This Unit 1 Business Environment Pass Copy is on Every business organisation functions in a specific business environment. The growth of a business organisation depends on lots of factor existing in a business environment. These factors include market structure, type of economy, globalisation factors, government policies etc. The way an organisation adapts itself in a business environment defines its success. Purpose of this task is to understand these aspects related to business environment, and how these aspects play a crucial role in success or failure of a business.
Task 1 Purposes of different types of organisation
- Purpose: Public sector includes organisations like military, police, public transit, health care, public education etc. In United Kingdom some examples of public sector organisations are: British Council, NHS Choices, NHS Direct, UK Police and Local Councils etc. Purpose of the public sector organisation. Purpose of public sector is to provide various services such as health and education at subsidised rates, or to provide other important facilities such as roads and defence which are maintained on taxpayer’s money (Campbell & Craig, 2005).
- Aim: Aim of public sector organisation is towards creating social equality and economic justice rather than creating profit.
- Objective: Objective of public sector organisations is to provide essential services without any profit motive. For example health services, educational services etc.
- Purpose: Municipality is a type of organisation which functions at city level, and is focused on maintenance of various services of the city. These services can be cleanliness, sanitation etc. Municipality is an extension of public sector organisation which works at local level, and generates its revenue from tax collection and funding which is received from central government.
- Aim: To maintain the essential services such as sanitation, water supply, health services, cleanliness of the city.
- Objective: Objective of municipality is to upkeep the essential services which are provided to any particular city.
- Purpose: Charitable organisations are type of non-profit organisation. Purpose of charitable organisation if centred on supporting any specific cause such as education, health care or any medical issue.
- Aim: Aim of charitable organisation is to support a particular cause by providing them financial and other types of aid to sustain.
- Objective: Objective of charitable organisation is to provide funding to a specific cause such as research on AIDS, or support to malnutrition children in Africa etc. One example of charitable organisation is Bill and Melinda Gates Foundation founded by owner of Microsoft Bill Gates. Hence from time to this foundation allocates specific amount of money to support a cause, and closely monitors its appropriate use (Campbell & Craig, 2005).
Private sector limited
- Purpose: Purpose of a private sector company is to generate profit for its shareholders and stakeholders, by offering its products and services to the customer.
- Aim: Aim of a private sector company is to maximise its revenue, and generate profits for people associated with it.
- Objective: Objective of a private sector company is to efficiently use resources available with it, and to manufacture a product or service in such a way, that it can be offered to its customers at a competitive price and profit can be generated. Virgin Group of companies founded by Sir Richard Branson is one example of a private sector company. It has limited shareholding restricted to few people only.
Public limited company
- Purpose: Purpose of public limited company is similar to private limited company only, i.e. earning profit for its shareholders who have invested in the company.
- Aim: Aim of public limited company (PLC) is to ensure maximum profitability for its stakeholders, and shareholders, by improving its efficiency and productivity.
Extent to which Tesco PLC meets the objectives of different stakeholders
Stakeholder can be a person or an entity that has an interest in the way an organisation performs on various parameters. For an organisation, there are multiple stakeholders. Following are the ways in which organisations try to meet the objectives of stakeholders associated with them:
- Suppliers: For suppliers, Tesco PLC has applied its core value which states that “Treat people how we like to be treated.” Tesco treats its suppliers fairly and honestly, and focuses on long term relationship (Sundbo, 2008).
- Government and regulators: Tesco ensures timely payment of its taxes, legal compliance, and focuses on its engagement with regulatory bodies, public agencies, and officials on a range of policy issues that affect its business and the communities in which it operate.
- Employees: For employees, Tesco has ensured that it provides them a fair and progressive work environment. Tesco encourages its staff to give anonymous feedback through its annual Viewpoint survey (Sundbo, 2008).
- Customer: Tesco organises specific meetings for its customers named as CQT aka Customer Question Time. Purpose of this meeting is to help Tesco to identify and respond to changing customer needs.
- Communities: Tesco engages with communities through community initiatives, public consultations, and exhibitions. Tesco works with community groups including charities.
