The UK Economy and Business Environment - Case Study Example

Student’s Name: Course Code: Unit number and title: UNIT 1: BUSINESS ENVIRONMENT Assignment title: Business Environment Date of Submission: Table of Contents Table of Contents 2 Task 1 3 1.1 Purposes of different types of organizations and examples 3 1.1.1 Voluntary organizations 3 1.1.2 Public organizations 4 1.1.3 Private organizations 4 1.2 Extent to which an organization meets the objectives of different stakeholders and examples of the objectives and different stakeholders 4 1.3 Responsibilities of an organization NIP supplies them with Post It Notes and strategies employed to meet the responsibilities 6 Task 2 7 2.1 How economic systems attempt to allocate resources effectively 7 The UK economy 7 2.2 Impact of fiscal and monetary policy on business organizations and their activities 8 2.3 Impact of competition policy and other regulatory mechanisms on the activities of Tesco PLC 9 Task 3 11 3.1 How market structures determine the pricing and output decisions of businesses 11 3.2 Ways in which market forces shape organizational responses using examples 12 3.3 How business and cultural environments shape the behavior of a selected organization 13 Task 4 14 4.1 Significance of international trade to UK business organizations 14 4.2 Impact of global factors on UK business Organizations 15 4.3 Impact of policies of the European Union on UK business organizations. 18 References 20 Task 1 1.1 Purposes of different types of organizations and examples NIP limited supplies post it notes to different types of organizations. The types of organizations that are supplied with the Post It Notes are; Public, private and voluntary organizations. Each type of organization has a different structure and purpose. 1.1.1 Voluntary organizations The rules of these organizations are contained in their governing document but can also work if it utilizes a committee and have members meetings. The organization main goal is to provide wider benefits to the community more than to the members. The benefit that is directed to the community can be in form of social, educational, environment as well as economic. 7 Voluntary organizations have three main structures. The organizations can be an association, trust or a limited company. For associations and trusts, they are composed of group of individuals. The members have equal liability in case the group or trust enters into association or a trust. Companies have legal responsibility and a limited liability. The purposes of these organizations is relief from poverty, education advancement, health and saving lives, community development, advancement of human rights and environmental protection among others charitable works. A good example of charitable organization is Red Cross. This is a group that is dedicated in providing emergency health services especially to war torn areas.7 1.1.2 Public organizations These are organizations that are owned by the public and are run on their behalf. Public organizations can be run by the respective government. Though the government may be controlling the business, it’s wholly owned by the country. The organization gets their capital from the treasury or the local rates. The profits made in the public organizations are utilized by the government and any loss that is encountered is offset by the treasury. 7The main purpose of the public organizations is to give a service to the people and less emphasis is put on the profits. Despite this, these organizations are expected to break even in profit and services provision. Public corporations are also NIP business partners who are supplied with the Post It Notes. 1.1.3 Private organizations These are organizations that are owned by private people. The organizations are controlled by the people who own them as directors and managers. These are people responsible for the running of these organizations. The capital that is used in these organizations is invested by owners who share the profits gained. In case the private organization makes a loss, the owners are liable for it. The main purpose of the private organizations is profit maximization for the owners.5 This makes the owners more aggressive in ensuring that they attain maximum profits. NIP ltd is a major supplier of the Post It notes to private sector. 1.2 Extent to which an organization meets the objectives of different stakeholders and examples of the objectives and different stakeholders The organizations above have to meet the objectives of different stakeholders. The objective of the stakeholders varies. The main types of stakeholders are; owners, management, community, employees, customers and suppliers. Each type of stakeholders has their objectives which the organizations have to meet.5 Owners’ main objectives are to make profit for a private organization, get services for a public organization and provide charity in a charitable organization. The organization meets these objectives by the owners through utilizing strategic management and making sure there is accountability. 5 Management- the main objective of the management is to have a healthy organization. To achieve this, they have to balance the interest of the conflicting stakeholders. For example, while the owners in a private organization want high returns, the employees want high wages. 5 Community- the community expects to benefit from firm social contributions. The organizations are expected not to expose the community to any harm. The organization achieves the community objectives through working with it and using initiatives such as shared value. 5 Employees- the employees expect to get better wages for their services to the firm. To meet these objectives, the organization is expected to help the employees while performing their duties. The employees are also expected to work in helping the company attain its goals. 5 Customers- the customers’ main objective is to receive the benefits of their purchases. To meet the customers’ objectives, the organizations are expected to listen to their needs and provide ethical behaviors while handling the customers. 