Glyndwr University Unit 4 Business Environment

Introduction

In this Glyndwr University business environment assignment we have looked at different aspects of firm and the how the factors surrounding any institution affects its business and its performance. Initially we have looked at the different types of organization and their responsibilities towards their shareholders. Then different economic systems were examined and how in an economic systems allocation of resources were looked at.  Impact of different policies by government and the central bank on the performance of a firm were analysed.

Glyndwr university business environment for Sainsbury PLC

Task 1: Understanding the organizational purpose of business

1.1 purposes of different types of organisation

There are different types of organization and each of the organization has different purpose. The most common type of organization is public sector firm, private firms, and charitable organizations

Organization structure and their purposes

Virgin Ltd is a private limited company and Sainsbury is a public limited company. Both the company raise their capital through sale of shares however since Sainsbury is a public limited company its shares can be traded on the stock exchange while for Virgin Ltd its shares are not traded on the stock exchange and hence the shares are exchanged privately.

McDonald is a private firm and hence most of its shares are held by the owners. National Health services firm is a charitable organization and its main aim is to serve and not thing about the profits. A corner shop can be equivalent to private firm with sole proprietorship.

1.2 extent to which an organisation meets the objectives of different stakeholders

These firms have different purposes and their depending on their structure and their business model they need to work towards fulfilling their purposes.

Stakeholder’s needs

Stakeholder want that firm maximizes their wealth. Firm needs to maintain its financial ratios so that their long run profitability is maintained.

For public firm there are different financial ratios like return on capital employed, return on equity, and return on assets, net profit margin and other ratios. These ratios can be used to judge the performance of the firm. This can help to understand if the firm has been able to perform its function. These ratios can be compared to other firms in the industry and can be checked if the firm is efficient enough and performing its function efficiently or not (Baum, Schafer& Talavera, 2011).

Virgin Ltd is private limited firm needs to work towards maximizing the return to its shareholders. Though its shares are privately held the shareholders would want to maximize their return on the capital invested. On the other hand Sainsbury PLC is public limited firm and its give answers to many stakeholders. For Virgin Ltd the number of shareholders will be less however for Sainsbury the number of shareholders would high. In addition these firms need to keep their business going and keep their customers happy. Their purpose also includes serving their customers better in their area of work.

Looking at the annual report Sainsbury PLC revenue has been growing by over 10% YoY and also the it return on capital has also been above 10% for last few years. It has managed to give good return to the shareholders. Shareholders are only concerned about their the return on investment and Sainsbury has been able to meet these demands (Sainsbury PLC, 2013).

Similar is the case with Virign Ltd. It has been also growing and is able to give good return to the shareholders. Both the firms are expanding their area and thus trying to increase their revenue.

The other firm i.e. McDonald main purpose is to make their business grow and serve the customers. McDonald is held privately and hence its main aim is to increase the profit for the promoters.

For charitable firm like NHS they main purpose is to serve the people and hence they are not worried about the profit they make but instead want to help as many people as they can.

1.3 responsibilities of an organisation and strategies employed to meet them

For a corner shop the main stakeholder would be customers as it tries to serve more customers. If the shop is large enough to employ some people then the employees can also become one of the stakeholders.

For all the firms other stakeholders which are common to them is government and also the business environment. All the firms need to be responsible towards government and pay their taxes. They should not indulge in activities which harms the nation and the government.

Secondly firm needs to be responsible towards the environment and ensure that their actions do not have adverse effect on the environment. They should not pollute the environment and try to keep it clean.

Thus these are main stakeholders of any firm and the firm needs to ensure that they work towards these stakeholders.

Virgin Limited and Sainsbury PLC have been doing well over the past few years. Their sales have been increasing and the return on capital invested is also good and hence they have been able to meet the stakeholder expectations. (Sainsbury PLC, 2013).

For National health services, firm is doing a good job in serving the people and thus serving the purpose. Their main stakeholders which is the general public is being served well and hence they are able to work towards meeting their goal.

