Effects of Business Factors on an Organization Environment
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Introduction to Business Environment
Business environment implies the different forces or surroundings that have an influence on business operations. These forces include the internal and external factors to an enterprise like suppliers, employees, customers and competitors. These affect the functioning and operations of the organizations either directly or indirectly (What Is Business Environment?, 2013). The purpose of this report is to have an understanding of the different organizations and their stakeholders’ along with their relationship in the business environment. The report consists of an understanding of the different purpose of an organization and the nature of national environment in which they operate. Following this, emphasis is on behavior of organizations in their market environment and significance of global factors that shape business activities and operations.
1.1 There are different types of organizations in UK and each one of them has specific purpose and objectives.
The private sector organizations are those which are privately owned and are not the part of the government. The government cannot interfere in the working of such organizations. Profit organizations- These include both profit and non profit firms. The former ones operate and function with the sole purpose of earning profits by targeting the right customers and making the necessary goods available to them.
Non profit organizations
Non profit firms are also known as voluntary organizations which include charities that have the purpose of social welfare and not earning profits.
While, the other is government firms which are owned and operated by the government authorities and they work with the purpose of giving services to people and in turn receive taxes from them.
1.2 The category of organization chosen is private sector in retail industry, that is, Sainsbury UK. The different stakeholders of Sainsbury are –
Sainsbury work and operate in order to fulfill the objectives of the different stakeholders. In order to meet the objectives of employees, the company provides optimum pay benefits to them along with appropriate monetary benefits according to their performance.
In order to meet the objectives of the customers the company recognizes the needs of the prospects and offer products and services according to their needs. It also establishes good relationship with its loyal customers so that they visit their stores regularly.
The needs of the suppliers are also being met by Sainsbury as the company provide necessary benefits to all its suppliers and maintain healthy relations with them.
The objectives of the government are fulfilled by working in compliance with the various legislations issued by the authorities and exhibiting an effective corporate social responsibility.
The responsibilities of Sainsbury towards its employees are to provide them a culture in which they feel proud to work at
The responsibilities towards the customers are to provide a good quality service to them at the stores
Towards suppliers Sainsbury hold the responsibility that it maintain proper negotiation standards with them and also and also implement them
Towards government, Sainsbury hold the responsibility that it performs all its operations with transparency.
Efforts By Sainsbury
For this, the company applies a healthy and safe working atmosphere for them so that they can serve customers well
Sainsbury meet the responsibilities by taking regular feedback from the customers so that it can be aware of their changing needs and offer products and services according to the demands and requirements. Along with this, the company also has a customer relationship management unit which keeps a note of its customers and always keeps contact with them. This helps the company to remind the customers of the newly introduced products and attract them to their stores.
For this, Sainsbury establishes and maintains proper coordination with all its suppliers and distributors in order to ensure that resources are available on time along with its finished products
For this, the company establishes its annual report and reveals all its financial figures regarding its performance. In addition to this, the company complies with the various laws like environment and employment law and also follows corporate social responsibility.
The organization chosen for the task is from United Kingdom retail industry, Sainsbury which is the second largest chain of supermarkets in the UK with its main store situated at London. The company at present operates around 1106 supermarkets and convenience stores in the region and is leading in the industry. The organization employs around 157,000 human resources at its various stores (Sainsbury’s, 2013).
2.1 An economic system is the system of production and distribution of goods and services along with allocation of resources within the society. The different systems are responsible for proper allocation of resources. There are mainly two types of economic systems that exist within UK. These are command and free structure. In the command structure, forces of demand and supply and price are under the control of government and not determined the forces of market. The authorities make the decision on which goods and services a company has to produce and how they are distributed and at what price are also decided by the government (Aras and Crowther, 2009). If Sainsbury function under this system then it can have the advantage that there will be no problem of inflation as prices will be controlled and there will also be no duplication of resources. In addition to this, the allocation of resources is also done appropriately under this system.
Another economic system is free system in which private companies operate freely in the market and own their resources and use them in their own manner. The company, Sainsbury under this system, has the advantage that it is free to produce goods according to the available resources and offer to the customers (Etro, 2009). Within this system, the degree of government interferences is less because of which all the resources can be employed to their fullest.
