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Giorgio Amani Spa (Armani) is an Italian fashion company, known for its fashionable design for men and women cloths. The company was founded in 1975 as small fashion company was named after its founder and CEO, Giorgio Amani. The Unit 1 Business Environment Assignment Armani will throw the light on the allocation of resources through economic system. The study will assess the respond of competition, monetary and fiscal policy on the Armani. Armani has achieved global fashion status in during the company’s 40 year history. Armani operates in 46 countries and in 2011, achieved revenue to almost £1.8 billion and operating profit of $282m. The company head office is in Milan, Italy.
Discuss how this organisation has been impacted by changes in its industry. In this part, focus on the constraints within which Armani has to operate in its sector. Provide evidence and reference the sources. Identify the purposes of different types of organisations behaviour and compare them with purpose of Armani.
Armani’s brands or labels include:
To be the regional leading company in the management of a prestigious portfolio of luxurious, fashionable and lifestyle brands. Despite its global brands and large market operations in 46 countries, Armani is private company and its nature of business or industry is fashion, hotel and leisure. There are a number of organisational changes that are having impact every industry including the fashion industry. These changes include for example, competition, consumers buying behaviour, regulations, social attitudes, social corporate responsibilities, ethical issues.
Competition from the market will have impact on sales revenue, market share, growth and expansion, profitability. Consumers’ buying behaviour will affect profitability, sales, growth and its global strategy. Social attitudes and changes in consumers’ buying behaviour will have impact on the way Armani design its product and this may also have cost implications (Botha, Kourie & Snyman, 2014).
There are also constraints within which Armani has to operate. These include for example, financial constraints, technological, market, social and cultural, economic and legal constraints. As a private seeking global market expansion, the financial resources require would have huge financial implications. Unlike public company, access to financial resources would be unlimited. Armani needs to funds it new market with perhaps, debts or long-term loans, and this will expose the company to financial risks. Apart from the above, high operating costs will mean high prices for its function products especially those design and stylish fashion products at the high-market end (Chavis, Klapper & Love, 2011).
Social and cultural attitudes will be major constraints. For example, each country product marketing strategy needs changing and also designing product that meets local taste and needs. This constraint means changing its market structure and segmenting the market in each country of operations. Legal constraints and ethical issues would be a huge challenge for Armani as each market overseas needs to comply with its customs and legal practices
There are different types of business organisation. These include for example, sole trader, partnership, private company, public company, co-operative, voluntary or charitable sector. Each of this type of organisations has one or multiple objectives. The private and public companies primary goals and objectives are to make profit or maximise the value of the company, achieve higher return capital employed, growth, high market share and satisfy the needs of other stakeholders, e and improve customer satisfaction. The sole trader aims to make profit for him/herself and grow the business whilst the partnership organisation have the same aims and objectives, but for the interest of partners and close stakeholders.
The voluntary or charitable organisations purpose and objectives are to provide charitable activities for the interest of general public or specific group stakeholders. The co-operative society aims and objectives are to provide goods and services to its members. Armani is not a charity organisation. It is a private company, and like all private organisations, its primary business objective is to increase the value of the company. Apart from this objective, it has other secondary objectives, for example, to provide prestigious and high quality products add style and pleasure, to our customers' lives, provide a unique shopping experience and to commit to excellence.
It is to be noted that Armani is one of the few organisations who are still completely privately owned and because of this; the purpose of the organisation is always affected by the thinking of one man Mr. Armani, the founder and owner of the organisation. The main purpose behind opening the organisation was to bring a change in the fashion industry and Mr. Armani has done it. The purpose of the organisation is to fulfil the dreams of Mr. Armani to become the world leader in the fashion industry and make sure that all the stakeholders of the company whether they are the employees, shareholders or the customers should receive the profit from the company operations. Armani in the current days not only dealing with the clothes but also in many other industries such as hotels and tries to make an impact on the people by not ever compromising with the quality. But in the end, the main purpose of the company is to make the company owners wealthy and expand the family business. On the other hand, there are public organisations which are under the control of the government tries to make the lives of the people of the country easy and comfortable by providing them the excellent services for their money which they pay in the form of different taxes. The NGOs or Charity Organisation do not work for the profit of the owners or the trust of the organisation but for the people of the society. Where Armani tries to provide a luxurious life to the wealthy people, the public organisations and NGOs try to provide the services to the people of the country which are necessary for their lives.