Task 2: Understand the nature of the national environment in which business operate

2.1 how economic systems attempt to allocate resources effectively

Economic systems majorly try to managing resources based on the demand and supply of the products. Capital markets believe the demand and supply of the products will be able to determine the true price of the product and will be able to allocate the resources efficiently. If the market is allowed to work efficiently then the demand and supply will help the systems to allocate the resources efficiently.

There are many factors which decide on the demand and supply of the products. Demand is driven by the consumer needs and the willingness to spend on that product. Some essential products like food have demand through the year but some products have seasonal or cyclical demands. Example of cyclical industry can be automobile Industry. Demand is very much affected by the macro economic factors. The main factors are GDP of the country, inflation, unemployment, monetary policy of the country. These factors majorly decide on the demand of the products. In an open economy there have been systems which have been in place which control allocation of the resources. Being a developed nation it can be said to be a better distributor of wealth. In United Kingdom it’s an open economy and hence market forces decide the flow of the economy.  Resources utilisation is done through market exchanges, free market. Since it is a free market the price is decided by the demand and supply and thus the distribution of the resources is done in the similar manner. Hence there is little control over the way resources the distributed and allocated it is mostly decided by market participants.

2.2 Impact of fiscal and monetary policy on business organisations and their activities

There are two types of policies which the government or the central bank can form to take the economy forward. Monetary policy is decided by the central bank of a country and fiscal policy is decided by the government.

Government and the central bank of any nation has certain responsibilities like giving a full employment, control the inflation, have a stable exchange rate, GDP growth and giving the people of the nation a good living standard.  These monetary and the fiscal policy decisions will help the entities achieve the above target. Thus on the basis of the target in their mind the government and the central bank do decisions making on these policies.

In terms of monetary policy the bank decides the cash rate/fed rate/rates at which bank interact with the central bank. This rate decides the rate at which the banks will lend money to the market participants. Thus depending on the rate the economic transactions will occur in the economy. If the central bank increases the rate then the amount of borrowing will decrease in the economy as the cost of doing business increases thus inflation will decrease since there will be less flow of money in the market. Thus whenever the bank feels that the amount of money in the market has increased or the inflation has increased it will increase the interest rates (Kiyotaki & Moore, 2012).

Similarly if the central bank wants to increase the economic activity in the market it will decrease the interest rates. This make the market participants borrow more and invest in the different projects. Thus the amount of money in the market will increase and thus will increase the cost of the products in the market and thus will lead to increase in inflation.  Thus whenever the central bank feels that the inflation is low then the banks can decrease the interest rates. Bank can also decrease the interest rate if it feels that the economic activity has slowed and there aren’t enough investments happening in the economy and the economic activity needs to be increased.

Thus in the monetary policy when the interest rates are increased the economic activity slows down and the respective business will see less investment happening while when the interest rates decreases then the economic activity will start to increase the business activities can expect an increase in the investments.

The fiscal policy is decided by the government. Government decides on the spending and thus tries to increase the investments in the economy. Fiscal policy also decides the tax rate in the country and hence will affect the economic activity in the nation. Government can increase or decrease the investments in certain sectors to spur the sector or the economy. Increase in the spending by the government can increase the confidence of other investors and also increases the money flow in the market. However one should keep in mind that if the government increases spending by borrowing then it can lead to less capital investment in the future and thus there should be a balance between the two options. Similarly increasing the tax rate will leave less disposable income in the hand of the people and thus will spend less.

Thus for Sainsbury the steps taken by the government and Fed will have a huge impact. Since it is a retail store it is directly related to the economy performance. If the firm decrease the rates and the tax rate there will be more disposable income in the hands of the consumers and hence there are more chances of the consumers spending more which will increase the growth of firm. However if the interest rates are high then there will be less activity in the economy and thus growth will slow down a bit. Thus depending on the actions which stimulate the economy as mentioned above will mostly increase the revenue of Sainsbury since there will be more disposable income and less unemployment.

