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Unit 1 Business Environment Assignment McDonald’s
Diploma in Business
Unit Number and Title
Unit 1 Business Environment Mc Donald’st
This Unit 1 Business Environment Assignment Mc Donald’s will highlight the business environment that determines the decision making process of the organisation. The selected organisation is Mc Donald’s that is a global restaurant operating in 119 countries including UK. The first part of the report will give the glimpses of the different economic systems; fiscal and monetary policy and other regulatory mechanism that are needed to be consider while designing strategies. The second part of the report will give the emphasis on the market structure, market forces and external business environment that influence the behaviour of the organisation. The last part of the report will show the importance of the international trade and global factors that are needed to be identified while operating the business globally.
2.1 explain how economic systems attempt to allocate resources effectively
The economic system is a mechanism adopted by the Government of a country in order to allocate and distribute resources as well as definite system to conduct the trade and affairs. In the context of the multination fast food chain Mc Donald’s, the management must understand and identify the economic system of a concerned country for expanding the business. The different economic systems are as follows:
- Command Economy: This is an economic system where the Government or the central authority of the country used to determine the production and distribution areas of a company. The personal property is not present in this system as all the properties of the citizens are under the ownership of the Government. The advantage of this system is the planned economy where the distribution and production will not be surplus or deficit, unemployment opportunity will be reduced and limitation in the monopoly can be observed (Calomiris, Fisman and Wang, 2010). The countries like Cuba, North Korea used to follow this system.
- Free market economy: In this economic system the role of the Government is very less. It is the sole decision of the companies to operate their business that is mainly observed in United States. The resources in this economy are allocated by the interaction of market forces. The items for the production is fixed by the customers and the process to do the production is depend on the decision of the management of an organisation (Ghysels, 2016). The advantage with this system less interference of the Government which will motivate the producers to set up more industry that will enhance employment opportunity. On the other hand the limitation can be the exploitation to the customers during the fixation of price.
- Mixed Economy: This is an economy that combines the market forces and central planning function of the Government. The countries like UK, India used to follow this system where the Government design the taxation structure, policies, legislations that are compulsory for the companies to follow. The items of the production are fixed by the preferences of the customers as well as the Government. Secondly the process of the production is mainly depend on the producer and also the Government by the policies and legislation. The limitation is the partial interference of the Government and the advantage is the protection towards the common people by assuring quality products at a reasonable price (Hamilton & Webster, 2015).
2.2 assess the impact of fiscal and monetary policy on business organisations and their activities
Fiscal policy is the Government’s decision regarding the spending, expenditure, taxation in order to control the rate of inflation and to enhance the growth rate of GDP in a country. Adjustment in the Government’s spending by purchasing defence items of the country or to increase the proportion in development of the infrastructure are the activities fall under the fiscal policy. The total spending of UK Government in the year 2015 was 756.1 million pound and the Government has planned to increase the amount from 756.1 million to 761.9 million pound by the year 2016 (UK Public Revenue, 2016). The inflation rate is reduced from 0.5% to 0.3%. On the other hand the increase in the taxation structure specifically the VAT rate will influence the operating cost of Mc Donald’s in UK. The positive impact is the development of the infrastructure and security system in the country. On the other hand the negative impact of the fiscal policy will the increase in the price of the gas, electricity bills, transport, food etc. due to the increase in the rate of VAT from 17.5% to 20% (BBC, 2015).
Monetary policy is the strategy adopted by the central bank of a country by fixing the liquidity rate for the sake of the economic growth. The supply of the money in the market or in the hand of the customers is based on the monetary policy of the country. In UK it is the Bank of England that fixes the different bank rates under the Monetary Policy Committee (MPC). The current monetary policy of UK is acting as a balm to reduce the side effects of the referendum regarding the Brexit formation. Consumer spending is focused in the current monetary policy where the rate of the interest has been cut up to 0.25% (The Guardian, 2016). The positive impact of the monetary policy will be the increase in the purchasing power of the consumers and as a result the sales turnover for the organisation Mc Donald’s will increase. But the negative impact can be observed after the formation of Brexit which as the policy is for the short term period.
2.3 evaluate the impact of competition policy and other regulatory mechanisms on the activities of a selected organisation
The interest and the protection of the consumers of a country are mainly focused while framing the competition policy by the Government and authorised public bodies. The healthy competition and ethical aspect of the business are considered while enforcing the competition policy by the Government of UK. As per Competition Act 1998, the monopoly type of the business is prohibited and supports the other firms to expand and operate their business independently (Legislation.Gov.UK. 2016). As a result the foreign organisations like Mc Donald’s can expand their business freely in the boundary of UK and high chances of the Customer’s Equity can be possible. On the other hand the sourcing of the British products, quality control, price fluctuations are the areas that the management of Mc Donald’s need to focus in order to follow the completion policy effectively.
Under The Enterprise Act 2002 the strategies like the mergers; acquisitions are controlled and investigated by the authorised public body. It will help the business of Mc Donald’s to get rid of the unethical acquisition by other organisation which can reduce the business turnover of Mc Donald’s. There is a provision that if the organisation feels that the strategies are unethical and illegal then they can appeal Office of Fair Trading to look after the issue (Capon, 2015).
