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Unit 1 Global Factors of Business Environment Assignment
Business could be understood in terms of a financial activity with the objective of earning profits, market shares, etc and the environment in which it operates is highly volatile and thus the business must adapt and respond constantly to its Business Environment. The unit global factors of business environment assignment study basically aims to discuss various kinds of organizations along with the responsibilities to various stakeholders and their interest in the business. Also the national environment in which the business operates has a huge impact on the business activities. A light is also thrown on the behavior of the organization in its marketing environment along with development of an understanding of the market structures and understanding of the market forces of demand and supply. With a special focus to UK, the study aims to discuss the impact of the global factors on the business organizations along with discussing the policies of European Union and their impact on the business activities at UK.
Lo 1 organizational purpose of businesses
1.1 Purpose of different type of organization
Organization involves a group of people striving together for attainment of common objectives. The organization could be of three types based on their ownership and purpose as
- Public sector organizations: are run and owned generally by the state or central government and operate for the public interest and facilities through making use of the taxes paid by the public. Their main aim is to provide various services to the people in the society like health care service or NHS at UK, education, etc.
- Private sector: are owned and managed by the individuals and the main objective includes making profits, market shares, sales maximizations, etc. This includes (A) partnership firms owned and run by a group of individuals, (B) sole ownership firms owned by one individual and (C) corporations which includes big organizations like NIKE, etc which may again be ‘Public limited’ or ‘Private limited’ companies (D) franchising arrangement as discussed in case of Mc Donald’s.
- Voluntary organizations: are not owned by any individual nor do they run for commercial purposes but they are set up to help people in the society like charities and other such organization which depend on funds raised through donations or grants, etc from private individuals or trusts and help the blind or others in society (Palmer et at, 2011).
Mc Donald’s is a private organization operation as a leader in global fast food industry and operates mainly through Franchising where the later run by paying royalty fees to former under a contract. The vision of the company is to maintain its leading position in the world fast food industry and providing customers with better satisfaction through innovation in products and services. Thus the company is continuing growth in market shares, customer satisfaction and profits by serving millions of customers daily around the world while also being responsive to the needs of local community through involving in greening or environmental activities.
1.2 Extent to which stakeholders objectives are met in an organization
Stakeholder is any individual or group whose interest is in the organization and either impacts or is impacted by the business activities (Craig et al, 2005). As considering the case of Mc Donald’s which is leading global giant in fast food industry, the various stakeholders include:
- Customers: are interested in high quality of food with timely delivery, a pleasing ambience and low prices at Mc Donald’s. Mc Donald’s operates on the four values as
- Quality of food along with nutritional information on packaging
- Cleanliness at stores
- Services like speed delivery and customer comfort
- Value which is done through differentiation in product offering by additional services like Wi-Fi allowing professionals to work while having meals and drive thru facilities.
- Competitors: include Burger King, KFC, etc apart from competition from local fast food operators in various countries.
- Shareholders: are interested in the profits, capital gains, share prices and market shares along with the brand image and the revenues.
- Employees: at Mc Donald’s are interested in good working conditions along with proper compensation, rewards and incentives system along with good and equitable working environment which the company tries to fulfill. The company owned Hamburger University aims to meet development needs of employees through providing training and education.
- Government: seeks the company to follow their rules and regulation in respective countries where mc Donald’s operates along with food safety and employee welfare regulations to be followed.
- Suppliers: at Mc Donald’s are many and they seek timely payments and continuing supply of raw materials while maintaining good relationships.
- Distributors: in any organization are interested in good profit margins along with continuing supply of good quality products. At mc Donald’s Franchisees are important in distribution of products in the markets and they are interested in optimal franchising agreements with minimal charges or loyalty apart from brand image, market shares, revenues, etc.
1.3 Responsibilities of organization and strategies employed to meet them
Mc Donald’s operates globally in around 120 countries with over 30000 restaurants with around 80% of restaurants operating through franchise systems and only 20% owned and managed by the company. The responsibilities of the company can be understood as:
- Towards customers: include providing good quality and safe food and beverages according to taste preferences of customers, with low costs and clean ambience. Also developing and innovating of the products specially for rising health consciousness among customers, providing nutritional information on food packaging and meaningful advertisements without making use of children in it are some other key responsibilities (Robert et al, 2007).