2.3 Impact of competition policy and other regulatory mechanisms on the activities of British Telecom

The selected organization is British Telecom which is in the business of the communications. It provides different services like telephone connections, mobile connects, broadband connections. This industry faces strong regulations from the government. Competition regulations form an important part of those regulations. United Kingdom has a strong competition act which is influenced European elements. There is Competition Act of 1998 and Enterprise Act 2002 forms the major policies for competition act. It tries to cover major competition acts which try to abuse the position in market. These policies also cover the firms pricing decision.

It tries to supervise the merger and acquisition, or if a firm is abusing its position in the market. Thus the deals which will affect the competition in the market and make one firm to be dominant in the market in such a way that it can put the customers in jeopardy are covered in these policies.

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Task 3: Understand the behaviour of organisations in their market environment

3.1 How market structures determine the pricing and output decisions of businesses

There are different organizational structure which creates different market structures that exist in any particular sector or industry. These structures help to determine what pricing will be there in the market and how much will be produced in the market. Following are the main structures in a firm:

  • Perfect competition
  • Oligopoly
  • Monopoly
  • Contestable market

In a perfect competition there are many participants in the market producing the same type of goods or proving the same services. Barriers to entry in this market are low and hence if another individual or entity wants to enter the market then it can enter without having to make very large efforts.  There are very less chances of making a huge profit in the short term. Here it is very difficult for any firm to decide on the price and others following the pattern but instead it is decided by the marker forces. Thus the firm which is able to provide a better quality of product at a lesser price becomes the price in the market. The efficiency in this system is high and there are less chances of innovation in this market. In short it is a mature market and things will prevail in the same fashion unless a firm comes with a breakthrough technology which can provide an alternative to the product or come up with a better quality product.

The other type of market is oligopoly. Here there are less number of firms in the market and these firms control the market. They can provide products with differentiated quality and thus it depends on the user on what type of product or service one desires. The barriers to entry aregenerally high in this market structure and thus it becomes difficult for any market participant to enter the market. Here the price is not entirely decided by the market forces but instead is also dependent on the pricing decided by the firms. There is a very strong change of new innovation coming in this type of market structure which can change the pricing and allocation of resources (Chen & Schwartz, 2013).

The next type of market structure is the monopoly where is only one participant in the market producing a particular type of good. This can be one of the cases when the industry is highly regulated by the government and there is only one entity which is licensed by the government to sell or provide particular service. In this type of industry the barriers to entry is very high and the market price is decided by the market participant. Here the price is not decided by the demand and supply of the market forces. Here the products offerings may be limited and thus the chance of innovation is high in this type of market. Resource Management is decided by the firm. Here the economic efficiency is low as the firm may not take best decisions.

The last type of market is contestable market whose characteristics are similar to the perfect competition. There are many firms in the market but there is differentiation in the products being produced. The barriers to entry and exit are low and there are chances of high in the short run. There can be cases where are firm can become price maker for any product however competition may remove this opportunity.

The above paragraphs gives an example of different market structures and how these structures allocate resources and the pricing decisions are made.

3.2 way in which market forces shape organisational responses

Market forces help to decide the firm the type of product it produces, the quantity of the product and finally the price of the product. Although the market structures may not help the firm decide on its own but it may know the range in which it can keep the price and thus the firm according to its cost structures will decide on the price of the product.

Supply and the demand are the two major forces which make the firms take decision on different aspects.  Depending on supply and demand for the product a firm takes its decision on the aspects discussed above. Factors like cost of the manufacturing the product or delivering the service, income of the targeted consumers, price of other goods in the market, consumer tastes and expectations about the product quality and lastly the number of consumers determine the consumption the market and thus will decide the amount of goods produced by the firm. One of the phenomena which occurs is that as the income of the consumers increases their demand for a normal good increases and their demand for the cheaper good will decrease. Depending on the supply of goods(amount of goods available at a particular range of the price) the firm will decide if more goods are required to be produced or not. If the price of any product in the market increases then the firm will look to increase its supply in order to increase its profit. Similarly if the number of consumers in the market increases then firm will look to increase its supply. In a similar fashion if demand for any product increases in any price range then the firm will look to increase the production in order to increase its profit.

The important market factor which affects the decisions of the firms is the technology in the market. Technology helps for quality management in production as well as selling and distributing the goods to the consumers. Increase in the technology efficiency or new technology can affect the production of the goods of the firm (Baumol, Panzar, Willig, & Bailey, 1982).

