enterprise the-dynamic-business-environment

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The dynamic business environment

The external environment in which businesses operate is constantly changing
- Changes in technology, consumer needs, wants and expectations, as well as the economic and legal climate, can all have an impact on demand for products and the way a business operates
New business ideas emerge as entrepreneurs recognise opportunities created by changes in the market
- Change can also mean that demand for the products a business sells falls
Successful businesses can identify opportunities, plan for changes that could have a negative effect, and develop innovative solutions that meet the changing needs of customers

Advances in technology can create new opportunities for businesses to develop innovative products and services
- E.g. The emergence of smartphones and social media platforms created new opportunities for businesses to reach customers through mobile apps and digital marketing

Consumer demand for environmentally responsible products has changed over time, with more and more people making green buying choices
This has created opportunities for businesses to develop new products that are less damaging to the natural world
- E.g. The growing demand for plant-based food products has led to the emergence of new businesses in the food industry, such as Impossible Foods

Products and services can become outdated due to changes in technology or changes in consumer demand
This can create opportunities for businesses to develop new products and services that meet the needs of consumers in new and innovative ways
- E.g. The decline of physical media like CDs and DVDs created opportunities for businesses like Netflix and Spotify to develop digital streaming services

Factors such as changing interest rates, inflation, the level of unemployment and economic growth (or contraction) can affect demand for a businesses products
- E.g. a business selling products that consumers normally purchase using credit, such as electrical consumer durables, is likely to face a fall in demand when interest rates rise

The introduction or amendment of laws and regulations can change consumer behaviour and require businesses to make changes to their operations
- E.g. the introduction of legislation banning smoking in indoor spaces in 2007 meant that many hospitality businesses in the UK invested in outdoor spaces to accommodate smokers

Characteristic	Explanation	Example
Understanding their customers	Successful businesses study what people need and like, then shape their products and prices to match	Greggs (UK) listened to customers asking for meat‑free food and launched the vegan sausage roll Sales jumped and many new shoppers tried the bakery
Being adaptable	When tastes or technology change, successful businesses adapt quickly instead of holding on to old ideas	Netflix (USA) moved from posting DVDs to streaming films online, then to making its own shows Adapting early kept it ahead of rivals
Being financially stable	Successful businesses maintain good cash reserves and low debt, so it can survive shocks and still invest	Toyota (Japan) ensures it has large amounts of cash During the 2008 financial crisis it could keep factories running and fund new hybrid‑car projects while weaker carmakers cut back
Managing operations effectively	Production, stock and delivery are organised so customers get the right product on time	Zara (Spain) uses fast, computer‑controlled factories and ships new fashion designs to stores twice a week This means shoppers always see fresh styles, and the company sells more at full price.

Business failure is a risk to both new and established businesses
- In 2021, an average of 8% of businesses in EU countries failed
  - The highest failure rate was in Estonia, where almost one in four businesses failed
  - The lowest failure rate was in Greece, where just over 2% of businesses failed
New businesses are often more at risk of failure than well-established businesses
- This is often due to lack of management skills, limited experience or cashflow problems during the initial start-up phase
- The volume and variety of tasks required of new business owners can be overwhelming
- Market research is unlikely to be detailed, as small business owners may lack the skills to understand findings and make effective decisions

Financial Factors	Poor Management
A business may be unable to generate enough revenue to sustain its operations Costs may rise sharply and eliminate profit margins Cash shortages mean that creditors cannot be paid what they are owed Limited access to finance, such as loans or trade credit, can be particularly problematic for start-ups	Lack of experience can lead to poor decisions related to product range, pricing or promotional activity Making decisions based on hunches rather than market research Ineffective record keeping, coordination and planning of business operations, such as stock purchasing or staffing, can increase costs
External Factors	Overtrading
Ineffective or delayed response to new technology, powerful new competitors and major economic change Changes in laws or taxation can increase pressure on businesses to make difficult choices	This occurs when a business expands too quickly Poor coordination and planning of growth can lead to diseconomies of scale, which increases costs