STEEPLE analysis - Outline Chapter 46 - BMT

Business Management ToolKit

External Environment

1- What is STEEPLE analysis (Paul Hoang, 5th edition p. 617, 619)

2- Example of STEEPLE analysis (Paul Hoang, 5th edition p. 618)

3- Social opportunities and threats (Paul Hoang, 5th edition p. 619, 620)

4- Technological opportunities and threats (Paul Hoang, 5th edition p. 621, 622)

5- Economic opportunities and threats (Paul Hoang, 5th edition p. 623)

A- Inflation (Attached notes below )

B- Unemployment (Paul Hoang, 5th edition p. 624)

C- Economic growth (Paul Hoang, 5th edition p. 625)

- During a boom economic activities will be at their highest aswell as the GDP aswell as
consumer spending and investments and technological advancement and strong
confidence between consumers and firms

- During a recession all these points above start to go down and the GDP falls for two
consecutive quarters then the we are finally in a recession.

- Trough confidence is at its lowest and GDP is at its lowest and firms investments is at its
lowest.

D- Coping with a recession (Paul Hoang, 5th edition p. 625)

- Businesses are not selling their products, they have cash flow problems
- They use different strategies to deal with a recession
1. Cost reductions - redundant employees, cust energy bills, find alternative
suppliers, relocate to cheaper locations
2. Price reductions - to increase their sales because people are more sensitive to
prices during a recession
3. Non pricing strategy - Special offers, discounts, and promotional strategies
4. Branding strategy - its harder to maintain loyal customers, you have to keep them
loyal - then they wont switch to other brands. So people will not switch to other
products
5. Outsourcing production overseas - outsourcing production overseas because
cost is lower and you get a price advantage
 E- A healthy international trade balance (Paul Hoang, 5th edition p. 626)
- You want to make a balance between exports and imports
- When products are exported, then there is a inflow of money
- When products are imported, there is a outflow of money
- Governments always aim to make a balance between imports and exports.
- BUT
- If there is a greater outflow (imports) than inflow (exports) then this is
known as a deficit
- If there is greater inflow (exports) than outflow (imports) then this is known
as a surplus
- You must create a healthy trade balance
THE QUESTION :
Refer to extra notes about international trade balance : To maintain a healthy trade balance the
government must change the currency, how do they change the currency? They have to change
the interest rates.
- When you increase interest rates - the value of the currency increases. This is because
you will want to save more and borrow less in terms of BD (for example). You will want to
save more in a bank in BD because then you will receive more due to interest rates. The
value of the currency will then increase

- Interest rate and value of currency are in direct proportion

F- Examples of protectionist measures (Paul Hoang, 5th edition p. 626)

6- Environmental opportunities and threats (Paul Hoang, 5th edition p. 627, 628)

7- Political opportunities and threats (Paul Hoang, 5th edition p. 628, 629)
For political opportunities and threats use the attached notes below - Clearer
pages 10&11)

8- Common examples of taxes (Paul Hoang, 5th edition p. 628)

9- Legal opportunities and threats (Paul Hoang, 5th edition p.630)

10 - Ethical opportunities and threats (Paul Hoang, 5th edition p. 633)

11- Porter 5 forces (Attached notes)

12- Evaluation of STEEPLE analysis (Paul Hoang, 3rd edition p. 70 )

Attached notes: Inflation - What you need to know about
inflation

What is Inflation (page 1 attached notes )?

The general increase in the price level. If inflation is 3% means the price is rising by an average
of 3%. The purchasing power of the currency goes down.
- For example, a 1$ will buy a smaller market basket than it used to buy before inflation.
What if the inflation is less than 5%, and it is 2-3% it is called moderate inflation and it is
considered healthy inflation as it indicates economic growth
It is an indicator that there is a demand in the economy, people are demanding more, it is an
indicator that there is an increase in demand and it is an indicator that the GDP will grow.
If inflation is above 5% it creates a worry towards businesses and governments and creare
problems for them.
- It is hyperinflation when it goes up to the hundreds or thousands

The causes of Inflation ( all from Page 1 attached notes)

The government acts as a doctor for the economy, so you need to figure out the causes of
inflation so that you know how to solve, act, and react with inflation.
- Money Supply ( Increase in money supply) Inflation is caused because the increase in
money supply is not in line with the growth in the output of the economy. Too much
money chasing “few goods” (there is large demand but not enough quantity supplied),
which will lead to the increase in prices of goods leading to inflation.
- What causes an increase in the money supply?
- 1. When the central bank lowers the interest rates - borrowing money will lead to
more money in the market
- 2. Banks start lending more money out of their portion of their reserves (money
reserved incase of an unexpected demand of money).
- Demand ( Demand pull inflation)
- Demand Pull inflation - inflation comes due to the increase in spending by
people (excessive spending in the economy). Excessive spending leads to an
increase in demand which is not matched to the increase in supply.
- The increase in demand is due to the following reasons :
- 1. Consumer spending
- 2. Government spending
- 3. Business spending (investments)
- 4. More exports being bought abroad
- Increasing Cost (Cost push Inflation)
- What causes cost to increase :
- 1. Rise in wages and salaries
- 2. Tax increases
 - 3. Profits - shareholder put pressure on the managers that they want more
dividend
- 4. Imported inflation - The cost of imported products are growing up
- Wage - Price Spiral
- There is no single group to be blamed for inflation
- This means inflation happens due to a self perpetuating spiral (a spiral that self
turns - it gets started and it is difficult to stop)
- Expectations :
- If customers and employees expect inflation, then inflation will occur. You buy
more and you increase demand (increase wage prices).