5 Suppliers-the suppliers’ objective is to be treated as valuable stakeholders and establish close ties with the firm. The firm responds by treating the suppliers with required respect and establishing a strong relationship. 5 1.3 Responsibilities of an organization NIP supplies them with Post It Notes and strategies employed to meet the responsibilities NIP supplies several organizations with Post It Notes. Each type of organization has different responsibilities. A good example is the charitable organizations. This type of organization has a responsibility to follow the charity law which is am legal requirement. This is a law that regulates what the organization can do and what they cannot do. 7 Charitable organization is expected to be open and transparent. The organization is expected to make the names of its trustee as a public record. The organization has a responsibility to provide anyone interested with a copy of their accounts. The organization utilizes the websites to publish their information and adhere to the policy of openness and transparency.7 Equal opportunities and anti-discriminatory legislation must be applied by the charitable organisations as they recruit volunteers. This is in accordance with the set laws by respective governments. 7 Ethical issues- every organization is expected to operate by observing ethical issues. This is by making sure that the activities carried out by the organization are in harmony with environment and community. For example, the organization has to monitor their carbon emissions to cater for global warming. 7 Task 2 2.1 How economic systems attempt to allocate resources effectively There are three types of market economies. These are; free market economy, command economy and mixed economy. The free market economy is also known as capitalism. This is the type of economy where the demand for goods and services are subject to the market forces without any government intervention. The prices, supply and demand are subject to the government regulations. Command economy is a controlled economy. The supply and demand for goods and services in this economy are controlled by the government rather than the market forces. This is where the government determines what the country should produce, how to produce it and when to produce it. A mixed economy occurs where the economy is controlled by market and the government. This is an approach that is used by most developed countries.1 The UK economy United Kingdom had a GDP of 2440 billion US dollars in 2012 which represented 3.94% of the global economy. This is the total national income and the output of the economy. Using GDP, it provides a good measure of how the economy is producing. UK has a steady and sustainable growth attaining the highest growth in Western Europe. This has made the UK market competitive. The growth has been aided by the expansion in the labor market with a lot of immigrants into the country. The country has good standards of living which has encouraged investments and increased the aggregate demand. All sectors in the economy are able to spend more due to increase in aggregate demand. Taste and preference of the consumers change with economic growth. As economy grows consumers have more income and they can afford what they prefer. 2 Organizations with social motives are controlled by the government while profitable industries are controlled by the government. Using the three models of economic systems, the resources are allocated to the economy. In a free market, there is minimal or no government intervention. The resources are allocated according to their demand. This is the most efficient method to allocate resources. This is due to fact that the prices are subject to fluctuate which demonstrates that there is scarcity or surplus and reflects the actions of the citizens. 1 2.2 Impact of fiscal and monetary policy on business organizations and their activities Fiscal policy is meant for the good of the society or a country. This is due to fact that it is meant to work for the country development.6Funds are generated through taxation and the revenue obtained is used by the government for the purposes of education, medical care and development projects in a country among other public uses. The country is expected to collect revenue which is above the budget to avoid running on a deficit. In case the government is running on a deficit, it can issue notes and bonds to cater for it. Fiscal policy is divided into segments. The policies segments are; Neutral fiscal policy- this is a policy that is adopted by the government when the economy is running at equilibrium. The government has to fund all their expenditures from the taxes. 6 Expansionary fiscal policy- this is a policy that is undertaken when the country is under recession. At this time, the government spending is higher than the revenue collected. When the tax collected exceeds the expenditure, the government can use it to pay for its debts. The monitory policy of a country is determined by the changes in supply and demands. The availability of money determines whether the economic activities of the country will increase or decline. 6 2.3 Impact of competition policy and other regulatory mechanisms on the activities of Tesco PLC Tesco PLC is a UK organization and is the fourth largest retail company worldwide. The company deals with food and grocery and has presence in more than 14 countries. The organization is subject to effects from the competition policy and other regulation mechanisms set up by the government. Competition policy is based on different ways which the national government competition authority utilizes to make sure that the market is better and there is economic efficiency and welfare. The consumers are given more choices under the competition policy. The competition policy does the following; Cartels- The government puts laws which makes sure there are no cartels which can compromise competition. 4 Liberalized market- this involves eliminating monopoly and increasing the consumer choices. State aid- this involves the checking government efforts to give aid to companies that are making loss and losing demand. Giving grants to such companies can damage competition and hence is avoided. 