Understand the nature of the national environment in which businesses operate - Essay Example

? Understand the nature of the national environment in which businesses operate Table of Contents P1 3 Political 3 Economical 3 Social 3 Technological 4 Environmental 4 Legal 4 P2. 1 5 P2.2: Impact of current fiscal and monetary policy on UK companies 7 P2.3: Impact of competition policy on the business of Lloyds TSB 9 References 12 P1 This part of the essay will produce a PESTLE analysis framework for Procter and Gamble. PESTLE analysis will help to determine the impact of several external environmental factors on the business performance of Procter and Gamble. Political P&G is one of the leading FMCG organisations around the globe. The government supports the business operation of these FMCG organisations as these organisations are considered as significant employers. Moreover, these organisations are able to meet the market demand effectively. P&G complies with all the state and federal laws including the Honest Leadership Act, Lobbying Disclosure Act and Open Government Act. Effective environment funding helps the organisation to avoid political challenges. Economical The recent financial crisis and global economic recession have affected the economic environment of the country. The organisation tries to implement a competitive pricing strategy to support the low purchasing power of people. On the other hand, infrastructure development supports the FMCG industry. The infrastructure followed by the company supports the industry. The target of the company includes growing the organic sales from 1% to 2% at a faster rate than that of the market and delivering the highest earnings per share. It also targets to generate free cash productivity of free cash flow of 90% or greater. Social The organisation tries to introduce healthy goods to target health-conscious people. For example, UNICEF and Pampers are working together to maintain good health of babies. The company follows good governance and contributes for the benefit for the society. They have offered healthier products for the health conscious society and the targets set by the company for the future are always in line with the objectives of societal benefits. Technological Leading global business organisations try to implement advanced technology in business process to enhance their business performance. P&G uses latest and developed technology to attract customers. Moreover, random technological innovation has provided P&G with a significant competitive advantage. The company uses latest technology in order to attract the customers. The company offers tremendous competition to other competitors in the market. The degree of competition is backed by use of advanced technologies. Environmental The organisation has developed several business operation objectives in order to reduce the level of carbon emission. They try to reduce the level of GHG emission in order to bring sustainability into their business operations. The goal of the company includes building at least 550 billion in cumulative sales in the product category of sustainable innovation. This category of products follows an improved environmental profile. Legal The organisation maintains health, safety and environmental standards to avoid legal chaos. The customers are becoming more and more aware of the health and safety requirements and hence try to opt for the products that are healthier and safer. The company maintains the regulations existing in the countries of operation. P2. 1 The United Kingdom is one of the largest global economies. The UK economy is a mixed one. Over the last two decades, the strength of public ownership has been significantly reducing. The United Kingdom is known for the Industrial Revolution in the 18th century. Slowly and gradually, the economy of UK has shifted towards the service sectors (Lipsey and Chrystal, 2011, p.16). Tourism, banking, insurance and other business services are considered as the major growth driver of the UK economy. A mixed economy presupposes a unity of public and private control. It reflects the characteristics of both command economy and market economy. In a mixed economy, the degree of private economic freedom is mixed with the degree of the government regulation of the market. In the present era of globalisation, several countries are adopting this economic system. The mixed economic system helps the United Kingdom to split the accessible resources that are available in the country between both private and public sectors (Myers, 2011, p.19). In UK, private sector organisations are encouraged by the government to get involved in the resource utilisation. It helps the whole country to avail significant economic profits. This resource allocation process helps the citizens of the country to satisfy their individual needs (Fig. 1). Figure 1: Mixed economy. UK has a distinct private sector. In UK the allocation of resources is done through significant market forces. Moreover, the country has a distinct public sector. In this sector, the available resources are allocated mainly to several government sectors, such as the police, fire services and defence. In addition, in several sectors, resources are managed by the effective combination of planning and market-based allocation, for instance, in such areas as healthcare and different private and public provisions. The government of UK motivates the private sector organisations to perform effectively. This collaborative activity helps the country to meet the customer’s necessary demands and