The Dynamic Business Environment (Cambridge (CIE) A Level Business): Revision Note

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

Aspects of the dynamic business environment

1. Changes in technology

• 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

2. Changes in the environmental expectations of consumers

• 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

3. Products and services becoming obsolete

• Products and services can become outdated due to changes in technology or changes in consumer demand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

4. Changes in the economic situation

• 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

5. Changes in law

• 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

Why do businesses succeed or fail?

Business success

• There is no single 'recipe for business success'

• Those that thrive usually share some common characteristics

Reasons why some businesses succeed

Business failure

• 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

Reasons why some businesses fail