- Towards shareholders: includes continuing increase in market shares, profits, capital gains and share prices whilst being responsible to environment and its sustainability through greening activities like energy efficiency in operations.
- Towards suppliers: includes making use of better communication technology and fair dealings including timely payments.
- Towards government and society: includes the following of laws and regulations along with provision of safe and healthy food products while also being responsive to environment through development of a global Forestry Policy and Corporate Social Responsibility (CSR) policy in organization and its representation on product packages.
- Towards employees: includes proper compensation and work conditions along with providing for training and development through Hamburger University while following employment regulations and entering in to negotiations with Trade Unions. Also it includes providing for motivation and skills development of the employee along with increasing employee involvement and value proposition.
Lo 2 national environment of business
2.1 How economic systems attempt to allocate resources effectively
The resources like capital, land, soil, etc are in limited supply in any country and thus effective allocation of these scarce resources in order to meet the needs and demands of the people in the country is done through economic systems. The economic systems help in allocation of resources in prudent manner and it can be done in three ways as follows:
- Planned economy: is where the government decides over the allocation of resources in the country and the resources are allocated based on a plan. But this system is seldom effective in allocation of the resources as the government does not have complete knowledge of the market conditions and thus this leads to surplus of inputs or shortages thus leading to problems to the business organization (Peh, 2009).
- Free market economy: is where government intervene minimum in decision making related to resources allocation and the forces of demand and supply determines the markets and allocations of resources. Here the organizations can freely import or export goods or services to different countries and competition in the markets allow effective use and distribution of scarce resources.
- Mixed economy: is the mostly accepted form of distribution of the resources in many countries as here the government plans and intervenes through formulation f policies like fiscal policy, Competition policy, etc while the business activities are based on market forces of demand and supply as per needs of people. Thus it allows for least wastage and free trade environment along with certain laws and restrictions from the government.
2.2 impact of fiscal and monetory policies on business and their activities
In order to keep a control over the activities of business organizations, various policies are formulated by the government with aim of stabilization of the economic systems. The main policies include the fiscal and monetary policies where the government acts through fluctuating rates as follows.
- Tax rates: Fiscal policy deals with the government revenues and determines the amount of taxes levied on the various business and other related activities. If the government increases the tax rates then the organizations are left with little amount for investing in infrastructure, training, recruitment, etc and thus it impacts the employment in a negative way as organization invest less in manpower and vice-versa (Hall, 2008).
- Interest rates: Monetary policy is formulated by the centralized bank and the government and deals with the supply of money in the economy. If the government increases interest rates on funds, it decreases the funds raising capacity of the organization like Mc Donald’s and thus impacts low funds with organizations and vice versa. It is true if the government allows funds at low rates to allow for expansion of business activities through increase of liquidity in markets.
- Reserve requirement: If central bank increases the reserve capacity then various banks increase interest on deposits thus allowing people to deposit more in banks and reducing their spending power and reducing sales of Mc Donald’s products and vice versa.
- Exchange rates: it deals with currency exchanges in multi-national firms as Mc Donald’s as it is impacted by increase or decrease in value of pound at UK. Also other currencies where it operates impact its business activities including raw materials costing, etc.
2.3 impact of competition policy and other regulatory mechanisms
The competition policy deals with the promotion of healthy competition in markets thus leading to improvement of the business efficiencies along with providing the customers with greater choices in terms of prices and quality and technical innovations. Also it leads to effective allocation of resources through price competition for raw materials by various operators in the industries. It promotes the customer interest through safeguarding against any kind of abuses like fixing of prices by two or more firms, affecting supply through hoarding and monopoly pricing (Rosser et al, 2003). Mc Donald’s is a leading player in global fast food industry and faces hard competition from burger King, KFC, etc and thus tends to provide best quality, services and innovate and adapt its products as per consumer preferences along with differentiate its offering through provision of services like free Wi-Fi and drive thru to attract its customers and develop edge over competitors. Other regulatory mechanism are enforced by the government includes fair trading, providing appropriate services to customers, healthy competition in market, fair pricing, being responsible to environmental concerns and sustainability initiatives of the businesses, etc. This allows for providing for the best satisfaction of the customer needs and wants and fair business operations by organizations including Mc Donald’s.
