Delivery in day(s): 5
Diploma in Business
Unit Number and Title
Unit 1 Cultural and Business environment
Cultural and Business environment Assignment is developed to have the complete knowledge of the Business.
Primark is a private sector commercial company that is in the retail business selling a wide range of products from foods, to clothes, footwear and also electronic goods of daily use. It does not manufacture these goods but retails them to customers worldwide especially Ireland, UK and Europe. As private sector organisation the company aims to achieve high rate of growth and profitability over a period of time and being able to grab a larger significant portion of the market in the retail industry than its immediate competitors at home and abroad (Cherunilam, 2010). It undertakes all its business activities keeping in mind this mission and vision. Its also among the aims and objectives of the company to provide high quality goods and services to the customer at affordable prices to ensure a high degree of customer satisfaction. It streamlines its operation in such a way that costs benefits are duly achieved which could be passed onto customers in the form of cheaper prices than its competitors in the same business
The UK Postal service is a good example of public sector organisation. A public sector organisation is one which is partially funded and operated by the central or regional government and in such organisation the government is usually the single largest body of shareholder. The main aim and objective of a public sector organisation is to render an essential service that is of day to day use of the public (Björklund, 2011). Hence public sector organisations are sometimes called public utility services like oil and gas and electricity. The salaries of the staff members are paid by the government and their position is permanent irrespective of the market conditions. The salary structure of the employees is predetermined by the government and approved by the cabinet ministers. The heads of such organisations are selected with the approval of the government and they are accountable to the public for the service that they give them.
The stakeholders of Primark are those individuals or group of individuals who have some sort of interest or connection with the organisation. There are two type of Stakeholders; internal and external. The internal stakeholders are the employees and the suppliers while the external stakeholders are the customers, the banks and other financial institutions, the government and the shareholders. To run the company in a satisfactory manner Primark has to meet the objectives and mission of its various stakeholders and to keep them satisfied so that they do not disrupt the business environment. (Lall & Mengistae, 2005). The stakeholders are managed according to their power and the level of interest they hold in the company. For example the employees have low power and high interest simply because their livelihood is dependent on the salaries given by the company and the lower level employees do not wield too much power since they are not a part of the decision making body and are not privy to the secret information that only the top level executives and the managers know of. Hence the company keeps them informed about the various events happening within the company. The government on the other hand has low interest and high powers simply because the companies have to follow the law and the rules and regulations of the land if they were to operate (Craig & Campbell, 2012). Hence the company keeps them happy by following its injunctions. The shareholders have high interest and high powers as the company runs on their money and hence they are monitored more closely.
As an organisation the company has its responsibilities towards each of its stakeholders and the society and the community at large. For example the company is responsible to the community where it operates and towards the citizens of that neighbourhood. It is their duty to keep the area clean and safe and see to it that the business process do not harm the environment in any manner whatsoever like over consumption of energy and cutting down of trees and natural habitats of wild animals (Welford, 2013). Towards the employees it has the responsibility of providing a safe and healthy working environment granted to them as per the labour laws of UK and to ensure that they are paid their salary on time and along with all the benefits like medical leave, travel allowance and pension fund. The strategy used to meet these objectives differs depending on the type of the objective. For example to ensure a clean environment the company must employ the latest technology machines and work flows which produce the least amount of pollution and prevents the wastage of energy resources like electricity and heat.
a) Cuba: The country follows a socialistic economy with government owning most of the production resources and also taking major decisions as to what to produce and for whom to produce and in what quantity. The country has a state run economy with the government offering subsidized housing, food and education at all levels. The subsidies are compensated by offering low wages to the workers most of whose daily needs and requirements had been taken care of by the government (Romalis, 2004). But of late Cuban president Raul has introduced many economic reforms aiming to reduce government controls over the factors of production. This is mainly because the socialistic programs have burdened the state coffers with huge debts and workers productivity has gone down considerably. Thus the shift is towards a capitalistic type of economy like that of all other major countries of the West. Unnecessary government workers had been laid off to make room for the new generation of the work force (Babiker, 2005). Thus it has adopted a mixed and parallel economic system with government ownership in crucial sectors like mining, education and health social care and private ownership in sectors like travel and tourism.
b) UK: This country has a purely capitalistic type of economy with the least government controls on the factors of production like the major decisions related to the volume of output and for whom to produce. It offers a free market economy where the government intervenes rarely between the buyers and the sellers (Björklund, 2011). The major sectors like transportation, hospitality, banks, oil and gas , energy has been left in the hands of private players who are free to determine and set prices on the basis of the demand and supply forces operating in the market. The UK government owns very few industries like some portion of public healthcare under the NHS trust and the Royal Mail. This has been done for the sake of benefit of the public and fair dealings and prices in these sectors which form the backbone of the economy. All other industries are privately owned including rail and air transportation industries.