Identify their interests in and how they influence and impact Armani. How the organisation is meeting the objectives towards their stakeholders.
The following are the key Armani stakeholders:
Stakeholders are individuals and groups of people or institutions that have interest in Armani businesses. Customers are interested are interested in the products and services that Armani produces and supply. They want to ensure the quality of the products; design and the price meet their expectation. Customers’ buying behaviour influences the design of the products in terms of specification and taste. This also influences the quantity to be purchased and quantities that need to be supplied, the cost of production and distribution channel chosen by Armani. In turn, Armani ensure the design of the products meets customers’ quality and price expectation or needs (Fanta, 2012).
Management activities are critical to the success of Armani. Management is responsible for making and influencing investment decisions, technology, design, choice of market and pricing decision and all this have impact on Armani’s mission of providing prestigious and high quality products to its customers. Armani senior executives eg board of directors are always meetings management request to provide the necessary tools and resources for the company to achieve its objectives. Employees are resources for Armani. They are involved in the day operations, including designing, development, and production and selling of its product. They influence all these activities to ensure Armani strategy is successfully implemented. Armani is putting resources into staff development and training, providing generous staff incentives including good working condition of service, salary, and bonuses.
Suppliers want to ensure that Armani is profitable, have enough liquidity and reliability of good business relationship. Suppliers influence is the supply of good and services and contract term of those business for their interest as well as Armani interest. Armani’s responsibilities to ensure suppliers are paid on time and take necessary steps to ensure good supplier-customer relationship. The banks and other debt providers’ interests are the profitability, liquidity availability and growth of the company. They influence Armani by determining the level finance to be provided and the cost of the finance, and the terms. Armani ensure the company meets these debt providers by meeting its financial commitments to these stakeholders.
Make sure your analysis is based on evidence and research and do NOT guess or make wild assumptions. Explain Armani responsibilities to its stakeholders and identify the strategies it adapts to meeting their needs and expectations.
Stakeholder Analysis matrix is Engagement Plan, which helps organisations analyse and identify the key importance of stakeholders and their influence on the business.
Box E, F & G are the key stakeholders of Armani. Box E stakeholders e.g., employees, suppliers, designers have a high degree of influence in the company and also high importance for Armani’s success. Box F stakeholders- government are of high importance to Armani success but have low influence. Box G are stakeholders e.g. government with high influence and these stakeholders actions impact the Armani performance and long-term business sustainability. Box H stakeholders have low influence and importance to the fashion business.
Armani responsibility is to ensure each stakeholders’ needs are met this include for example, improving quality of goods and services, improving working conditions for staff, meeting the financial obligations to finance providers and establishing long-term customer-supplier business relationship.
How Armani tries to fulfil its responsibilities towards the stakeholders is explained below:
Look at specific political, economic and social aspects such as government interference, population, labour force, market growth, exchange rates, trading partners, consumer tastes and preferences. Given answer can be correlated with the Armani or any other organisation. Benefits and constraints in free-market and commandeconomy system
In a free-market economy, all economic decisions are taken my firms with no government intervention. Firms take their decision about the acquisitions and allocations of all economic resources and economic decisions are influenced by supply, price and demand. In command economy central government make all economic decisions for example, planning, acquisition of factors of production and distribution of resources. Under free-market economy, organisations choose the system of production that suits the operations in order to meet their economic objectives e.g. production efficiency and profit without direct government interference.
Under the command economy, central government chose the system of production however inefficient it is without consideration for profit as primary objective (Fender, 2012). There is no price control imposed on firms by government instead price is determined by forces of supply and demand. The central government can impose price control if it feels the consumer is being exploited.