4 Mergers control- this is a policy that controls mergers and take offers. Mergers especially for large firms can finish competition. 4 The competition policy enhances competition. When implemented, Tesco PLC suffers from increased competition. Tesco PLC may be forced to lower prices in order to maintain their market share. The company may also embrace technology so that it reduces expenditure and capitalizes on efficiency. 4 Other regulatory mechanisms will have an impact on Tesco PLC. These regulations include the pressure groups, government policies and the agencies. If the exchange rate is reduced by the government, Tesco will have to reduce their imports and increase on exports. If the government through the monetary policy committee (MPC) increases the interest, Tesco PLC will be forced to reduce its borrowing. The consumers would also not takes loans reducing the amount of disposable income. This would decrease the company earnings. If the minimum wage is reduced, Tesco would benefit as it spend less on workers. The workers income would reduce leading to low sales for Tesco PLC. 4 Aggregate demand is the total demand of the goods and services that an economy produces over a specific time. This is made from three sectors which are households’ expenditure, government expenditure, and overseas trade. Aggregate demand for Tesco is affected by changes in exchange rates. If the government wants to reduce the deflationary gap, they may reduce the exchange rate. This will have an effect on Tesco price competitiveness of their products. 4 Pressure groups such as workers union have a great impact on Tesco PLC. Their demands have ability to affect the productivity of Tesco PLC. Tesco have to offer their workers better pay and working conditions to avoid conflicting with pressure groups. This shows how Tesco PLC is affected by the monetary policy and other regulations that can be put in place. 4 Task 3 3.1 How market structures determine the pricing and output decisions of businesses There are several types of markets in an economy. The types of markets are monopoly, oligopoly, duopoly, oligospony, natural monopoly, monospony and monopolistic competition. A perfect competition occurs where there are no barriers to entry and consumers and producers are unlimited. This is a theoretical market. A realistic market structure is made up of imperfect competition. For an imperfect competition, the four market structures that are dominant are; monopolistic competition, oligopoly, monopsonitic and oligospony. Monopoly and oligopoly are the most notable structures of the four types. In a monopoly, there are a large number of small competitors. The competitors have a control of the supply and utilize products differentiation. This leads to the market being able to satisfy the consumers’ diverse taste and needs. In oligopoly, the competitors are not many but are large and have a great control in the market. The use of interdependent decision leads to increased competition and can influence mergers and acquisitions. 8 Most of the research points out that market forces as a means that can be used to control the cost inflation in a business. There are also arguments that increased competition can lead to cost increasing acquisitions. According to the growth theory, technological progress is brought about by the market forces in place. The general equilibrium theory explains these forces but in a different way from the traditional growth theory. For a firm to be innovative, they have to use profits to undertake research and development. According to literature in industrial organization, the market forces are the key drivers in research and development investment. This is due to fact that market structure captures the business environment features which include the firm size, entry methods and barriers and also diversification. These are key factors in determining the market rivalry and are capable of giving the opportunities a firm faces and the constraints. 7 By comparing oligopoly and financial structures, they have a common stand. This is due to fact that they both have minimal emphasis on the existing relationship between market output decisions and financial decisions. Using a structural model, there is an interrelationship between the risk, market share and the firms’ rivalry. The market structure have the capability of coming up with a way of determining the policies and attaining the business goals. This can determine the pricing and the business output decisions.8 3.2 Ways in which market forces shape organizational responses using examples An organization has a defined structure and consists of people who work together for specific and predetermined purpose. This is achieved through use of human resources, finances and materials. In an organizations market forces determine the response. For example, if there is increase in demand, the prices will go up. This may leads to an increase in supply of the commodity and at a certain point excess supply will cause the prices to fall. 8 Market forces also have the ability to affect the structure of an organization. This can be explained using five examples. Entry of competitors is one of the ways that the structure can be affected. The barriers to entry determine how easy it is for a competitor to enter into market. Some of the markets require high capital and infrastructure to enter. This is best explained using the aircraft construction. For a company to enter and compete with Airbus, they have to face a lot of barriers in cost and infrastructure. Fear of substitute comes in since the organization has to determine how to reduce the production costs in order to avoid consumers turning to the substitutes. Others are the buyers’ powers, suppliers’ powers and the existing rivalry in the market. 