Business Environment Assignment

Contents
Introduction ................................................................................................................................ 2 1 Organisational Purpose of Businesses .................................................................................... 2 1.1 Purposes of different types of organisation ..................................................................... 2 1.2 Objectives of different stakeholders ................................................................................ 2 1.3 Responsibilities of organisations and supporting strategies to meet them ...................... 3 2 National Environments of Businesses .................................................................................... 3 2.1 Resource allocation by economic systems ....................................................................... 3 2.2 Impact of fiscal and monetary policy on business activities............................................ 4 2.3 Competition policy and regulatory mechanisms.............................................................. 4 3 Behaviour of Organisation in the Market Place ...................................................................... 5 3.1 Market structure to determine the pricing and output decisions of businesses................ 5 3.2 Organisational responses to market forces ...................................................................... 6 3.3 Impact of business and cultural environment on organisation......................................... 6 4. Influence of Global Factors on National Business Activities ................................................ 6 4.1 The significance of international trade to UK business organisations ............................. 6 4.2 Impact of global factors on UK business organisations................................................... 7 4.3 Impact of the policies of European Union on UK business organisations ...................... 7 Conclusion ................................................................................................................................. 7

Varun Gaur

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Business Environment Assignment

Introduction
Business organisations do not obviously exist in vacuum they have surrounding environment and the environment affects them noticeably. These business organisations continue to exit within the environment with various purposes. Business organisations operate with a motive to make profit but there are also other forms of organisations which operate without the motive of making profit and their primary purpose is to serve the society and social welfare. Whatever the motive is they are affected by the environment. These environmental factors consist of political, economic, socio-cultural and technological. In the next sections and subsections this issues has been discussed which will help the Small and medium sized organisations to obtain an understanding about business environment.

1 Organisational Purpose of Businesses

1.1 Purposes of different types of organisation
The purposes of organisations explain the fundamental reason for, why they exist? The purpose of an organisation is expressed in the form a mission statement. A mission statement is defined as A brief description of a company's fundamental purpose. A mission statement answers the question, why does an organisation exist?" Some examples of mission statement: Stockport NHS foundation trust is a not for profit making organisation in UK is and it explains its mission statement as follows: Our mission is to provide a high quality, accessible and responsive service by putting our patients at the heart of everything we do. Our philosophy is to treat people how we would want to be treated and ensure that no-one tries harder for patients. Sainsburys is a retail giant in UK and it states its mission statement as follows: Our mission is to be the consumer's first choice for food, delivering products of outstanding quality and great service at a competitive cost through working faster, simpler, and together."

1.2 Objectives of different stakeholders

Stakeholders are the person(s) or organisation(s) those influence or are influenced by the actions, decisions of an organisation. Responses to the need of stakeholders: Shareholders: Shareholders are interested about dividend and capital growth of their investment to response to these needs organisations design and implement risk management systems to safeguard their investments, establish highly competent management in place. Varun Gaur Page 2

Business Environment Assignment

Employees and managers: are interested about the level of salaries and remuneration and the entitys ability to continue in operation, benefits, pensions, training and career development facilities etc. Companies establish pension funds and provide training facilities to fulfil their needs. Community: creation of jobs, environmental friendly operations is the issues that the community is concerned about. Companies design and implement CSR policies to respond to these needs. Government: wants companies to comply with various laws. Companies regularly pay corporation tax and comply with other relevant laws.

1.3 Responsibilities of organisations and supporting strategies to meet them

Organisation has different types of responsibilities and this can be discussed within the framework of corporate social responsibilities. CSR provides basic principles based on which organisations can consider its responsibilities as follows; Respect for Human Rights such as; providing safe working environment for the employees Contributing to Sustainability e.g. sustainable business practices. Diversity e.g. recruiting diversified workforce. Dialogue e.g. regular meeting with shareholders Integrity e.g. fair business practices.

2 National Environments of Businesses

2.1 Resource allocation by economic systems
Resource allocation involves the decision of a country or region regarding the use of total resources available for differing needs of people. This decision can be made by the people or by the government or a mixed of both through different economic systems. Economic systems: An economic system is one that a society attempts to meet peoples material needs and wants through the production of goods and services. There are three economic systems namely; 1. Command economy 2. Free market economy 3. Mixed economy

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Business Environment Assignment

Command economy: The command economy is usually associated with a socialist or communist economic system. Resource allocation is made through a central planning by the government. In a command economy land and capital is owned collectively. Free market economy: In a free market economy resource allocation decision is made by the free market. Individuals are free to make their own economic decisions. Consumers are free to decide what to buy with their incomes: free to make demand decisions. Firms are free to make supply decisions. Mixed economy: In a mixed economy decision about resource allocation is made both by the government and the market. In fact most of the economies are mixed economy.

2.2 Impact of fiscal and monetary policy on business activities

Impact of fiscal policy: Fiscal policy involves the use of the government spending and tax programs to influence the level of aggregate demand in the economy. To stimulate the aggregate demand government increase its spending level and decrease tax rate this done in time of economic recession. The government cuts its spending and increase tax rate to control business activities in response to inflationary pressure. Impact of monetary policy: It involves the use of money supply and interest rates to influence the level of aggregate demand. In time of recession to stimulate business activity interest rates are lowered and money supply is increased and vice versa.

2.3 Competition policy and regulatory mechanisms

Competition policy: Abuse of monopoly power can lead to market failure and be against the public interest. Therefore Governments are concerned to intervene and protect the interests of the consumers. 1998 Competition Act sought to bring the UK into line with EU competition policy. The Office of Fair Trade (OFT) in the UK is responsible for investigating suspected abuses of monopoly power and engaging in prohibited practices. There are 2 main types of behaviour they investigate; Collusive Behaviour Abuse of Market Power

Regulatory mechanism: There are different types of regulatory mechanisms that affect different types of business organisations as an example I have discussed the regulatory mechanism of alcohol retailing in UK.

