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Diploma in Business
Unit Number and Title
Unit 1 – Business Environment
In the UK business environment one can find different types of organization like private firms, public listed firms, charitable firms and lastly the franchise. In private firms there can be a sole trader firm or a partnership firm
A small shop opened by a guy can be an example of the sole proprietorship. In this type of the organization only person owns the whole business. He is the person who takes all the profits. The main purpose of these firms is to increase the profits and revenues and thus become bigger and serve as many customers as possible. Majority of the firms eventually become public to raise more capital and expand by investing the raise capital.
A partnership firm has more than 1 person as the owner and the entire firm is responsible for the loss and profit of the firm. These partners take part in the decision making of the firm. Here too the main purpose of the firm is same as the sole proprietorship i.e. they want to increase the revenues and the profits of the firm. These firm also would want to become public so that they can raise capital to expand more in their line of business.
The next firm is the public firms. These firms have already gone public through the process of IPO (initial public offering). These firms were initially started as private firms and later as they grew they needed more capital to grow and hence they used the process of IPO. Main decisions are being taken by the promoters, management (in many cases they can be promoters) and also overlooked by the board of directors of the firm. There may be many shareholders for the firm and hence they appoint the board of directors to ensure that the firm is functioning properly and the management is not misusing its power. The main purpose of these firms is to maximize the shareholders wealth. Shareholders form the main centre point of the firm and the better the firm performs more will be the demand for the stocks of the firms and thus will increase the shareholders net worth. There can be many examples of these types of the firms. These firms are listed on the stock exchange of the countries. Virgin, British Telecom can be the examples for these types of firms.
Another type of firms can be franchise. McDonalds can be a good example for these types of firms. These firms create a good brand value. In order to expand they give the individuals and the institutions the right to open a store in their name and in return they receive fees. The main purpose can be to increase their revenues by increasing the number of franchises and increase their brand value (Chen & Schwartz, 2013).
Lastly are the charitable organizations. These organizations try to serve the public and they do not work for profit. Their main purpose is serve the public. An example can be shelter for the homeless.
The extent to which these organizations meet their objectives and responsibilities depends on different aspects for different types of firms.
For the private firms the main aspect is the increase in the revenues and the satisfaction of the customers. If the customers are satisfies then it will automatically lead to increased customers base and thus the increase in the revenues. It depends on the private firm revenues and its products on how it has been able to serve the customers (Baum, Schäfer, & Talavera, 2011).
For the public there are different stakeholders and thus there are different aspects on which the firm can be judged on how the firm has performed. The first aspect is the financial performance. Shareholders can use the annual report to get the different aspects of the financial reports and thus calculate different ratios to get their values. These values can be examined on an individual basis or can be compared to their peers to get the values. Thus the shareholders can determine on how the firm has performed. Ratio like return on equity, current ratios, and leverage rations can be used to determine the firm performance. The other aspect is the corporate governance. Firm need to keep in mind that corporate governance is also a major issue and thus the firm should not compromise on the corporate governance issue. Firms like British Telecom have tried to perform to the best of their abilities and tried to fulfil all their objectives. Their revenues have been increasing over the past few years. Their customers are also satisfied and they have tried to invest in new technologies to improve the customer satisfaction,
For employees firm has an Human Resources department which forms policies for the employees interests. Thus the firm tries to meet employees objectives through HR department and their policies. For government matters firm has a finance team and a compliance team which sees that firm follow all the tax and legal issues so that government objectives are fulfilled
For investors firm tries to maximize the profit by its activities and thus wants to maximize the return of the shareholders. For the society firm engages in CSR activities and thus fulfil the responsibilities.
Private firms also need to innovate and look to take into account the customers reviews to meet their objectives. Since many private may not have large customer in the initial stages, vocal publicity is important for them and hence they need to keep up their good service in order to meet their objectives.
For charitable firm, donations are important aspect for continuation of their work. They need to raise sufficient amount to survive and hence one of the aspects to meet their objectives is to raise money and hence they should also concentrate on it. Else they need to employ good volunteers who can serve people better.
Firm should also have proper policies and systems in place which can will take care of the employees and their safeties. They should have all the requirements to help the employees in emergency situations.
Customers need to be kept happy by giving them products of good quality. Also if the firm is providing them services then the services should also be good. Customers are important stakeholders for the firm and thus by providing them good services and products they can be kept happy. Other important stakeholder is employees. Employees run this firm and thus the firm need to ensure that the employees are treated fairly. They need to be kept to retain. Employee retention is important for the firm (Baumol, Panzar, Willig, & Bailey, 1982).
Firm also has different responsibilities like engaging in CSR activities. Many of the stakeholders majorly the investors want to be associated with the firm who engages in the CSR activities. Firms also need to be social responsible and their employees can also take part in the activities for the welfare of the society.
In terms of legal responsibilities firm should adhere to all the legal rules and should have a compliance team which monitors as all the functions of the firm and thereby advising whether the firm is following all the legalities. A firm caught violating the laws can damage its reputation.