Task 2 Types of economic systems, and the way in which they attempt to allocate resources effectively.
An economy system can be defined as a system through which a nation pursues its economic goals and, utilises its resources to produce and distribute goods and services (Gregory & Stuart, 2005).
|Economy System||Resource allocation||Factor for resource allocation||Example|
|Command Economic System||Resource allocation done through centralised government agency. Land, natural resources etc. are allocated by government for products of goods and services.||Market forces are not considered before allocation of resources. Focus is more on subsidizing the product or service, and creating equality. Hence, mass production is a common phenomenon||China as a country follows command economy system.|
|Market Economic System||No role of government in resource allocation. Private and public organisation decide on resource allocation based on demand and supply||Demand and supply present in the market, and profit motive is the main factor which decides the resource allocation.||United States and United Kingdom.|
|Mixed Economic System||Also known as dual economy is a combination of marketig principles. Resource allocation of resources such as minerals, oil, lands etc. is done by government. Whereas private organisation allocates resource based on their requirements.||Balance between availability and the profitability decide the way resource is allocated. Essential items such as oil etc. Private companies decide resource allocation as per demand and supply factor.||India, Japan.|
Impact of fiscal and monetary policy on business organisations and their activities
Fiscal and monetary policies have major influence on the business organisations and their activities. Fiscal policies are the policies through which government adjusts its spending levels and tax rates, so that it can monitor and influence the economy of country. For business organisation any change in fiscal policies means impact on the cost of borrowing, rate of taxation, and amount of money an average consumer can afford to spend. For example, and change in Value Added Tax (VAT) on a product category means impact on the retail pricing of the product, which can impact its demand (Davig & Leeper, 2011).
Monetary policies: are the policies through which government attempts to control the economy, and overall supply of money in the market. For example, high rate of money supply can result into high inflation and vice-versa. Central banks of countries often cut or increase the lending rate to control the flow of money in the economy. For example if a bank decides to cut its interest rate, for business organisation it will become easy to lend money and expand its business.
Impact of competition policy and other regulatory mechanisms on the activities of a selected organisation.
Competition policy and other regulatory mechanism have tremendous impact on business organisation. For example, an organisation like British Airways was fined for £58.5m as it was found guilty of colluding with its rival Virgin Atlantic for fuel price fixing. This fine was imposed by Office of Fair Trading (OFT), which is now part of Competitions and Market Authority in UK. In a country like UK, CMA maintains the competition policy. Purpose of these competition policies and regulatory mechanism is to ensure that there is no unfair advantage or monopoly of any specific company in the market, and every organisation gets a fair opportunity in the market (Comanor et al,2014).
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Task 3 Ways in which market structures determine the pricing and output decisions of businesses
Market structure plays a major role in pricing and output decisions of business. Following are the market structure:
- Perfect Competition: many firms are present in such market structure, there is freedom of entry for any business organisation, homogeneous product, and normal profit.
- Monopoly: In this market structure there is only one firm which dominates the market; barriers to entry are high in such structure, possibly supernormal profit.
- Oligopoly: In such market structure the market is dominated by few firms, e.g. 5 firm concentration ratio of > 50%
- Monopolistic competition: Freedom of entry and exit, but firms has product differentiation. Likelihood of normal profits in the long term.
Market forces and the way, they shape organisational responses
Market forces have major impact on the way organisational responses are shaped. For example recession in Europe resulted into severe impact on the purchasing power of the consumers, hence in such situation, purchase related decisions for items such as expensive vehicles etc. was postponed, which impacted the organisations which were involved in its products.
Change in demographics is also one major market force which changes the organisational response. For example there are several countries in Europe where major part of population is old which means companies active in production of products which are relevant to youth have to find an alternative market to sell their product or service (Myers & Tauber, 2011).
Organisations have to accordingly change their organisation behaviour to adapt to such market forces. For example, from time to time retail chains such as Sainsbury’s, Tesco, Marks and Spencer come up with discounts on their products to spike the sale of their products.
