Factors affecting business decisions

1. Economic factors
- Economic factors include the level of ___________________________________
_________________________________________________________________.
These factors affect the overall ___________ and ____________ in an economy.
- A country with a _________ economic environment attracts firms to make
investment. On the contrary, if the price level or exchange rate of a country which
affects ________ and other ____________________ is very unstable, the risk of
doing business in that country ___________.
- The government of a country can promote a favorable economic environment by
imposing _______ tax rates, exercising no ____________________ controls and
removing _______________________.
2. Physical factors
- Physical factors are related to the _______________________ and physical
__________ of a country or a region, which directly affect its economic
development.

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- A favorable physical environment with a well-developed _________________ e.g.
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roads, ports and ___________ networks can attract investments.
3. Technological factors
- Technological factors affect firms’ decisions on how they carry out ____________
and ___________ their products.
C

- New technology can improve production techniques and labour productivity so

that firms can save on __________________________.
4. Social and cultural factors
V.

- Social factors such as the _________________________ e.g. age distribution and

sex ratio affect the labour supply.
- The __________ level and ___________ ability of the population affect labour
productivity.
- The culture of a country affects the _________ and ____________ of consumers,
which have an impact on business decisions.
5. Political and legal factors
- Political and legal factors are related to the political system whether the
government is _____________ or __________________, and the ________ and
______________such as ____________________________________________
imposed by the government have a direct impact on the business environment.
- A government can improve business environment by: encouraging ________
competition, respecting _________________ and the _______, enforcing business
_______, allowing a free flow of __________ and preventing _______ and _____.

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Section B
1. Explain three external environmental factors to be considered in setting up a café.
(6 marks)

DSE 2013
1. Which of the following is not a function of World Trade Organisation?
A. Provide a forum for negotiation aimed at reducing obstacles to international
trade
B. Settle disputes among its members regarding the interpretation of trade
agreements
C. Monitor and review the trade policies of its members
D. Provide loans and subsidies to developing countries for trade development
2. Which of the following encourage a multi-national trading company to move its
headquarters to HK?
(1) larger number of multi-national companies than small and medium enterprises
in HK

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(2) good transportation network between Hong Kong and other Asian cities
ha
(3) lower profits tax rate in Hong Kong
A. (1) and (2) only
B. (1) and (3) only
C. (2) and (3) only
C

D. (1), (2) and (3)

3. Which of the following statements are correct?
(1) Hong Kong is an offshore Renminbi Business Centre of Mainland China.
V.

(2) The main origin and destination of Hong Kong’s re-exports of goods are
Mainland China.
(3) ‘Closer Economic Partnership Arrangement’ (CEPA) aims at raising capital in
Hong Kong for Mainland enterprises.
A. (1) and (2) only
B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)
4. Ken owns a fast-food chain business with more than 50 outlets in HK. He is going
to expand his business by offering delivery services all over HK. Wendy, a business
consultant, recommends Ken to establish a telephone hotline centre in the Mainland
to take orders from customers in HK and direct the HK outlets to deliver the meals.
Explain three types of external factors that would affect Ken’s decision on whether
to set up a telephone hotline centre in the Mainland. (6 marks)

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3. Which of the following are the impacts of globalization on business?
(1) reduce information cost
(2) reduce competition among businesses
(3) facilitate transfer of technology between different countries
A. (1) and (2)
B. (1) and (3)
C. (2) and (3)
D. (1), (2) and (3)
4. Annie operates a small guest house on Lamma Island for foreign travelers. She sets
up an Internet booking system for the guest house, with the following goal:
‘To increase the number of Internet bookings substantially in the near future.’
(a) Briefly explain two characteristics of a SMART goal that are missing from the
above goal. (4 marks)
(b) Explain one political factor and one legal factor that may affect Annie’s
business. (4 marks)

DSE 2016
n
ha
1. Which of the following is a benefit brought about by the ‘Closer Economic
Partnership Arrangement’ (CEPA) for the businesses in HK?
A. Companies owned by HK residents are not taxed on the Mainland.
B. There is free flow of capital between HK and the Mainland.
C

C. Tariffs are not levied on goods originating in HK exported to the Mainland.

D. HK is allowed to enter the World Trade Organization as an independent
economy as an independent economy.
V.

2. Carlo operates as reputable restaurant chain in Italy with customers from all over
the world. He is planning to establish branches in HK. A business consultant
suggests him to operate the branches in the form of franchising.
(b) Explain one legal factor and one cultural factor that Carlo should consider when
setting up branches in HK. (4 marks)

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2. Nick Ltd is a private limited company, manufacturing and selling electrical
appliances locally. Facing international competition, the company is planning to
set up an online store to sell worldwide. To lower costs and increase sales, the
company is analyzing the effects of globalization in order to formulate new
business strategies.
(a) Explain one technological factor and one economic factor that Nick Ltd
should consider when planning to set up the online store. (4 marks)
(b) Suggest two strategies to Nick Ltd that may lower its production cost under
globalization. (4 marks)

DSE 2019
1. Which of the following descriptions about the HK economy is/are correct?
(1) a sales tax is imposed on the retailing of goods
(2) most of the working population are in the tertiary sector
(3) the main destination of exported goods is the Mainland
A. (1) only
B. (2) only
n
ha
C. (1) and (3) only
D. (2) and (3) only
2. Which of the following statements about the World Trade Organization are correct?
(1) It settles trade disputes among members.
C

(2) It provides forums for trade negotiations among members.

(3) It provides financial assistance to developing countries for trade development.
A. (1) and (2) only
V.

B. (1) and (3) only

C. (2) and (3) only
D. (1), (2) and (3)

DSE 2020
1. Which of the following is/are feature(s) of HK’s economy?
(1) Most businesses in HK are small and medium enterprises.
(2) HK is a net exporter of raw materials.
(3) HK does not maintain trade barriers on imports.
A. (1) only
B. (2) only
C. (1) and (3) only
D. (2) and (3)

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