CARTEL is an initiative undertaken by the organisations in the European Commission in the area of pricing. The uniformity or near to the uniformity is being focused in this initiative for restricting the unhealthy competition between the organisations. Moreover the Advertisement Standard Agency gives emphasis on the true motives of the business which will provide security and safety to the people.
The positive impact of these competition policies will establish healthy competition among the organisations; common people will not be exploited and ethical approach of the business will be focused. On the other hand the wrong allegations by the competitors can damage the goodwill of the company.
3.1 explain how market structures determine the pricing and output decisions of businesses
Market structure determines the total number of firms in the concerned market, the relative market share associated with other feature that influences the level of competition in the market. There are different market structures that determine the pricing and output decisions of the business in the following way:
- Perfect Competition: It is the market structure where both the buyer and producer have strong market knowledge. The level of competition is very high which fixes the prices of the products or services. The barriers for the entry and exist is not there in this type and the organisation can operate their business freely. The organisations operating in this type of structure act as a Price taker due the absence of the restrictions in the entry or exist of the firms (Taylor, 2015). Thus the market price equals the market demand and supply which the firms needed to be followed.
- Monopoly:It is the structure that determines single seller with a large number of buyers. The firm under the monopoly structure will fix the price and output based on their own decision. Thus they act as a price Maker who set the price for the market. In UK, monopoly status of the Post Office was there but the abolition of the monopoly power affected the status of Royal Mail in the year 2006. In the long run the firm can achieve supernormal profit as there are no substitutes available.
- Oligopoly: Oligopoly is the structure that ensures few firms in a sector who used to dominate. The competition is there between the few big firms who used to fix the price and output based on the customer’s taste and preference, level of competition and market acceptance (Riley, 2012). There are some barriers to take entry in to this structure due to the Government policies, norms, taxation structure etc. For example, the organisation Tesco in UK is operating in this sector where there is an existence of the few dominant firms like Sainsbury, Asda etc.
- Monopolistic: In this structure the business organisations used to take decision regarding the price and output only achieve the competitive advantage (Riley, 2012). The uniqueness in the service or product is being considered in this structure to the same target audience of all the firms. The differentiation in the product or service offering, human capital, distribution process is given emphasis. They are the price makers who set the price for the customers.
3.2 illustrate the way in which market forces shape organisational responses using a range of examples
Market forces are the determinants that affect the amiability and pricing of the goods or service of an organisation. The forces that influence the decision making process of the organisation Mc Donald’s can be addressed in the following aspects.
- Demand: It is the circumstance when the customer is ready to consume the product or service at a given price in a specific time period. The demand of the product may increase due to the strong promotion or facilitating service that the organisation is providing. The demand for the fast food is growing in UK and the customers prefer to spend quality time with the close one in the restaurants. The demand curve states that at a low price the quantity demanded is high and thus it shows an inverse relationship with the price and quantity (Foster and Rosenzweig, 2010). The below curve will show that at a low price the quantity demand is high and vice versa.
The change in the prices of the food items at Mc Donald’s can affect the demand which may lead to reduce the business turnover. At this situation, elastic demand can be related which claims that changes in the price fluctuates the demand widely which can be understand from the following graphical presentation (Laidler and Estrin, 2014).
- Supply: It is the circumstance which influences the suppliers to produce certain amount of product at a given price in a specific price. There is a direct relationship that is exists between the price and the quantity supplied (Drucker, 2012). Mc Donald’s will like to offer diverse product line along with the quality service when the price paid by the buyer will support their total operation cost as well as margin. As the demand of the fast food is high and for that reason, Mc Donald’s in UK is investing in the recruitment, service delivery system, more counters in order to satisfy the buyers or the consumers. From the following graph it can be observe that increase in the price will increase the quantity supplied.
- Labour Market: The improvement in the competency level is due to the Government’s initiative in the area of skill development with the help of the vocational trainings, apprenticeships. Moreover Mc Donald’s recruit the interns and trainees for continuing the service effectively and as a result the candidates are acquiring practical knowledge and skill. Currently the unemployment rate is nearly 4.9% that has been reduced from 5.1% in the year 2015 (ONS, 2016). Thus the employment opportunities are growing due to the activities in the labour market
3.3 judge how the business and cultural environments shape the behaviour of a selected organisation
Business environment consist of the factors that affect the decision making process of the organisation. For the organisation Mc Donald’s in UK the following PEST analysis can reflect the true picture of the business environment.
- Political factor: The legislations, policies of the Government, political stability are mainly considered under the political factor. The majority of the people in UK voted for the separation from EU by forming Brexit. The new rules and policies will influence the business operation in the coming years. As in case of EU there are uniform policies and approaches for the organisations operating in the 28 countries in EU. The Health and Safety policies of the Government are considered in the form like quality control, ethical sourcing and risk assessment measures by Mc Donald’s (Orphanides and Van Norden, 2012).