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Business Environment Assignment

Licensing requirement for alcohol retailing:Licensing laws of the United Kingdom regulate the sale and consumption of alcohol, with separate legislation for England and Wales, Throughout the United Kingdom, the sale of alcohol is restrictedpubs, restaurants, shops and other premises must be licensed by the local authority. The individual responsible for the premises must also hold a personal licence.

3 Behaviour of Organisation in the Market Place

3.1 Market structure to determine the pricing and output decisions of businesses
Perfect competition: is a market structure where there are many firms; where there is freedom of entry into the industry; where all firms produce an identical product; and where all firms are price takers. A perfectly competitive industry sets price and quantity of production at the level where the price of the good is equal to the marginal cost to the producing firms of producing the good. It gets the most efficient or desirable levels of output for the economy. Monopoly: is a market structure where there is only one firm in the industry. For a firm to maintain its monopoly position there must be barriers to entry of new firms. A monopolistic industry has the power to raise its prices and lower its output to levels below that which would be most efficient or desirable. It sets its prices where the firms Marginal Revenue equal its marginal costs (all firms do this according to the microeconomic theory of the firm). But for a monopoly, the marginal revenue schedule lies below the price schedule given by the demand schedule. Monopolistic competition: is a market structure where, like perfect competition, there are many firms and freedom of entry into the industry, but where each firm produces a differentiated product and thus has some control over its price. As with other market structures, profits are maximised at the output where marginal cost equal to marginal revenue. Oligopoly: is a market structure where a few firms between them share a large proportion of the industry. There are, however, significant differences in the structure of industries under oligopoly and similarly significant differences in the behaviour of firms. The firms may produce a virtually identical product. Most oligopolistic, however, produce differentiated products. An oligopoly maximises profits by producing where marginal revenue equals marginal costs. Oligopolies are price setters rather than price takers.

Varun Gaur

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Business Environment Assignment

3.2 Organisational responses to market forces
Market forces describe the interaction between supply and demand within a market. Organisational response is the reaction given by a company or business to an economical or business circumstance. An organisations response to market forces is key in any circumstance as it will have a direct impact on the companys profits and reputation. In terms of supply and demand the most successful companies will have appropriate market research and analysis in place to ensure that they are able to supply a product or service to meet the demands of its customers. If a company has judged the market demand for their product correctly then they will keep their customers happy by ensuring they supply the product or service requested by their customers in the appropriate quantities. It will also increase profits as the company will have judged their margins correctly to be able to supply and sell as much of their product as possible, without over stocking, bringing added finances to the business. Poor judgement could lead to a misinterpretation of market forces, either leaving customers empty handed as not enough product has been supplied, or leave their business overstocked as customers do not want the quantities supplied. In both scenarios a companys profits would be greatly affected, and the organisations reputation may be tarnished.

3.3 Impact of business and cultural environment on organisation

As an example McDonalds has been selected for an analysis of business and cultural environment. Political: Its international operation is highly affected due to individual countries policies enforced by its government. United States and Europe are highly concentrated on health implications on eating fast food, licencing for its restaurants. Economic: Recession, fluctuation in the rate of raw materials, taxes levied by the government. Social or cultural factors: Established a good system in determining the need market. Concepts used; consumer behaviour product personality, purchasing decision. Technological factors: Television advertising, better inventory system, use of modern technology, use of better distribution chain, research and development department. Legal factors: Muslim countries require their meat to conform to the Halal requirement of the law. European Union banned the use of genetically modified meat products in their food.

4. Influence of Global Factors on National Business Activities

4.1 The significance of international trade to UK business organisations
UK is a small country.The domestic market is small. UK can improve its economy only through increasing its market,through international trade.The flourishing economy of UK Varun Gaur Page 6

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during colonial rule was due to its large market, UK procured raw materials at cheap rates from colonies and sold finished products in colonies.Now the share of UK in international trade is at rock bottom.It has lost its markets.Once popular brands like Phillips,BSA etc. are not wanted in market and they have been replaced by cheap goods from Japan,China etc.UK has no future unless it re-establishes its brands,recapture its markets through international trade.

4.2 Impact of global factors on UK business organisations

Competition: The investment of multinational companies in UK has made the market highly competitive for UK organisations such as ASDA is one of the retail company in UK which is a subsidiary company of Walmart which is a USA based retail company and it has more competitive advantage than Sainsburys which is a UK based retail company because of the opportunity to economise of scale. International economy: Because of globalisation the business activities has become interrelated and this has resulted a downturn in business in one country to another country. UK has high global presence as a result the companies suffers accordingly.

4.3 Impact of the policies of European Union on UK business organisations

The EU has developed a single market through a standardised system of laws which apply in all member states. EU policies aim to ensure the free movement of people, goods, services and capital and maintain common trade policies such as agriculture, fisheries and regional development. UK is a member state of EU and it has complied with many laws of EU and also rejected to comply with some of the laws and policies. The EU policies affect the business organisations of UK in different ways such as under the common agricultural policy of EU in 2007 the European Commission was reported to be considering a proposal to limit subsidies to individual landowners and factory farms to around 300000. Some factory farms and large estates would be affected in the UK, as there are over 20 farms/states which receive 500000 or more from the EU. The EU policies in fact create opportunities as well pose threats for the UK businesses.

Conclusion
For business to operate successfully it is very important to identify the need of stakeholders and to respond to them appropriately. As well businesses to be successful a thorough analysis of the environment need to be carried out and equally the corporate social responsibilities need also important to be fulfilled.

Varun Gaur

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