Analyse two constraints on HP of changes in its external environment.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2023). The mark or mark type is shown in brackets.

1. [1] Definition of external environment: those factors outside the control of a business.
2. [1] Constraints: those external factors that might hold the business back or put limitations on its activities.
3. [1] Meaning of external factors such as economic and political factors and competition.
4. [1] Impact of external factors such as: laws limiting business activity.
5. [1] Impact of external factors such as: cost (inflation).
6. [1] Impact of external factors such as: limiting HP's growth.
7. [1] Impact of external factors such as: limiting demand for HP's products.
8. [1] HP is facing more competition from multi-national companies who have entered the market in response to increased demand for pet products, this is likely to continue (link to labour turnover).
9. [1] Many pet care products, especially organic pet food may be regarded as 'luxury' items, the same may be said of pet ownership to some extent (link to demand if real incomes decrease due to inflation).
10. [1] Increasing inflation (link to costs of organic inputs for HP).
11. [1] Central bank decision to increase interest rates in the near future (link to demand for pet food or plans to borrow for factory modernisation).
12. [1] Plans to automate production (link to employment law).
13. [1] Competition law and takeovers such as Organic Pet Foods.
14. [1] The entry of multi-national companies into the market for pet-care products may well offer lower prices due to their economies of scale, leading to lower sales and profits for HP.
15. [1] Inflation and higher interest rates will reduce HP's growth because consumer disposable incomes and confidence will decrease, leading to lower demand, especially for highly income elastic products such as organic pet food.
16. [1] Higher interest rates may make expansion plans more expensive therefore delaying factory modernisation and resulting in lower growth for HP.
17. [1] Increasing competition from multinational competitors will impact labour costs as labour turnover increases and this may force HP to increase wages to retain employees.