The effects of Inflation on business - (Pages 2 and 3 attached notes)

- Increasing costs
- Increase in costs of raw materials, component parts, wages and salaries, energy
costs will increase, utilities bills. WHen your costs of production increase, you
then need to raise your prices and your profit margin will decrease.
- Shoe leather costs
- During stability, when prices are stable, businesses have a good knowledge of
prices, they don't have to search for better prices, prices are transparent. During
periods of rising prices, business have to spend more time shopping for the best
price or the best deal. You spend time and effort to find the best price. The extra
time you spend looking for a good deal, it can be expensive as you put time and
effort and this could be extremely expensive for businesses.
- Menu costs
- Additional costs, you have to change the prices from the paper that you stick on
the cans… You assign employees to do that.
- Wage negotiating
- Conflict between employees and employers, they want an increase in wages and
business are interrupted and it can cause industrial conflicts in industrial relations
- Reduced purchasing power
- Real value of money decreases
- Borrowing and lending
- During inflation, it redistributes money from the lender to the borrower. They will
pay back less in real terms to the bank during an inflation.
- Value of borrowers' debt is wiped out, where interest rates fail to keep up with
inflation.
- Investment
- Due to the problems of inflation businesses are hesitant to invest in businesses. A lot of
businesses will not go ahead with their investment projects.
- Uncertainty
- Businesses are uncertain regarding the increase in costs they will face or the prices they
have to charge. Firms are unwilling to enter into long term business transactions. This
will deter businesses from investing into new projects.
- Unemployment
 - Inflation causes unemployment because no new products are being achieved and
busines are cutting costs to survive (laying offf employees).
- The value of assets
- The value of the assets increases. Assets : anything you won and houses and
machinery prices will all go up. The general increase in price will make it harder for
businesses to grow or even for startps will be difficult

Inflation, deflation and business ( page 8 attached notes)

- Deflation : the continuous fall in the average price levels. Deflation leads to a recession.
They usually cut there costs in order to survive. The economy is not growing.
The effects of deflation on business (page 9 attached notes)
- Usually in a recession, deflation occurs
“Strategy and inflation” ( page 9 attached notes)
- Raise prices : push up your prices to maintain there profit margin to face inflation. But
this will make inflation worse but as a business you do not care as much because this is
the government's issue.
- It will be much easier if the competitors raised their prices
- Change your production productivity : Labor saving equipments, alternative suppliers,
operating in another country, using more efficient techniques of production

What does the government do to curve inflation?

- Government uses the fiscal policy
- It involves taxation
- It involves government spending
- Infrastructure
- Transportation
- Education
- Health care
- Social security
- If there is inflation that is caused by “demand pull” (too much spending in the market)
inflation, then they use the deflationary fiscal policy. They must increase the taxes,
then the will have less disposable income. The government will also spend less in the
market - less business opportunities and less business developments.
- If the economy wants to overcome a recession, they use an expansionary fiscal policy,
they decrease taxes and government spends more (creates business opportunities)

- The government also uses another strategy (for inflation and deflation) - monetary
policy from money
- They use this strategy when there is too much money chasing few goods
- INFLATION :
- Increase interest rates so that people will borrow less
- Increase bank reserves - this means less money to lend for loans
International trade balance → refer to schoology notes.
 ● How does the government control imports and exports?
- Protectionist policy: less imports of other products they want to protect domestic
products and businesses.
- Tariffs: increasing tax on imported products so people will buy domestic products.
- Quotas: quantitative limits on the volume of imports.
- Subsidies: they help domestic businesses through subsidies, subsidies cause
production costs to decrease which allows them to decrease the selling price and
become more competitive in the market.
- Setting embargo’s: banning products, physical ban on trades with other countries,
usually due to political problems.
- Technological and safety standards: they raise these standards for imported products.
Making it more difficult to import these products.

● Unemployment
- % of unemployed people that belong to the workforce.
- Normal unemployment rate: 3 - 4%
- Many people not working could lead to economic recession and increase poverty.
- The government will have to give out more and more government welfare.

What is Inflation - Page 1 - including Wage Spiral

The effects of Inflation on business (pages 2 and 3 below)
Inflation, deflation and business ( page 8 below)
The effects of deflation on business &“Strategy and inflation” (page 9 below)
Political opportunities and threats (pages 10 & 11 below)