- Economic factor: The economy of the country determines the business operation of Mc Donald’s. The initiative taken by the Government in form of monetary policy by reducing the interest rate will increase the purchasing power of the people. Secondly the rise in the rate of VAT from 17.5% to 20% will increase the production cost and for that fixing the final price will get influenced (Moore, 2012).
- Social factor: People in UK are very conscious about their health and thus maintaining high quality is being focused in Mc Donald’s. The diseases like obesity are growing and half of the population in UK is suffering from that. In that context providing low fat food items are considered by the quality management of Mc Donald’s.
- Technological factor: The rise in the globalization maximizes the utility of the technology. In that respect installing the SMART boards in the restaurant of UK can serve the customers effectively without waiting for the long ques.
The last is the cultural factor that is being given high priority by the management of Mc Donald’s. The chain is operating in 119 countries with 68 million customers visited daily. In this respect the cultural environment is very much needed to be addressed in order to satisfy the customers in the particular geographical area. In India, Mc Donald’s do not offer beef items in order to respect the culture. Secondly in UK, they used to source British meats and raw materials for satisfying the people in UK. In this way the cultural environment create impact in the business operation.
4.1 discuss the significance of international trade to UK business organisations
International trade refers to the selling of the goods or service across the international boundaries in order to achieve high business turnover and growth. The economies of scale can be achieved by the organisations operating globally due to the cheap and easy availability of labour, low tax rate etc. (Neary, 2015). Thus there are significances regarding international trade in relation with the organisation Mc Donald’s in the following way:
- Market Opportunities: The emerging countries like India and China is growing at an average growth rate around 8% which is higher than UK and the organisation of UK can operate their business in those markets for achieving the growth and increase the business turnover.
- Taxation: The low taxation or different tax structures can help the UK business organisation to expand their business. Country like Dubai is having low foreign company tax that is 10% which can influence the businesses of UK to expand and operate (Helpman, 2016).
- Economies of Scale: The cost reduction or cost leadership is the only way to achieve the competitive advantage. In this regard, the organisations in UK can utilize the workforce of India and Philippines who are literate, highly efficient in communication skills and cheap in comparison with UK or US (Feenstra, 2015).
- Competitive Advantage: The domestic market is saturated with high level of competition and availability of the product. So it is the international trade that can offer a new market for catering the service in order to achieve high business turnover.
4.2 Analyse the impact of global factors on UK business organisations
The determinants relating to the global factors in the context of UK business organisations are as follows:
- World Trade Organisation: This is a body under the United Nation working at the international level for taking care of the international trade occurring between the countries. The main objective of this body is to support the producers and service users to meet their requirements. Negotiation between the countries, forming the trade agreements, monitoring the trade affairs are the main function of this body.
- Emerging markets: It is the BRIC countries that are creating business opportunities for the UK organisations. The overall GDP of the BRIC nation stands around 16.2 billion dollars and the more specifically the growth rate of China and India is nearly 8%.
- KYOTO Protocol:This is an agreement that is done at an international level that is linked with United Nations Framework Convention on Climate Change in order to reduce the harmful emissions. The agreements establish the compliance system which the parties need to be committed towards the reduction of the emission (Mesquita, 2014).
- G20: It is forum at the international level that considers 20 countries including UK for bringing financial stability among the nations. Around 80% of the global trade is coming from these countries and thus there lies an importance of this G20 forum.
The positive impact will be the enhancement of the global trade, exchange of the information as well knowledge, supportive policies to reduce the unethical practices and approaching towards the sustainable development. The negative impact will be the interference of the UN bodies which will disturb the free movement of trade and discourage the producers to invest in the specific country.
4.3 Evaluate the impact of policies of the European Union on UK business organisations.
European Union has been formed in order to simplify the business complexities by establishing common policies and approaches. The free movement of the trade and single taxation in the area of EU facilitate the business management organisation to manage their operation easily. The healthy competition and safeguard towards the common people can be observed with the policies of EU. For example, in case of agriculture there is a Common Agricultural Policy (CAP) that aims to produce high quality foods, sustainable environment, safety measures etc. The policy towards the employment is also guaranteed by EU by monitoring the social schemes of the UK organisations, training and development etc. (Keukeleire, 2015). In respect with the international trade the markets of EU are remain open which helps the international organisations to operate their business in the area under EU. The policy of the taxation is based on the uniformity that helps the UK organisation to simplify the business operation and administration.
The positive impact will be the uniform approach and systems that will give benefit to the organisations operating in UK. The simplification in the business operation will reduce the cost and complexities as a result the productivity will be increased. The healthy competition can be observed and motivate the new entrepreneurs to come up with new ventures that will enhance the employment opportunities. The negative impact can be the strictness that will reduce the organisations of UK to grow and expand. In this perspective the separation of UK from EU will reflect some new pictures as the organisations of UK as well as Government need to frame separate strategy that may bring complexities.
In order to conclude this report has highlighted the different economic system, fiscal and monetary policy of the Government which influences the business organisations directly. The different market structure determines the allocation and distribution of the resources has been highlighted. Along with that the demand and supply mechanism influence the responses of the organisation. Lastly the report will end on a note regarding the significances of the international trade and global factors related with the UK organisations.
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