An example can be given for Sainsbury PLC. This firm is in the retail industry. Hence depending on the demand and supply of the products it will stock up the inventory. There are other good retail competitors like Tesco which also has wide network and hence the firm needs to keep the price competitive. However if there is increase in the consumers in the area where it has retail stores then it may increase the inventory of the goods which the consumers are buying. Also the technology plays an important role for Sainsbury. Sainsbury keeps the products which are manufactured by other firms and it also has its own local products. Technology will play an important role in keeping good supply chain management for the firm. Thus these are main market forces which will help shape the firm decisions and its outlook. Firm needs to be aware of these market forces and keep track in the changes occurring in these forces.

3.3 How the business and cultural environments shape the behaviour of Sainsbury

Business and cultural factors also have deep impact on the functioning of the firm. In a firm everything flows from top management and thus depending on the culture they want to maintain firms’ culture takes that shape. If the culture is to be proactive and believing in serving the customer then all the employees will behave in the same manner. In the same manner the way the firm wants to conduct the business also affects the attitude of the employees and the firm starts moving in the same direction.

Thus the cultural and the business factors are important factors which decide how the firm functions and the decisions it takes under certain circumstances.  For Sainsbury it depends on how the employees treat the customers and how quickly they resolve the customer issues. Secondly in case of new technology come into picture how quick is the management in dealing with such changes so that they can be competitive in the market.

Thus the here is an example of how a firm propagates good business environment and culture among the employees which takes it forward. There are many ethical issues which arise while managing large teams. However the culture followed by firm and the top leadership guides the employees. There are different issues which arise while managing large teams, ethical issues are also important issues which need to be handled. Managers managing the team need to understand international laws in addition to the local laws in order to take care of ethical issues. Bribery and corruption are the most important constituents of the ethical issues which the manager needs to tackle while managing the large.  It may happen that the local laws in a nation may accept a certain unethical practices related to issues like corruption and bribery whereas in many parts it may not be acceptable. Hence the manager need to maintain balance while making profit the firm it is employed. Hence it becomes a subjective decision on the manager part to take decisions regarding such issues. Hence it becomes an ethical issue that whether the manager should go ahead with practices which are allowed locally in one nation but it may be termed as unethical. Thus for firms operating globally all these issues like ethical, communication, tax issues, social responsibility form an important guide to the employees and they tend to follow their leadership.

In business ethics, firm should strict guidelines and has circulated these to the employees. They should try to follow all the ethical guidelines which is expected of them and they don’t indulge in unfair corporate practices.

Firm has responsibility to maintain a good public image and corporate image. For this purpose the firm has a separate team which manages the public relations and helps to improve the corporate image of the firm.

Thus they way firms have their culture in the same manner it will perform in the future.

Task 4: Be able to assess the significance of the global factors that shape national business activities

4.1 Significance of international trade to UK business organisations

International trade forms an important factor in the growth of United Kingdom. United Kingdom major contributor of GDP is services industry and the financial industry is the most important one. This industry provides services across the globe and hence the international operations help the banks to grow and improve the economy of United Kingdom. Tourism also plays an important role in the GDP of the economy. Many students come and study in universities of UK. One of the reason is educational scholarships in UK. Hence the international trade and interactions forms an integral part of the economy (Dunning, 2013).

For firms like Sainsbury it is important to get good quality products. Hence in international trade it needs to get access to best quality items and thus international trade plays an important part. If it is able to get goods from other nations which are of good quality and also are available at attractive price then it can keep the products in their stores. Also if there is demand for any product which is not locally manufactured then the firm can import those products and increase the sales.  Thus Sainsbury can benefit a lot by importing good quality products and selling to the customers which can increase the customer service satisfaction and thus the sales of the firm.