Consumers, under the free-market economy, have wider choices to make economic and buying decision about their taste and preferences, including purchase of product (s) that meet their needs. The command economy on the other hand central government have some influence, competition is non-existed. There are no foreign exchange restrictions for both local and foreign firms. Organisations are free to transfer part of their profits to overseas subsidiary or parent company. Under command economy, this is tightly control through the financial and legal or regulatory systems (Cuciniello, 2009). Command economy stifle innovations, efficiencies and competitions and this affect free labour force movements, market growth and consumers’ buying behaviour.
Organisations operating these two market systems are constraints in terms of growth, competition, efficiency and proper allocation of economic resources. Consumers are restricted to wide range of goods and services when organisations operate in command economy, like Russia, China and North Korea, for example. The opposite is the case in a free-market economy. Whilst growth is stifle in command economy, growth strive in free-market economy. Another big difference in the free market and command market economy is what will be produced. In the free market economy, although some of the people think that the organisation is in command but this is not the case. In free market economy, it is the customer who decides what will be produced. The Armani started its business with the fashion clothing, but slowly, the processes of the company are affected by the consumer taste. In 2005, Armani started to explore the hospitality industryand made alliance with the EMAAR Hotels and Resorts because the consumers were also demanding the luxury in the hotel industry. On the other hand, the consumer taste has no value in deciding the product of an organisation. It is the government who decide what will be produced without any input from the consumers. This is one of the important reasons of the failure of the command market economy because the government cannot know what the people want unless their input is not taken (Grigoroudis, Tsitsiridi & Zopounidis, 2013).
The interference in the command market economy affects the operations of the organisations and they cannot take the business decisions without the permission of the government. All the processes in the command market economy are always audited by the government officials. The government also interfere with the internal functions of the organisations along with the price setting of the products or services. While the organisations feel themselves restricted in the decision making process in command market economy, in free market economy, only the stakes of the government in an organisation decides how much the government can interfere in the company business. Only the labour in the command market economy could be said that it is not in the control of the government and has its own decision making process, but indirectly the governments also tries to control the labour also through many rules and regulations. In the free market economy, the labour gets the support of the government, but the organisation is the main decision making authority here.
or otherwise, explain with reasons, what might happen to business activity in general and to Armani specifically, if the following happened:
i. A general fall in the level of income tax?
Due to unexpected behaviours a fall in level of tax can have a very little multiplier effect, and overestimated by the government when the reform is imposed. When consumer confidence is low a fall in tax will not stimulate any increase in consumption because they are feeling pessimistic about future economic prospects, this could be due to a lack of job security. Therefore the demand for firm products will not increase.
ii. A rise in the value of the pound
A rise in the value of the pound may not harm a firm’s export. This may be due to two reasons, the first is if the quality of the goods is high relative to its competitors and the second being if the goods are price-inelastic. The latter is very helpful as it allows firms to not cut its prices when selling abroad to hold on to its current consumers, but rather increase it in line with the rise in value of the pound making them more expensive for foreign residents. Subsequently, because the foreign consumers are not responsive to any increase in price they will not cut back on demanding the firms’ product, in return raising firms revenue. Increased revenue will increase the amount the business has to spend on capital goods.
iii. Fall in rate of interest
There is often a time lag between when the government reduces the interest rate and when it is reflexes in the four components of AD. This is because most form of savings is done on fixed interest rates and it takes time for commercial banks to change these. So consumption is delayed, causing investment to also be delayed (GaliÌ and Gertler, 2009)
iv. Increasing unemployment
When there is an increasing number of unemployed people in the labour force it allows firms to have a wider range of job applicants. Leading to an increased level of productivity because firms are able to select the most suitable candidate for the job, in most cases it's the job a applicant will feel most satisfied doing. Therefore increased worker morale will also improve the quality of the products which will enhance the company’s international competitiveness
v. A large increase in the level of Government expenditure -
A large increase in the level of Government expenditure can be very harmful if there is information failure. When the government is informed of there being a possibility the economy may be going into a recession, they will boost their spending dramatically. If in fact the economy is heading for a boom then the increased spending will reinforce this cycle rather than stabilising it. This will result in high levels of demand-pull inflation as the economy is already producing at full capacity and the increased consumer expenditure, investment (because of the multiplier effect) and government expenditure will shift AD to the right.
