestic Product is the total value of all finished goods and
Product) services over a space of time which is usually a year. This term is
an indicator of how healthy the economy is and whether or not it is
growing or falling. During a recession the GDP is likely to fall as
fewer goods and services are being finished and sold due to a lack
of demand as a result of factors such as increased prices and high
unemployment rates. In relation to McDonalds, a falling GDP
suggests that less business is being done so therefore, McDonalds
do not need the same number of employees as what they may had
done before when GDP was rising; this organization may choose to
lay off employees in order to cut costs and make as much profit as
they can during a recession. Other influences of a falling GDP
during the recession is that McDonalds will be producing less
goods and will have less demand for raw materials that means less
profit being made due to less sales revenue and increasing costs due
to inflation which is likely to fall during a recession.
Investment Decisions Investment decisions are a choice that is made by management or
directors which establishes when, where, who and how much
investment capital will be invested into a business opportunity. An
investment decision requires a lot of research into the costs and
returns of the decision which may be put into place during a time of
recession. In McDonalds, investors may recognize that planning
and putting into place an investment decision during a time of
recession will reduce the costs due to declining interest rates that
are set at the low points of the business cycle such as the slump and
recession. McDonalds’ may be influenced to make less investment
decision during these times of business cycle such as the recession
in order to cut costs and reduce the amount of money which is
3|P a g e
Task 3 Part 1: In this report I’ll be writing about the influences of two contrasting
economic environments on business activities.The business I be writing about is
McDonalds. I will also compare the challenge faced by the McDonalds for two different
economic environments.
McDonalds is the world’s largest fast food hamburger chain in the world. It is a large
scale business as it serves over 60 million customers on a daily bases, is located in 119
countries worldwide that have 35,000 outlets and still growing rapidly. McDonalds is
recognized not only for fast food, but also for their good customer relationship which has
earned them a positive reputation in the market.
Economic environment are external factors that have an effect on the performance of a
business and the economy as a whole in both good and bad ways.Some of these external
economic factors are interest rate, inflation ,GPD (Gross Domestic Product) and
consumer confidences. These economic factors affect an organization like McDonalds act
like an external constraint over a business. That means that business has little control over
these factors and also the economic environment.
Below are some examples economic environments:
Boom is a period of time in which the economy is at the highest or could also be a period
of rapid growth. During this time the sales of product and service for a business is at its
highest point.As a result of increased demand of its product or services from consumers.
This helps the business to boost up its morale and as a result leads the business to
increases their investments.It also helps the business to build up customer confidences for
them to purchases more products and services from them. This leads to higher profit
margins for business.
Recession is period of time where economic growth slows down and the level of output
may actually decrease. This results in unemployment and companies losing confidence
resulting in reduced investment. During this period, business experiences a fall in their
sales and business tend to save rather than spend their capital.
Downturn/Slump is a period of time in which there is a prolonged decline in the GPD in
the economy. This results in more unemployment. During this period during this period,
business experiences a fall in their sales and business tend to save rather than spend their
capital.
Recovery is the period of time where things start to get better.It happens when the
consumers begin to increase in their spending on goods and services. This enables
businesses feel a little more confident as consumers are helping to increases sales of the
business products and services. That then allows business to increases in there invest
again and build stocks.
1|P a g e
,Source:http://www.tutor2u.net/business/strategy/economy-business-cycle.html
The first economic environment I will be writing about is how the recession influences
McDonald’s business activities.
Economic factors for The influence of this economic environment on McDonalds.
the recession economic Business activities.
environment.
Interest Rates Interest rate is the percentage of a loan which is added on as interest
to either lender or borrower. Interest rates either continue to
increase and decrease overtime.Interest rates tend to fall during
recessions. A decrease in interest rates during a recession makes it
easier for McDonalds both invest in business opportunities as well
as to borrow money which is able to promote economic growth as it
becomes cheaper to borrow money. Within the recession, interest
rates reduce the chances for people to save money as they will get
less money on their saving and would rather spend money then save
because of low interest rates. This aspect of the recession will help
McDonalds with a recovery or even economic growth within
business. This is because more consumers are spending on
McDonalds products. This will result in the sales revenue to
increasee. Also, a decrease in interest rates makes it cheaper for
McDonalds to borrow money in both the short and long term and as
a result it is a lot easier for them to spend and invest .For example,
if money is being borrowed more of a regular basis due to low
interest rates so people have more money to spend in McDonalds
products, so McDonalds profit increases. Also, a decrease in
interest rates makes it cheaper and easier for investors or
shareholders to invest in McDonald’s business opportunities.This
may help further expand and strengthen McDonalds as a business.
Inflation Inflation tends to fall in a recession as the prices of goods and
services increase.The same happens to McDonalds pricing due to
the prices of raw materials increasing. McDonalds then have no
2|P a g e
, other choice than to raise the prices of their products so they offer
customer less value for money. During recession the consumers are
less willing to spend more their money on products that offer little
value for money and may be offered at a better price and quality by
a competitor. These are influences by higher unemployment rates as
customers will have less disposable income due to the rising prices
in business such as McDonalds and will be reluctant to spend their
money on their products. Also the amount of profit made by
McDonalds during this period decreases. Also, falling inflation may
well have a good influence on McDonalds during a recession as if
there is less demand for goods that are often used by McDonalds
then, so businesses or groups of people that operate in the primary
sector may be able to supply these goods at a lower cost in an
attempt to increase demand for a product and encourage more sales
revenue. Therefore, even though the cost increased within
McDonalds that may reduce profit. It’s still likely that the
McDonalds will be able still save money too due to the lack of
demand for some products during an economic recession.
GDP (Gross Domestic Gross Domestic Product is the total value of all finished goods and
Product) services over a space of time which is usually a year. This term is
an indicator of how healthy the economy is and whether or not it is
growing or falling. During a recession the GDP is likely to fall as
fewer goods and services are being finished and sold due to a lack
of demand as a result of factors such as increased prices and high
unemployment rates. In relation to McDonalds, a falling GDP
suggests that less business is being done so therefore, McDonalds
do not need the same number of employees as what they may had
done before when GDP was rising; this organization may choose to
lay off employees in order to cut costs and make as much profit as
they can during a recession. Other influences of a falling GDP
during the recession is that McDonalds will be producing less
goods and will have less demand for raw materials that means less
profit being made due to less sales revenue and increasing costs due
to inflation which is likely to fall during a recession.
Investment Decisions Investment decisions are a choice that is made by management or
directors which establishes when, where, who and how much
investment capital will be invested into a business opportunity. An
investment decision requires a lot of research into the costs and
returns of the decision which may be put into place during a time of
recession. In McDonalds, investors may recognize that planning
and putting into place an investment decision during a time of
recession will reduce the costs due to declining interest rates that
are set at the low points of the business cycle such as the slump and
recession. McDonalds’ may be influenced to make less investment
decision during these times of business cycle such as the recession
in order to cut costs and reduce the amount of money which is
3|P a g e