needs. It is true that the dominance of public sector organisations is reducing due to lack of skills and future development goals. Therefore, the government is highly dependent on the private sector organisations in the maintenance of the economic balance in the country. The UK government motivates the organisations to manufacture products and provide services based on the market demand and consumer preference. The recent financial crisis has reduced the purchasing power of people. Therefore, the general demand for the products has got reduced due to the economic slowdown. Therefore, the government tries to distribute the limited resources according to the demand of people. China is the second largest global economy. The economic system of modern China is the combination of command and open market economy systems. The country has undergone changes, abandoning a centralised planned economic system, due to the strong effect of globalisation. Earlier, decisions regarding investment and production were represented in a formatted plan developed by the central authority, such as government agencies and certain public bodies. Slowly and gradually, the government of China understood the significance of globalisation and open market economy structure (Rawski, 2005, p.826). This structure helps the Chinese economy to achieve significant growth rate. It is true that the economy of China achieved a significant growth rate during and after the European financial crisis and global recession. This transformed economic structure helped the economy to achieve a significant growth rate. Several leading global organisations are operating their business activities in the Chinese market as China is the leading population country in world. Moreover, the effective economic growth and significant purchasing power benefited both the government and private organisations. According to the new market economy concept system of China, scarce resources are controlled and owned by the private parties. It is referred to as the private property rights institution. In the Chinese market economy system, resource allocations are generally done by the private owners. These decisions are generally co-ordinated within the markets. On the other hand, in a command economy resources are generally owned and controlled by the state (Wu, 2006, p.6). Moreover, decisions about the allocation of resources are strongly and directly controlled by the state. State agencies control the resource allocation based on the developed state rules and regulations. In China, the resource allocations are executed based on the preferences and ideas of the planners. Chinese government has maximised the degree of social well-being. It helps the government to allocate appropriate goods and services to the people of country. The recent experience of China in both market type and command economic system favours the current market orientation. P2.2: Impact of current fiscal and monetary policy on UK companies The current monetary and fiscal policies of the government are framed in order to control the level of liquidity in the economy of UK. The variation in the level of liquidity influences the level of spending of the consumers and the level of investments by the companies in UK. The impact of the current monetary and fiscal policies of the government on the business of the public limited companies of UK (e.g., the Next Plc) and companies in FTSE 100 (e.g., Morrisons) has been explained as follows. The monetary policy of the government is aimed at cutting the interest rate, increase the activities of quantitative easing, providing licences to more banks and financial institutions, etc. (Mishkin, 2007, p.59). These policies have been adopted at present by the government in order to stimulate the increase in the liquidity level in the economy. The reduction in interest rates would make the consumers park less amount of funds in the banks and financial institutions and retain more amount of liquidity in the hands of the consumers. The activities of quantitative easing would also pump in more liquidity into the economy of UK. The rise in demand in the economy would lead to the increase in the scope of investment of the UK companies like Next Plc and Morrisons. The clothing and footwear production of Next Plc. and the retail supermarket activities of Morrisons are likely to increase in order to meet the increase in demand in the UK economy. The increase in investments would be financed by increase in the number of banks as approved by the government. The increase in availability of project finance would help the UK companies to increase their level of production and invest more in expanding their distribution and sales network. The revenue earnings and profitability of Next Plc and Morrisons are likely to increase as a result of the current monetary policies of the government (Bank of England, 2013, p.1). The fiscal policy of the UK government is framed in such a way that the government does not run into excessive fiscal deficits due to aggressive spending with an aim to stimulate demand. On the other hand, the UK government has decided to earn considerable revenues in the form of tax revenues from the public. The investments are to be done by the UK government looking at the future needs. The short needs of the economy are to be met by the tax revenues earned by the government. Thus, such spending for future needs would stimulate the banks and the financial institutions to grant long term loans and finance for expansion of business in the long run and guarantee the