c) China: Some parts of the Chinese production mechanism is still owned and controlled by the government. Many government programs in the health and social sectors have been discontinued including the national health program as it was increasing the burden on state coffers (Martin & Rey, 2004).But on the whole it has become a free market economy in almost all the sectors. Thus essentially China does not remain a purely socialistic economy though the government keeps strict controls and monitors the economic activity of the private players to the extent it does not violate the basic principles of fair and free competition in the free market (Babiker, 2005). A greater portion of the country’s GDP comes from the privately owned enterprises and the government encourages entrepreneurship among the younger generation of the population. Thus state assumes control only for the monitoring purposes.
a) Farming: In the farming sector changes in the fiscal policies results in the changes in the production and output decisions of the individual farms. Fiscal policy is related to the taxing schemes of the government and this affects the produce of the farms as the output of the farms is taxed before they are sold in the market. For example if the government raises the service tax then the prices of the goods sold rises and there is fewer demand for the goods produced by the farm. If the government increases its spending on the agricultural sectors then the farms get a boost in their production and they can step up their farming activities to a large scale that might raise the volume of output and hence the level of growth and profitability. As regards the fiscal policies if the government announces cuts in the taxes , then it puts more money in the pockets of the people and hence they can spend more in the buying the goods produced by the farms like milk, butter and bread etc. The level of consumption of the households would go on increasing (Björklund, 2011). As regards the monetary policies of the government if the interest rates are raised then the farms would have to spend more money and interest on the purchased machinery as the cost of borrowing rises. Thus farms has to cut down on the facilities of production and lower its output.
b) Housing: If the government raises the tax rates then the house owners and builders would have to pay more property taxes and thus the demand for housing would go down. There will be a general slowdown in the real estate market and households would defer their decisions to purchase houses. Also if the income tax level is raised people would not be able to buy new houses and thus the housing market would suffer. Also if the interest rates are raised the equated monthly instalments of the housing loans would rise putting a strain on the households to service their loans and this would result in the increase of stressed assets of the banks (Martin & Rey, 2004). Thus the entire economy as well as the housing market would experience a slowdown. On the other hand if the interest rate is lowered by the central bank the housing loans would become cheaper and more and more people would be looking forward to avail of these loans to buy new houses. Thus the housing market would be witnessing a boom as households would go forward to buy new houses. The level of capital expenditure would go up and thus the households would buy more houses. The demand for construction workers would rise thereby raising the level of employment in the country (Babiker, 2005). Thus the overall economy would be growing in a fast pace and this will ensure that more and more people are encouraged to buy new houses or start construction of new houses.
Competition policies are meant to prevent the abuse of monopoly power by certain firms that take control of the prices and the supply of goods and services in the market that undermines the interest of the general consumer and create discrimination in the market place by manipulating the forces of demand and supply in a negative way for their own selfish interest. Thus the regulatory mechanisms are used to curtail the power of firms to prevent the rise of monopoly power and protect the interest of the consumer (Romalis, 2004). Thus in this regard competition policies are government regulatory mechanisms to ensure free and fair trade practices within the country and abroad by the firms. According to the 1998 Competition act of UK firms cannot engage in collusive behaviour in which a few select firms enter into agreement to manipulate prices and output to fleece the customers by taking advantage of their weakness and helpless of position (Babiker, 2005). The firms want to bring the customers at their own mercy so that they can profit from higher demand and prices charged for the goods and services. Another form of collusive behaviour occurs during tendering of government contracts of business. A few of the firms fixes the bids for the contracts and they take their turns in securing the lucrative contracts. This prevents the entry of new firms to make a bid which may be better equipped to handle and execute projects. Another aspect of competition policy is the abuse of market power. Any company having market share of over 40% is said to have power over the markets to affect the forces of demand and supply. Such firms may be involved in unfair trade practices like predatory pricing in which they sell the goods below the costs to force competitors to go out of business. Such practices have been banned by the competition act of 1998 by the UK (Björklund, 2011). For example in our chosen organisation Tesco the government has fixed a price ceiling for most of the consumer goods sold by the retail company so as not to inconvenience the general consumers in any way as these super markets sell goods and services of daily use like soap, toothpaste and groceries. If the price of these goods rise arbitrarily then the poor people would not be able procure goods of daily use and this would affect their lives in a negative manner. Also Tesco operations are restricted by vertical restraints as they offer lower prices to suppliers, especially the farmers whose goods they sell at a very high price in their own super markets. Thus these kinds of unfair trade practices are prohibited by the UK government in the best interest of the consumers and unfair gains to the big companies (Martin & Rey, 2004). Thus competition policies and other regulatory mechanisms are required to exert control of the market in special situations even in a capitalistic economy where the government rarely intervenes on such matters.