Lo 3 understand behavior of organization in marketing environmnets
3.1 market structures detemine the pricing and output decisions
The market structure refers to the number and relations between the various operators in markets in any industry along with their impact on prices and customer demands.
- Monopoly: is the market condition where two or more firms dominate in the market and decides prices in order to increase their profits without taking care of the customer ability to pay for it. Here the prices are determined by the dominant firm along with supply of the product in market.
- Monopolistic: market structure is where the large numbers of firms operate in markets with limited market shares and without having much impact on prices and supply of products in market. Thus the prices are dependent on demand and supply forces (Douma et al, 2013).
- Oligopoly: is the market structure where a particular small number of firms account for the large amount of market share in the industry and thus these together determine the prices and supply in markets.
- Perfect competition: is where a large number of firms operate in the industry and the prices are determined by the market forces of demand and supply. As in case of Mc Donald’s at UK is operating in perfect competition markets allowing for free entry and exits of players in industry and competitive prices of food along with best services and continuing supply prevails.
3.2 market forces shape the organizational response
The market forces include the demand and supply of the products in the markets and the organization respond to changes in demand and supply which decides the profits and position of the firm in the market or industry. Demand is the representation of the overall customer needs in the markets and firms like Mc Donald’s invest heavily in understanding the demand of their products in the markets. This helps the company to provide the products at right time and in desired quantity to meet the customer requirements. If the company is able to estimate the demands this leads to increased profits margins through reduction of finances being locked up in inventory and finished products while inability to meet demands creates losses for company along with affected reputation. If the company doesn’t react to market demand and supply the products in the markets it would lead to over stacking o piling up of products thus generating losses for the company thus supply should be according to market needs. Thus being proactive and being capable of meeting the customer demands effectively leads to increased customer satisfaction and brand reputation thus leading to higher future profits and success of organization. Thus the organization must react prudently to market forces of demand and supply in order to ensure its success and viability in the industry as done by Mc Donald’s. The company must keep track of the environment in order to access changes in demands which may be affected by seasons, festivals, etc and supply accordingly (Gregory et al, 2013).
3.3 business and culturl environment affect the behavior of an organization
The company must consider the changes in the environment and react to it and it can be divided in to
- Economic Environment which includes the economic systems, policies like fiscal and monetary policies, etc. As Mc Donald’s operates in various countries thus the spending power of people depending on per capita incomes are different and thus products and prices are designed accordingly. Thus high priced products are successful at UK due to high incomes and spending power of customers. Also policies of two different countries where firm operates are different impacting its operations (Paul et al, 2013).
- Non economic Environment which includes the natural, demographics, society and culture, political scenario, technology, natural factors, legal framework, etc.
- Political environment includes the political scenario along with attitude towards the business activities thus business activities are impacted by it.
- Legal environment consists of the laws, rules and regulations enforced by the government of the country and have to be followed by all the organization including Mc Donald’s.
- Technological environment includes the method and use of technology in production of gods and services to the markets and it impacts the product development and delivery in particular country.
- Demographic environment includes the size, density, ageing, nature of the population in a country and Mc Donald’s demand is impacted by respective demography of a country.
- Cultural environment consists of values, beliefs, traditions, literacy rates, rituals, etc and it is not the same for two different countries where mc Donald’s operates. As in case of India which is dominated by Hindus, beef and pork are not acceptable as they may be in UK culture. Thus products are developed as per the culture of the respective country as in case of Mc Donald’s.