Government regulation and competition policy are aimed at ensuring organisations business practices and operations are within the law. Regulations ensure also there is fair business practices that not detrimental to individuals consumers and firms or threat to the national economy. The competition policy ensures there is fair trading practices that promote competition among firms. Competition policies ensure equity distribution of resources and avoid the exploitation of consumer, and company is allowed monopolistic power to control all the factors of production (ItoÌ and Rose, 2007).
The Companies Acts 2006 for example, laid down the legal framework for companies in the UK comply with when preparing and filling the annual accounts to the HMRC and Companies House. The Health and Safety law also made it compulsory for companies to provide health and safety working conditions for workers and those have direct contact with the organisations. The Equal Opportunity Acts made is illegal for organisations to discriminate against any particular employee irrespective of gender, religious beliefs, ethnicity or disability.
The defunct UK Competition Commission and the Office of Fair Trading (no replaced by the Competition and Market Authority and Financial Conduct Authority ensure there is fair competition among firms so that no single firms control more than 75 % of the distribution channels. Armani, though a foreign company must comply with all the UK laws and competition policies. In carrying out of its businesses for example, Armani must be aware of the impact of not obeying the law will have on it profit. And in additions, the impact would be felt on its brands and reputation, company image, legal and financial implications for the company. The ability for Armani to execute long-term strategy will be dented; recruitment of talented designers, marketers, top management will also have an impact on the business. There is no known information about government-related regulations including competition policy which directly affect Armani in its UK operations.
Market structure in economics represents the number of organisation producing identical or similar products which are the same.
Market forces are economic factors, price, demand, supply that affect the availability of goods and services. Price plays an important part in shaping the demand for and supply of goods and services. The higher the price, the less goods the consumers are willing to pay. And the higher the price, producers would be willing go flood the market because of profit motive to sell more of the product (s). Armani products designed to meet higher end of the market as well as targeting lower income. Tesco’s higher prices for its products are forcing even loyal customer switching to other competitors for example, Asda, Sainsbury, etc. The pricing level will also be determined by the cost of production. The higher the cost of production, the higher the price the firm will be willing to charge, and vice versa. This market force will affect Armani product as well.
The level of competition in the market place will also affect the price, supply and demand of goods and services this will determine profit objective of companies (Koetter, 2008). Armani or other firms can change these market forces by undertaking intensity of advertising and promotion campaign influences demand for its product. Armani, Apple, Samsung, etc use this market force to enjoy high demand for its products as a result of continue improving or product quality as well as intensive advertising campaign. The Porter’s 5 Forces could be used to describe the market forces which affect the Armani.
The level of demand for Armani products are determined by a numbers of factors, including the quality, brand or labels and availability of substitute brands. Since there is the threat of substitute in the market, the law of demand which states that if the prices of a product is high when the substitute is available in the market, the demand will be decreased, and Armani would have to lower the prices of its products.
The supply of goods and services is another market force that shape organisation’s pricing, productions and market strategy. The higher the price consumers are willing to pay, the higher the quantity that firms are willing to produce and supply on to the market. Armani or any firm will not be willing to produce of the price to be paid is lower than the cost of production or company’s expected return on capital or investment. The Law of Supply suits the Armani group which states that of the price of a particular product in the market is high, it means that the supply of the product would also be high in the market. The luxurious products of Armani which are very costly have high supply by the company.