a) Perfect competition: The market having perfect competition is characterised by the presence of many buyers and sellers as also a wide base of customer groups, firms and labour force. The firms sell goods according to the tastes and preferences of the consumers at a price that is dictated by the forces of demand and supply (Björklund, 2011). When the prices are high the demand for a good falls and when the prices are low the demand rises. Similarly the supply curve shows the quantity of goods that the sellers are willing to sell at a given market price. Also the consumers are looking for high quality goods at reasonable prices. There is a equilibrium between demand and supply when the market clears out. Above the equilibrium price there is a surplus in the market which brings down the prices as marketers always want to clear out their stock of goods and inventories. Sometimes the government introduces price ceiling when the prices skyrockets so as to bring the consumer goods within the reach of most of the customers.
b) Monopoly: In a monopoly market there is a single seller which sells a particular good or service at a premium price. The market is marked by the absence of other sellers and hence the sole company can charge whatever prices they fancy. In a monopoly market there is a single seller and many buyers. The buyers are at the mercy of the sellers as the prices fixed by them are often very high and not within the reach of the average customer. In addition to this there is a great barrier to the entry of the market so that other sellers cannot enter the market (Martin & Rey, 2004). The sole seller in a monopoly market aims to maximize the profits by taking full control of the market.
c) Oligopoly: This type of market structure is determined and dominated by a few firms that produce the goods and services. This is better than a monopoly as a single seller has no control of the prices. This is the most common type of market in a mixed economy or in a capitalist economy. The most important feature of an oligopoly is the interdependence of firms as the pricing and output and productions decisions of one of the firms will have a direct impact on the fortunes of a rival firm which is then forced to alter its own pricing and production strategy to stay afloat in the competition.
d) Duopoly: It is the restricted version of oligopoly with only two players in the market and a lot of consumers. If the products they sell are well differentiated then each one of them enjoys the patronage of a loyal band of customers. But if the characteristics of the products they sell overlap then prices are bound to rise or fall depending on the choices and preferences of the consumers (Babiker, 2005). There will be much interdependency between the two firms and also as the market is dominated by the two firms there is great rivalry between the two. Also there are high barriers to the entry of new sellers in this type of market structure since the two firms usually provide a niche product or service that could not be matched by new entrants in terms of price and product features.
The demand curve shows the quantity demanded of a good or service by the consumer against the price of that commodity (Babiker, 2005). The supply curve shows the quantity of goods or service that the sellers are willing to sell at a given price. Of course the decision to buy a given quantity of goods or services depends on other factors like disposable income of the households and the price of substitute goods and services.
From the above diagram it can be seen that the demand curve slopes downward which indicates that if the price rises the demand falls and if the price falls the demand rises. Thus there is a inverse relationship among these two variables. It can be also seen that the supply curve slopes upward which indicates that if the prices are high the sellers are willing to sell more of a given quantity of goods and services. The two curves intersect at what is called the equilibrium price and quantity (Romalis, 2004). This is the price at which the market clears out and there is neither shortage of surplus of the goods left over in the market. Above the equilibrium price the demand falls so that the prices again come down to the equilibrium price to clear out the surplus. Below the equilibrium price there is a shortage as quantity demanded is more than the quantity supplied as the sellers would incur a loss by selling goods and services at a lower price. Thus the prices rise to address the shortage and again the quantity demanded becomes equal to the quantity supplied. Thus the prices affect the production decisions of the firms as they incur costs on raw material and labour to produce the goods and services. If the market price falls they tend to sell less of the quantity than before as they would now incur a loss if they sell more goods and services at the lower prices. If the prices rise they tend to sell more of the goods and services since they can make some extra profit by selling goods at a higher price (Björklund, 2011). The elasticity of demand is the sensitivity of the prices with the demand or the supply. For example if the price of petrol increases then in the short run the demand will fall sharply with the price rise as fewer people would go on trips that require more petrol for the cars. Thus in the short term the slope of the demand curve rises steeply. But in the long run the consumers would buy more fuel efficient and smaller cars and then with changes in price of petrol would not affect the demand so much (Martin & Rey, 2004). Thus the slope of the demand curve for petrol decreases in the long run. Also the demand of goods and services depend on the income of the households and the consumers and this sensitivity of demand with the income is called the income elasticity of demand. Its a kind of cross elasticity.