Judge how the business and cultural environments shape the behaviour of a selected organisation
PEST analysis of Tesco PLC will help in understanding the way business and cultural environment shape the behaviour of selected organisation.
- Political: Tesco’s performance is impacted by political and legislative conditions in UK. For example, employment related legislation by the government encourages the retailer like Tesco to provide mix of job opportunities with range of low paid to high paid jobs, including varying skill sets. Hence Tesco has to accordingly hire people so that it can fulfil government legislation as well.
- Economic: economic factors have major impact on Tesco’s business. For example, high unemployment rate results in decrease of demand for goods, which adversely impacts the demand required to produce such goods. Such economic factors are outside the control of the organisation.
- Social/Cultural factors: trends in UK retail sector indicate that British customers have gradually moved towards bulk or one stop shopping, which means, that apart from its core food items, Tesco has to stock various other items which customers might be looking for. Similarly, gradual increase in the demand for organic food products has resulted into Tesco focusing on stocking such organic food products.
- Technology: Tesco has improved efficiency and productivity of its store operations through use of devices such as:
- Wireless devices
- Intelligent scale
- Electronic shelf labelling
- Self-check-out machine
- RFID (Radio Frequency identification)
These technologies have helped Tesco to improve the efficiency of distribution and stocking activities.
Task 4 Discuss the significance of international trade to UK business organisations
International trade has played a major role in growth of business organisations in UK. For example, import liberalisation has allowed UK organisation to get access to raw material at economical rates. British Petroleum which is UK’s one of the largest petroleum producers, imports crude oil from oil producing countries in Middle East. Similarly, export of goods and services has allowed British organisation to expand further and negate any impact of slowdown in economy. For example, Vodafone which is a UK based organisation has operations across world. Similarly Barclays which is a financial organisation has its operations in various countries outside UK as well. International trade has allowed UK business organisation to expand their business further, even when UK and other parts of Europe was going thorough economic recession (Hufbauer & Suominen, 2012).
Analyse the impact of global factors on UK business organisations
Global factors always had a major impact on UK business organisations. For example, when Eurozone crisis started in 2007-2008, major part of European continent went through recession, due to which there was negative growth of economy resulting into poor demand for various products and services. Similarly, at times shortage of raw materials such as crude oil might result into increase of petroleum products, which means, political instability in other country has impact on the business organisation in UK. However, Asian countries like China, Japan and India etc. also helps in maintaining positive growth of many business organisations such as Vodafone, Barclays, etc. who have their operations in countries like India. In nutshell it can be said that global factors have major impact on the business organisation in UK. They at times create issues such as shortage of raw materials, whereas at the same time they also provide opportunity in form of globalisation to expand in other countries (Higón, & Driffield, 2011).
Evaluate the impact of policies of the European Union on UK business organisations
Membership to European Union has mixed impact on the business in United Kingdom. For example, EU Member States are part of a customs union, with no tariffs on goods moving between member States, and a common tariff applied to goods entering from outside the EU. This free trade policy has helped business organisations in United Kingdom to pursue their business interest in other member states of EU, as there is no tariff imposed on the movement of goods between member states, because of which there is no additional burden on the organisation to increase the price due to any additional tax or tariff(Morrison, 2011).
On other hand, there are policies such as Common Commercial Policy (CCP), which enables the member state of EU to establish any trade relationship with non-EU member state, which means that UK business organisations cannot operate independent trade policies with any other non-member EU country. Such policies might act as hindrance at times because every time a business organisation has to deal with a non-member country based organisation it has to follow CCP which might cumbersome and impact the process of decision making.
Campbell, D., & Craig, T. (2005). Organisations and the business environment. Routledge.
Comanor, G. W., Jacquemin, K., Jenny, A., Kantzenbach, F., Ordover, E., & Waverman, L. (2014). Competition policy in Europe and North America: economic issues and institutions. Taylor & Francis.
Davig, T., & Leeper, E. M. (2011). Monetary–fiscal policy interactions and fiscal stimulus. European Economic Review, 55(2), 211-227.
Gregory, P. R., & Stuart, R. C. (2005). Comparative economic systems. Boston: Houghton Mifflin.