Organisational culture is defined ‘as the shared values and assumptions within an organisation. The culture of an organisation also emphasizes what the company values as important and can shape the behaviours and personalities of individuals in the firm’ (Kumar, 2014). The understanding of culture environment and organisational behaviour is critical for company and everyone within the organisation and can contribute to the success of a company. The share values, perceptions, beliefs, attitudes are parts of the key drivers of organisational performance. For example, organisations that embraces and value fun, place importance on customer-focus and entrepreneurial spirits among its workforce tend to do well. Armani, for example, pride its success to employee’s commitment to the organisation’s long-term value of customer service and to provide prestigious and high quality products style and pleasure to customers' lives. An organisational culture, in addition, can be shared values and assumptions and also seen through for example:
A strong organisational culture can developed into a strong workforce-organisational identity that brings the best out of people. This relationship can develop into a strong performance culture towards achieving organisational goals, and a strong culture can enable an organisation to be more effective. Armani’s success as a global fashion icon is attributed to this strong this organisational-culture identity because, it aligned its culture to the environment. The values of Armani and indeed, other successful companies like Coca Cola, Facebook, Google for example, is in tune with the market place, competition, technology and social environments. Armani’s cultural environment and behaviour foster good working relationship excellent customer service with its stakeholders, for example, suppliers, customers, product designers, global partners.
International trade occurs when there is exchange of goods and services across national boundary. It allows flows of economic resources – capital, labour, technology, and production to countries, as well as sharing knowledge and cultural values for the benefits of mankind and national and international marketing development. Tesco PLC is the UK’s largest retailer and has its presence in 12 countries all around the world. If the revenue and market share of Tesco is considered, it is the 3rd largest retailer in the world. In UK, Tesco has captured around 29% retail market and now it is expanding to overseas countries to exploit the benefits of the international trade.
The World Trade Organisation (WTO) is global international organization dealing with the rules of trade between nations. The goal is to help producers of goods and services, exporters, and importers conduct their business. WTO ensures that there are fair trading practices among partner countries across the globe and its work can be summarised as: ‘To stimulate economic growth and employment, cut the cost of doing business, internationally encourage good governance help countries develop, give the weak a stronger voice and support the environment and health’
Its functions are for example to:
As mentioned in the previous section, the emerging markets like India and China are now become the focus on Tesco and company is concentrated a lot in these markets because these markets have huge potential for growth. Although there are some protectionist policies of the overseas countries which tries to make sure that their local organisations also stay in the competition and no organisation from other country like Tesco dominate the home market. That is why there are FDI (Foreign Direct Investment) policies are being developed by the government of these countries which make sure that Tesco do not have the controlling share in a local organisation especially in the public sector.
The barriers to international trade through protectionism is being dismantle giving way to global trade, which benefits companies leading to world economic growth, better standard of living among nations. The international competitiveness among nations and multi-national companies in particular has created market opportunities, movements in technology and technical skills across national boundaries (Dolia, 2012). The Common Agriculture Policy (CAP) is the policy initiated by European Union to implements agricultural subsidies to farmers and landowners of the member countries. This policy impacted on UK agriculture and of recent this policy is criticised for preventing fair trading and competition among some member countries.
The EU policies which are related to the fair competition in the market have been incorporated by the UK government and the EU commission is making sure that the free market economy could be established 100%. The EU Competition policy has given the opportunity to the new small organisations to grow and find new methods in the business processes for the increased efficiency (Lee, 2006). Because of this, the innovation has become one tool which is now setting up the stage of exponential growth of the UK market and in the coming 10 years, the UK market would set an example for the rest of the world. Tesco is aware of this trend and that is why Tesco has already started its online e-commerce stores in many countries where people could order from the e-commerce websites and mobile application and receive the delivery of the products at their door step.
European Union competition policy regulation of competitiveness want to ensure that organisations do not create trade barriers through cartels and monopolies that would damage the economic interests of society (Moreno-Dodson, 2013).
Through the following activities, for example:
Some other policies of EU which have great impacts on the Tesco are:
Tesco has established its facilities in the EU countries where the cost of land and taxes are less and now company is exporting the labour from the other countries where labour is cheaper. The free movement of labour across the EU countries has made it easy for Tesco to reduce the production cost and improve the revenue and Customs Taxation of the organisation. It is also benefitting Tesco in providing the cheaper products with good quality to the people. France, Hungry and Poland are some examples where Tesco started its operations only because of the liberated EU policies and now company is making lots of profit from these markets.
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