The consumption patterns of common goods depend on the income, the weather and also the culture of the people consuming the goods and services. For example during the rainy season the demand for umbrellas goes up and hence the suppliers have to stock larger quantities of goods to match the increased demand. Also in the winter season the demand for woollen clothes increases and hence suppliers have to stock more of such goods for the consumption of the customers (Babiker, 2005). For example when companies like Mc Donald’s, which sells burgers in the west had to alter their product line while selling goods in India. In the west the company uses beef in their burgers since it is a part of the staple diet of the people there. But in India which has the largest share of Hindu population in the world beef consumption is prohibited by religion and hence the company uses chicken instead of beef in their burgers. Thus the culture also affects the consumption of goods and services by the people of a country. Also for example Kellogs which produces and sells breakfast cereals had to face a great difficulty when it first entered the Indian market. India consists of 26 states with 19 regional cultures which differ in the spoken language and also food habits and other habits of consumption. While in the western world the food habits are more or less uniform in the Indian subcontinent it is not so. In the northern part of the country people take aloo parathas while in south India they consume Idlis and Dosas. Thus when Kellogs introduced the breakfast cereals it was initially not so popular among the masses of people in India though the high class people where its early adopters. Also the consumption patterns depend on the economic conditions of the country. For example the emerging economies like India and china are witnessing an economic boom in the last decade and due to this there is a huge demand for consumer goods in these countries (Martin & Rey, 2004). Also there are demographic factors that affect the consumption pattern of buyers in a given country. In the west for example there is an ageing population and hence there is not much demand for swanky smart phones as there is in India and China which have a relatively younger generation of population.
International trade is very important to UK business organisations since UK has a ageing population which puts a limitation to the goods and services consumed and also pushes up the saturation levels of the market. Thus UK companies should tap on the opportunities of other EU countries and also the emerging markets of India and China to maximise profitability and bringing more and more customers within the fold of the UK companies as customers and buyers. Thus buying and selling of goods across geographical boundaries becomes essential to the UK companies in terms of increasing revenue and customer outreach. International trade helps UK companies to use labour forces and raw materials that are usually not available in the home markets (Björklund, 2011). For example labour is readily available at a cheap price in the emerging markets and is not so much easy to avail of in the home markets. Added to this are the various global factors, like slowdown in the global economy, which has impacted the Western markets more than the emerging markets. Rather the economy of the western markets haswitnessed a sharp decline in the consumption by the public as households cut down on spending. On the other hand the emerging markets has witnessed a boom in their economy over the last decade and this has led to a massive explosion of consumption of all types of goods and services by the people of these countries. Thus UK companies can enjoy the patronage of a large and demographically diverse customer groups in India and China for their own goods and services (Babiker, 2005). But of late the trade practices of UK companies had been curtailed by the EU laws and regulations whereby they had to sell their goods to the EU countries first. This has hampered the trade prospects of the UK industries as they want to capture a larger share of the market in the emerging economies with EU trade barriers removed.
There were many factors and external variables to be considered when thinking of global trade for the UK organisations. For example the political situations in emerging markets are very volatile. India was under a coalition government for a decade during which the government reforms of the economy was not happening in a fast pace and as a result the business strategy of Tesco and ASDA UK companies not able to enter these markets due to curbs on foreign direct investment. The FDI reforms offered by the Indian government had many terms and conditions imposed on them and as a result much progress in this regard could not be made. India allowed 50 % FDI in the retail sector but it also added the condition that raw materials had to be sourced from local suppliers (Romalis, 2004). Also there were opposition from local traders who feared a loss of their livelihood if UK company sold their goods and services in the Indian market. These opposition parties quickly took advantage of the situation and colluded with the traders and launched nationwide protests that temporarily stalled the economic reforms and delayed the business plans of the UK organisations. Also the UK organisations had to find a joint venture Indian partner to enter the Indian markets and sometimes these partners betrayed the trust of the UK companies and manipulated the data and the facts to suit their own advantage. Added to these are law and order problems in India like vandalism of foreign shops and also the threat of terrorism and fake currency notes that weakened the Indian economy (Martin & Rey, 2004). But on the positive side there was a great optimism of consumer sentiments as younger generation of customers in these countries were looking forward to buy and use foreign goods as they were of very high quality and durability and offered much greater ease of use than the Indian goods. Foreign goods are immensely popular among the Indian consumers and hence UK companies could expand their operations in these countries to earn profits and register a high level of growth (Babiker, 2005).
The economic policies of the European Union affect the UK companies to a large extent. The UK companies are expected to sell their goods and services to the member nations of the EU as there are no trade barriers. These European Union policies erected barriers among the UK companies to have trade relations with the emerging nations that were outside the scope of the laws and regulations of the EU (Björklund, 2011). Also there were pressure on the UK firms to recruit people and labour from the member states of the EU at very high salaries which were considered to be a drain on the resources of the UK companies. Then EU had other employee benefit and training and development policies for the UK companies to follow which was putting a pressure on their resources. There were strict competition policies laid down by the European Union charter whereby the UK companies could not merge with their counterparts in India or China due to fear of the interest of the EU consumers being at stake (Martin & Rey, 2004). But now Britain has exited the EU and is now free to fix its own trade policies with the member nations as well as the countries of the emerging economies like India and China. Thus new scope and horizons are opening up for the UK companies after it had exited from the EU and hopefully this would allow free trade between India and China with the UK.
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