8 3.3 How business and cultural environments shape the behavior of a selected organization Business and cultural environment is composed of consumers, suppliers, regulations, social factors, economic factors and technological issues that affect the business operations. The behavior of an organization is affected in different ways by the business and cultural environment. In any organization, organization behavior plays a very vital part. The main aim of understanding organization behavior is to determine why people behave and work in a certain way. This helps in improving how resources are utilized in an organization. Looking at an organization like Tesco, business and cultural environments shapes its behavior. Being a multinational company, the business environment changes depending on where they are operating. Tesco PLC has to abide by the regulations, culture and social factors of the country they are operating in. if the host government introduces regulations, Tesco have to abide by them. By doing so, the organization have to change its behavior depending on the changes in business environment. In a competitive business environment, the firm has to respond and react in such a way that they counter the competitors. It’s evident that business and cultural environment affects the organizational behavior. This means that they affect how people in an organization react and the way they interact among themselves. 5 Task 4 4.1 Significance of international trade to UK business organizations International business involves buying and selling of goods and services across borders. International trade is important for all countries economies as they enable them to make progress in international levels. The modern economy uses international trade as its backbone. For UK business, international trade has acted as an avenue where they can lower their production costs. This has been done through outsourcing to the developing countries where labor is cheap. Most of the developed countries have outsourced their production to China, Korea, Indonesia among other developing countries. This has earned them an advantage as they have to lower their production costs. There are also UK businesses that have been involved in importing goods from the developing countries. This is due to low prices that can help them gain market at home. Consumers need less expensive goods to lower their costs of living. 2 By referring to the concept of comparative advantage, the significance of international trade to UK businesses can be explained. This concept states that trade conducted between two countries should be of mutual benefit. Each of the participating countries has to enjoy comparative advantage of the products that they trade. For example, a company like Aquaco which deals with recycling and rain water harvesting is situated in UK. Aquaco distributes their products and services to 14 countries worldwide. According to the company data, their international sales accounts to more than 35% of their revenues. This illustrates how important international trade is to United Kingdom. 4 For businesses in UK, international trade serves as an avenue where they can reduce competition from home companies and gain a competitive advantage. There are also cases of specialized industries. These are industries which a certain country have specialized in. this is due to country talent or tradition that enables them to excel in a certain field. UK business has to engage in international business to benefit from these industries. For a UK business that is able to go global, the benefits are immense ranging from low production costs to increased market base. 2 4.2 Impact of global factors on UK business Organizations Businesses are affected by global factors such as legal, social, political technological and economic factors. For a business to come up with a good strategy, they have to understand these factors. Social factors- when there are changes in social structures, business are affected. Social factors determine the tastes, lifestyle and overall behavior of a society. When structure or lifestyle of a society change, it leads to changes in their buying pattern. A business organization has to understand the buying patterns changes in order to come up with a business strategy that is relevant to the market situation. For the UK business involved in global trade, it’s important to know that social factors vary from country to another. 4Each country has its own consumer lifestyle pattern and languages vary. This has impact on a business doing global operations. The business have to company with the global regulations on the environment. These are defined by the conventions such as the Kyoto protocol and Rio Earth Summit. Under these summits, environment has to be conserved to prevent global warming and create a sustainable ecosystem. Legal factors- these refer to the changes that occur in government laws and regulations. For a UK business it has to look at laws and regulations in the area of operations. Successful businesses know the legal, issues that are in any operation situation. This helps the business in determining how the changes in law will affect their operations and how to react. Laws and regulations are subject to changes and the organizations have to be aware of the changes in time and react appropriately.4 Economic factors- global economy is subject to changes which lead to economic factors. If the country economy is able to raise the living standards of the individuals, there is a likelihood that the demands for goods and services will increase. This enables the firms to benefit by making high profits. The increase in demand for the goods and services has an effect on prices which rises. If the economic growth is such that there is reduced demand for goods and services, firms make losses. These changes in the economy lead to changes in business strategies. Businesses are also affected by the inflation, wages, and the set interest rates among other economic factors. Businesses are expected to have a room to accommodate changes in economic factors. 