Lo 4 global factors shaping the national business activities
4.1 significance of international trade in uk business organizations
International trade is very important consideration for various countries as it cannot be self sufficient and cannot produce all the goods and services. Also certain natural resources are found in a particular country or region only as location of major petroleum reserves in Arab countries allowing them to exchange oil and petroleum products for other products with countries (Elmer, 2015). For the UK business organizations the importance of international trade includes:
- Raw materials and agricultural produce: UK based business depend on raw materials like banana, mango, etc on other countries where the climate is suitable for their cultivation and thus enters in exchanging such products with industrial goods like cars, engines, mobiles, etc produced at UK. As in case of Mc Donald’s operating at UK various inputs comes from other countries thus international trade is important for its operations.
- Cheap labor and production: the costs incurred in production of a particular good are different in different countries due to availability of cheap labor as in Africa and China. Thus companies are importing products after producing them in such locations to impact the overall cost of production.
- Market shares and revenues: if any organization limits itself to a particular country then it cannot continue increasing in terms of revenues and market shares thus companies like Mc Donald’s are gaining profits, reputation and market shares through trading and operating businesses internationally apart from serving customers globally.
4.2 impact of global factors on business organizations at uk
The various factors that have a bearing on the activities of multi-national organizations like Mc Donald’s not only internationally but also in its home country are called the global factors. Many of the organizations operating at UK conduct business elsewhere where the labor cost are low and through international trade help in boosting the UK economy (Paul et al, 2013). Due to good reputation of UK in the world due to its use of technology and manufacture of machines, cars, etc, the UK based organizations get an opportunity to expand business elsewhere around the world. World Trade Organization (WTO) has important concern in matters pertaining to trade and exchange between various countries and ensuring global actions of organizations properly.
UK government has important contribution in liberalization of trade and exchange through formulation of laws and policies thus focusing on the global growth of UK based organizations. However Protectionism policy of UK government restricts the import of particular items in order to ensure healthy competition between the goods and services produced within UK. Thus the UK government through application of tariffs and taxes restrict import in certain areas. BRIC (Brazil Russia India China) are the most fast developing economies in the world and hence poses threat to the economy and organizations at UK. Thus the global factor is important consideration for large organizations operating at UK and helps in improving the contribution to the UK economy through promotion of international and global trade.
4.3 impact of eu policies on business organizations at uk
EU has certain rules and policies which must be followed by all the organizations conducting business activities at UK and member countries. As Mc Donald’s operates in many countries which are member to EU thus it must abide by their regulations and one of the major policies of EU includes doing all the dealings between the organizations or subsidiaries based at member countries in the Euro currency through the European Money Transfer Union thus strengthening the European currency (Palmer et al, 2011). The various policies of EU have impact on business activities of organizations at UK affecting in the various areas as Employment, recruitment, Training and development of employees, spending, taxes levied, international trade, subsidies, etc. all the member countries at EU are allowed for free trade amongst member countries while national government has role of monitoring the business activities as per the EU policies. Thus all the UK based organizations including Mc Donald’s must follow the rules and regulations as per EU in order to avoid any legal suits for violations. The EU policies promote trade and exchanges with member countries while imposing some restrictions on trading with outside countries.
The business environment of any organization has important impact on its activities and decisions and the business must respond to changes in the outside environment which consist of micro environment or stakeholders in the business including competitor, suppliers, customers, employees , shareholders, etc and macro environment consisting of economic environment including economic policies like fiscal policy, monetary policy, competition policy, etc and the non economic environment consisting of political, natural, cultural , demographic, technological and legal framework impacting the business activities. Various organizations like EU and government regulate and monitor the business operations nationally and internationally hence any organization must abide by laws, rules, policies and procedures accordingly. Thus various organizations operating at UK are impacted by the policies of EU in terms of recruitment, money exchanges, training and development , inflation, etc and the role of the national governments is limited as EU allows for free trade and exchanges between the member countries. As mc Donald’s operates globally in various countries thus it must abide by the legal framework and policies of the respective countries and develop products and services as per the cultural , social and other aspects of environment including the tastes and preferences of customers.
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