4.2 Impact of global factors on UK business organisations

Global factors have a large impact on the GDP of the United Kingdom and also the social structure of UK. UK is dominated by financial industry and hence any recession or expansion happening across the globe will have a direct effect on UK. This was visible after the 2008 crisis which originated in US but it also had a large effect on the economy of UK. This was due to the reason that it had large effect on the banking system. Technological advances also play an important role as after United States many technological advances happen in UK. London has large number of migrant workers who come to UK in search of better jobs and future and thus global factor have large effect on the social structure of London (Dunning, 2013).

Due to global factors affecting the population of the UK the disposable income in the hands of the people will be affected by the global factors. Firstly London is home to many tourists which and thus tourism drives the economy of the UK. Also many people come to work in London. Thus as more people visit London the number of potential customers would increase for the firm and hence there will be increase in sales for the firm. Also global factors will affect the economic activity. Slowdown in the economic activity will lead to the less sales for the firm (Dunning, 2013).

Sainsbury is a retail firm and hence its income depends on the sale to the local people as well as the tourists. Due to the slowdown the disposable income of the local individuals have decreased and similarly for the number of tourist coming to UK has also decrease and this has led to decrease in the revenue of the firm. For the people to spend their income needs to high and the employment also needs to high. Decreasing employment, decreased disposable income and lastly less number of tourists affects Sainsbury negatively and thereby decreasing its sales.

4.3 Impact of policies of the European Union on UK business organisations.

Many European policies affect UK in large manner;this includes the different treaties with the nation, interest rates, trade agreements, economic policies and lastly political decision.

Since second quarter of 2012 the growth in GDP for United Kingdom has been muted. It has also experienced negative growth during last quarter 2012.  (Tilly, 2014).

For example the interest rate policies formed by the ECB affects the economic activity and as described above the economic activity plays an important role in driving the revenues of the firm. Similarly the trade agreements made between the different nations affects the firm. If the agreements are favourable then it can have a positive impact. Also the political decisions made by the EU will also have an effect on the firm. Decision like bailout of the nations will have a direct impact on the firm as it will affect the economy of the nations it is operating and thus will affect the revenues of the firm.

Thus the decisions made by the European Union will have a deep impact on the firm.

In the past the growth for the UK has slowed and the inflation is also low due to less demand. As a result there is less economic activity. ECB is continuously decreasing the interest rates so that the people and the firms invest and this leads to increase in employment. This will have a positive effect on the economy as the people will have more money to invest and buy. Thus decreasing the interest rate to stimulate the economy is going to have a positive impact on the sales of Sainsbury

Conclusion

Thus here we have looked at different aspects of the firm their structure, their purpose, stakeholders and how they deal with their aims and objectives and whether they have been successful in fulfilling the objectives. Factors which affect firm operations, working and the profitability have also been looked at.  Other global factors and market structure on the pricing decisions and the revenues has also been analysed. Lastly effect of the government policies and the European Union policies effect on the firms have also been analysed. Thus one has tried to analyse on how does the firm makes its decision regarding different objects. Firm needs to make decisions based on all these factors. Thus functioning of a firm is affected by many factors which are not in the control of the firm and it needs to realize the impact of such factors and accordingly make the strategic decisions.

References

  • Balassa, B., 2014. Resolving policy conflicts for rapid growth in the world economy. PSL Quarterly Review, 31(126).
  • Baum, C. F., Schäfer, D., & Talavera, O. (2011). The impact of the financial system’s structure on firms’ financial constraints. Journal of International Money and Finance30(4), 678-691.
  • Baumol, W. J., Panzar, J. C., Willig, R. D., & Bailey, E. E., 1982. Contestable markets and the theory of industry structure.
  • Chen, Y., & Schwartz, M. (2013). Product innovation incentives: Monopoly vs. competition. Journal of Economics & Management Strategy, 22(3), 513-528.
  • Dunning, J. H., 2013. Kingdom economy. Structural Change in the World Economy (Routledge Revivals), 167.
  • Kiyotaki, N., & Moore, J. (2012). Liquidity, business cycles, and monetary policy(No. w17934). National Bureau of Economic Research.
  • Sainsbury PLC, 2013. Annual Report. Available at http://www.j-sainsbury.co.uk/investor-centre/reports/2013/annual-report-and-financial-statements-2013/

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