4 Political factors- this involves changes that occur in policies of a government and government itself. Of late, political factors have become very important in business operations. With the creation of European Union, the companies and business have to operate according to the set guidelines by EU.4 Political environment have a great effect on the business regulations. The stability of a country determines whether the business will operate smoothly or not. For a business that is venturing into global operations, the environment stability must be accessed before commencing on operations. The government policy must also be accessed by the business before venturing. Technological factors- technological factors determine the business ability to invent and adopt new ideas. Technology also assist the business to reduce their operation costs and also assist in coming up with new products. The rise of technology has led to business being able to reduce their costs of operations and increase their efficiency. For a business to remain competitive, it has to constantly update its technology. Using technology helps the business to remain competitive and acts as a driver for globalization. A business organization should design a business structure taking into account how to utilize technology for their advantage. Technology enables the firms to produce their products at a low cost and also enables communication globally. 2 European Union laws have been incorporated into UK laws. According to the treaty that was signed in Brussels, the laws were incorporated under the European Communities Act 1972. The European Union laws became a binding source of UK laws. Despite this, the doctrine of parliamentary sovereignty was compromised to some extent. This means that UK businesses have to abide by the laws set through EU. Business has to face competition as member states can set their business in any member country. Despite this, business organizations also benefit from free movement of goods and tariffs. World Trade Organization (WTO) has influence on business. UK being a member of WTO, business organizations are affected by changes that may occurs in these organizations. UK trades using both EU and WTO guidelines hence business have to abide by them. 4 Emerging markets have an effect on business organizations. These are countries like Brazil, Russia, India and China (BRIC). The countries provide an opportunity for the UK business organizations since they have large market. These countries are also a source of imports for the UK companies. Trade relations with these countries are very important to UK business organizations. 4.3 Impact of policies of the European Union on UK business organizations. European Union had led to a great impact on the UK economy and business organizations. 2According to EU policy on free movement of goods and services, member countries have benefited with specializing on what they can produce efficiently. This leads to business organizations in UK specializing on what they can produce efficiently. The reduced trade barriers by EU have acted to increase competition that UK firms faces domestically. The major benefit occurs due to increased market size.4 This enables the firms to reap from the economies of scale. The EU policy on free movement of capital and labor enables the production to be carried out where there is high efficiency.3 Investment and labor is allowed to be flow in areas where there are high benefits and returns. This enables the UK firms to reduce prices and enables an increase in the economic welfare.2 All the EU members use a common custom tariff. There are no tariff charges for the goods that are sold between the member states. The countries also utilize a common tariff for the goods that are produced outside EU. For UK business, lack of tariff on goods from the member states may increase competition in the market. Foreign businesses from EU members can set up their business in countries of choice. 4UK business also benefits from the fact that they can establish business in any of the members’ countries while being regulated by the home authorities. EU has also negotiated trade agreements with other countries globally. The firms’ external trade relations are carried out through the Common Commercial Policy (CCP). Agricultural business and farmers benefit from the Common Agricultural Policy (CAP) under EU. When CAP is combined with the tariffs and quotas that are placed on the agricultural produce, UK agricultural businesses and farmers are protected. UK being part of EU benefits from this arrangement as its efforts in negotiations are made simpler in trading. UK firms under the EU agreement have a wider market access which makes them to gain a large market share. This is enhanced by EU removal of restrictions and the firm does not have to commit under the GATS schedules.3 1. Ahuja.H.L. Advanced economic theory: Microeconomic analysis. S Chand and company Ltd.,New Delhi,India, 2003. 2. Fyfe, N. The UK Economy, 2003-2013. Anforme, 2013. 3. Geois, J. H. J., Inge G., Reinhard Q. and Bronckers. M. C. E. J. Trade and Competition Law in the EU and Beyond. Cheltenham: Edward Elgar, 2011. 4. Graham, C. EU and UK Competition Law. Harlow, England: Pearson Longman, 2010. 5. Mankiw. N. Gregory. Principles of Microeconomics.(6th ed.) South-Western Cengage Learning, USA, 2008. 6. Ray, Partha. Monetary Policy. 2013 7. Sharpe Charity Commission CC3, The Essential Trustee, Retrieved 5th June 2014, www.charity-commission.gov.uk/publications/cc3.asp#d1 8. Sutherland, J. and Canwell, D. Key Concepts in Business Practice, Basingstoke: Palgrave Macmillan, 2004. References Ahuja.H.L. Advanced economic theory: Microeconomic analysis. S Chand and company Ltd., New Delhi, India, 2003. Fyfe, N. The UK Economy, 2003-2013. Anforme, 2013. Geois, J. H. J., Inge G., Reinhard Q. and Bronckers. M. C. E. J. Trade and Competition Law in the EU and Beyond. Cheltenham: Edward Elgar, 2011. Graham, C. EU and UK Competition Law. Harlow, England: Pearson Longman, 2010. Mankiw. N. Gregory. Principles of Microeconomics.(6th ed.) South-Western Cengage Learning, USA, 2008. Ray, Partha. Monetary Policy. 2013 Sharpe Charity Commission CC3, The Essential Trustee, Retrieved 5th June 2014, www.charity-commission.gov.uk/publications/cc3.asp#d1 Sutherland, J. and Canwell, D. Key Concepts in Business Practice, Basingstoke: Palgrave Macmillan, 2004. Read More