availability of long term finances to companies like Next Plc and Morrisons. The business of clothing and footwear could be expanded with increase in the production volumes that is supported by long term finances. Morrisons could look to set up more number of stores in its chains of supermarkets. The increase in the establishment cost for fixed assets could be supported by the long term finances supplied by the financial institutions. Thus, the revenue generation and the business activities are likely to be impacted by the fiscal policies of the government. P2.3: Impact of competition policy on the business of Lloyds TSB Lloyds TSB is a retail bank set up in Birmingham, UK, which caters to the customers in the banking and insurance sectors. The competition policy of the European Commission, Competition Commission, Office of Fair Trading and Financial Services Authority has impacted the business activities of Lloyds TSB. The activity of Lloyds TSB that has come under the scanner of that European Commission and other offices that ensures fair competition of the financial services in the field of selling of insurance. The Lloyds TSB have been allegedly mis-selling PPI in the market. The PPIs are the payment protection insurance policies that allow the borrowers of the loan or credit to insure repayment in circumstances where the borrower may become incapable or unavailable for repaying the loan due to death, illness, etc. The competition policy declares that business should maintain a competitive environment in the market, which allows the consumers to select the best option in terms of available quality and price. The competition policies include monitoring of business activities that aim to limit competition or prevents healthy competition of products and services in the market. The mis-selling activities of Lloyds TSB have led to unhealthy trading activities in the market. The reason cited by the FSA for practicing this kind of behaviour was that the staffs were given incentives with the aim to add additional customer under the belt of the bank despite taking into account the balances among the customers or the quality of the customers. The amount of fine was 350 million pounds. The mis-selling activities of the bank in selling payment protection insurance would mean that they have explained to the customers the features of the product in a wrongful fashion and convinced the consumers to purchase the products (Lloyds TSB, 2013, p.1). In adopting the unfair practices in selling insurance products in the market, Lloyds TSB have unfairly killed the market competition as the other players have suffered in selling the insurance products due to the mis-impression of the products created among the consumers. The activities of Lloyds TSB have also violated the guideline of the Financial Services Authority. This violation in the business activities has led the authorities like the European Commission, Competition Commission, Office of Fair Trading and Financial Services Authority to take action against Lloyds TSB. The activities of mis-selling encouraged fines to be imposed by the European Commission. The European Commission has also been forcing Lloyds TSB to sell over 600 branches of the company that have been involved in the activities of mis-selling PPIs (Clarke and Morgan, 2006, p.37). The imposition of fines and closure of branches meant that the bank lost, in the form of fines imposed on the bank, part of the income earned from the sale of its products. The fines were imposed as a penalty for the unfair activities that the bank had been engaged in. The closure of branches meant decline of the operating activities of not only the insurance products but also the core banking products sold by the bank. Thus, the penalties imposed on the bank as a result of its activities impacted the overall business by pulling down its operations and revenue earnings. According to the information available the bank processed payments originating from the US sanctioned countries or from the persons through the financial institutions of US. In the process the offices removed the information from the payment messages to the banks of US which would have disclosed the source of money to the banks. This resulted in the money not being caught under the scanner or the blocking procedures of the US banks economic sanctions. It enabled the US banks to provide services to those countries and even falsified the business records of the banks present there. The penalty imposed on Lloyds TSB marks the largest fine ever imposed for violating the regulations of sanctions. The magnitude of the fine demonstrates the ability of the US government to impose substantial amounts for violations. References Wu, J., 2006. China’s Long March toward a market Economy. San Francisco: Long River Press. Rawski, B., 2005. China’s Great Economic Transformation. Cambridge: Cambridge University Press. Myers, D., 2011. Economics and Property. London: Routledge. Lipsey, R.., and Chrystal, A., 2011. Economics. New York: Oxford University Press. Lloyds TSB. 2013. Business insurance made easy. [Online]. Available at: http://www.bankofengland.co.uk/monetarypolicy/Pages/overview.aspx. [Accessed on 10 August, 2013]. Bank of England. 2013. Monetary Policy Committee. [Online]. Available at: http://www.lloydstsbbusiness.com/insuring/insurance.asp. [Accessed on 10 August, 2013]. Mishkin, F. S. 2007. Monetary Policy Strategy. USA: MIT Press. Clarke, R.., and Morgan, E. J. 2006. New Developments in UK and EU Competition Policy. UK: Edward Elgar Publishing. Read More