A-Level Buss4 to What Extent to Do Think That the Recent Changes in the Uk Economy Will Have Damaged That Lt Profits of Businesses
933 WordsNov 30, 20104 Pages
With reference to organisations or industries that you know, to what extent do you think that recent changes in the UK economy will have inevitably damaged the long-term profits of businesses that operate in this country? (40 marks)
The UK had recently emerged from the recession 2007-2009, the economy is now recovering. During the recession, many businesses had struggled to survive. The strategies that businesses had taken during recession may affect their long-term profits. For example, as people spend less during the recession, businesses try to reduce their costs and reduce prices in order to encourage customers to buy their product e.g. Primark, M&S etc and many businesses have also closed down branches in order to maintain their…show more content…
Demand may be price inelastic - Demand is not very responsive to changes in price. This means revenue will fall.
Another reason that could damage long-term profits is that businesses due to recession had to borrow money from banks which have to be repaid. For example, the car industry was most badly hit by the recession as people could not afford to buy luxury cars and traded down. In fact, GM, the world’s biggest car company was the first one to go for the bankruptcy protection and had to borrow about £21bn of government loan. This means that during times of recovery GM would have to repay their loans with interests which means less profit being made. Once in recovery, the profits made by the business are used to repay loans which lower the firm’s overall profit margin.
However, this is not the case for many other businesses as they see recession as actually creating an opportunity for making long-term profits. The recession has helped businesses to come out stronger than ever. Waitrose had seen sales fall as customers chose to buy from rivals such as Asda/Tesco. In response to that Waitrose launched its 'essential Waitrose' range in an attempt to win over customers that have abandoned the chain in favour of cheaper outlets such as Asda or even Lidl and Aldi. Waitrose has woken up to the recession and they realized that they need to make their value message clearer. The performance of Waitrose,