Resources in an economy are majorly allocated on the basis of demand and supply. Theoretically the capital markets are capable to determine the price of the product based on the demand and supply of the product. Efficient markets determined priced is the true price for the firm.(Tilly, 2014)
Economy is driven by the demand and the supply. Demand and supply is affected by different factors. The growth in the economy, consumer spending, and investment in the economy determines the demand and supply of the economy. Also the demand and supply can also be seasonal. For e.g. certain food items are preferred during a particular time of the year and hence the seasonality also plays an important role in the demand and supply of the economy. Economy of the nations has been observed to go through different cycles. Certain industries are affected by cycles as they depend on the consumer income. Automobile industry is said to be the cyclical industry as largely depends on the disposable income of the society.
Macro economic factors play an important role in determining the price of the product. Factors GDP of the nation, GDP growth rate, real GDP growth, unemployment, inflation and investment play an important role in determining the demand for the product. If the economy is growing, GDP rises and the growth rate increases. Thus the demand for the products tends to increase. As a result the price of the product tends to rise. United Kingdom is a developed nation and thus the market is developed and thus can be expected to operate efficiently. As a result the demand and supply can be determined by the market forces and the macroeconomic forces can play an important role. With increase of unemployment the disposable income decreases and hence the demand for the products decreases (Dunning, 2013).
Types of economic system: There are different types of economic system which can exist in a nation. The most common is the market economy which is free market economic system. In this type economy there are no major controls and the market determines the supply and demand. This type of economic system is the most efficient.
The other type of economic system is the traditional economic system which is formed according to the traditions existing in the society. This economic system has been shaped over the years according to the practices followed by the people. This type of economic system may not be efficient and may not be progressive. In most of the cases this economic system places more importance to the community rather efficiency and the individuals. Another type of economy is the planned economy in which the government controls most of the functions. This type of economy is also known as the command economy. Lastly there is mixed economy which combines the aspects of the market as well as the command economy. International trade for UK is important for the growth of the economy. London can be said to be the one of financial centres of the world and hence many trades happen from London which can be said to important factor contributing to the economy of UK. Also many students come to study in UK. This is also a great source of contributor to the economy of UK. Also tourism is another major source of income for UK. Many tourists come to London to and visit different places. Tourism is very important for UK as the number of people visiting is huge. Thus these factors contributes to the economy of UK.
There are mainly two types of policies which affects the economies. First is the monetary policy which is decided by the Bank of England. Second is the fiscal policy which is decided by the government.
In the monetary policy Bank of England mainly decides on the interest rates and this affects the whole economy. Interest rates play an important role in the economy. The cash rate at which the bank can deposit at the central bank is decided by the bank of England. This rate is important as all the other lending rates of the banks are dependent on these rates. Also it will also decide on how much amount the banks are willing to lend in the economy. If this cash rate favourable then the banks will lend less and lend more to the central banks. Also if the rate is less then the banks will lend more to the economy. Also if the interest rates are low then more firms and individuals will borrow and invest in the economy. This will boost the economy as there will be more investments. Similarly if the interest is high then there will less investment as people will borrow less and invest less in the economy. Thus the monetary policy is an important tool in the economy. Central banks use it to control the inflation rate. If the interest rate is low then as mentioned people will invest more and thus there will be high demand and the inflation will be high. Opposite will be true if the interest rates are high. There will be low inflation as the demand reduces in the economy.
In the fiscal policy the government decides on the government spending and also on the tax rates. Government spending can be a major factor in generating investment and creating new jobs. Tax rate also plays an important role in the way economy operates. If the tax system of the economy is very high then the individuals may not be motivated to work in the country as they will be high taxes. Also firms may also not invest in the economy if the taxes they need to pay is high. On the other government cannot keep the tax low as it is one of the primary sources of income for the government. Thus the government needs to maintain the subtle balance on the level of taxation. Fiscal policy also plays an important role in the health of the economy. If the government spends too much then it can affect the health and can lead to slow growth and investment in the future.
The selected organization is British Telecom. There are strong regulations in place for the telecom industry. The bandwidths on which the firm works are released by the government and also they monitor the industry closely. There are acts of 1998 like the Competition Act or the Enterprise Act of 2001 is also important. These acts try to keep a watch on the firm activities. Also it monitors whether the firm are not using their position to take advantage of the customers.
Also government oversees the merger and the acquisition. If a merger can seem to destroy the competition and establish monopoly then that merger may not be passed through. Thus government keeps a check on the competition and the firm’s position (Mansell & Steinmueller, 2013).
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 Finance, 30(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.
Mansell, R., & Steinmueller, W. E., 2013. Copyright infringement online: the case of the Digital Economy Act judicial review in the United Kingdom. New media & society.
Tilly, C., 2014. Disintegrating Democracy at Work: Labour Unions and the Future of Good Jobs in the Service Economy. Contemporary Sociology: A Journal of Reviews, 43(1), 77-79.
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