2.2 Fiscal policy is using of taxation and government expenditure that have a significant influence on the entire economy as well as the business organizations. The policy also affects the level of aggregate demand by the customers of retail companies like Sainsbury along with distribution of income and allocation of resources among the citizens in UK. The other policy is the monetary policy includes the rate of interest and its impact on that of aggregate demand (Fernando, 2011). Most of the economic activities of the country are given by this policy. There will be both positive and negative impacts of both the policies on the business organization like Sainsbury and its activities. If there is an increment in the value of pound then Sainsbury can take advantage of this because as the value of currency rises, the values of exports will also increase.
This will be beneficial for the company. This is so as products can be charged higher and other countries will have to pay the price and Sainsbury will be benefitted (Kew and Stredwick, 2005). The increase in the level of unemployment in UK will cause the customers to purchase products from other stores at cheaper rates as compared to Sainsbury as their income will decrease.
If there is a fall in the level of income tax in UK, then this will affect Sainsbury badly. This is so as government collect the two times of tax from the public while it is collected thrice from the private companies. In addition to this, if a fall in the interest rates will lead to a fall in the purchasing power of the people within UK because of which companies like Sainsbury will be badly affected. This is so as low purchasing power of people, purchase will not be as efficient as expected and less revenue will be generated (Shaikh, 2010).
2.3 The UK competition Law or policy is an element that is into the efficient working of markets within the economy. The policy seeks to encourage as well as bring an improvement in the competition process by encouraging competitiveness in the market so that companies like Sainsbury can function and operate in a free market economy. The policy also brings benefits to the consumers by encouraging enterprise, innovation along with efficiency in the choices given to them. It presents before the customers a wide range of choices at the best possible prices so that they can have the maximum benefits (Competition policy and economic growth: principles and practice, 2013).
Another regulatory mechanism is that of price control mechanism as it restricts revenues but not profits as this encourages efficiency in businesses. Price control regulation is designed to ensure that reasonable prices are being charged on the products so as to get an improvement in the level of revenue and also enable the companies to meet their statuary duties and obligations and in return offer good quality of service to the customers (Price control mechanism, 2013).
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3.1 A market structure in an economy implies the number of firms that are operating in the market. There are a number of market structures and everyone has different basis for taking the decision on price and output by a company within that structure. There are chiefly four types of structures, namely, oligopoly, monopoly, monopolistic and perfect competition (Stackelberg, 2011). An oligopoly is one in which there are a few sellers and sell somewhat similar products and so they have the power to influence the market prices. Here, every company needs to consider the prices as well as the strategies adopted by its competitors and so organizations cannot at all times influence the market prices. In a perfectly oligopolistic market, the products being sold by different organizations are homogeneous but if they are differentiated slightly then this is a differentiated oligopoly (Elearn, 2005). Under a monopoly, there is only one seller in the market and he has the sole right to take decisions regarding the market forces of demand and supply.
Under a monopolistic market, all firms produce similar products but not perfect substitutes of one another. Differentiation is one the basis of quality or brand name. Under a perfectly competitive market, there are a number of buyers and sellers and suppliers are price taker but not the maker. Sainsbury functions in an oligopolistic market as its competitors sell close substitutes of the products it delivers and every competitor in the UK retail market is dependent on each other’s policies and procedures (Ayyagari and et.al., 2008). Sainsbury operates into oligopoly market structure as such type of market structure there are few sellers. It involves certain big companies who give tough competition to rivals and dominate them to minimize the prices as per the market conditions. It is essential for Sainsbury to lower the prices in order to overcome competition. For instance, if firm fails in lowering the prices then it affects the demand of products in market and reduces the sales.
3.2 There are various forces of market that have an influence on the response of organizations in the retail market. One of them is the issue of supply and demand. Equilibrium is maintained in the market if both these forces are balanced. The demand of customers change quite rapidly in the market and in response to this, the organizations have to keep up their supply. For example, Tesco which is yet another retail chain in UK and close competitor of Sainsbury maintain the demand and supply (Borsch, 2004). It supplies the products at its stores according to the demands of the customers. Another factor is the price elasticity which is the percentage change in price because of percentage change in demand of products. It measure how demand changes in response to change in price. For example, for items like bread or baked beans and other essential eatables sold by Sainsbury there is not much response to the change in demand if their price increases and so Sainsbury can cut price of such products and earn profits (Warburton, 2010).
Here, demand and supply curves shapes the responses of firm. Demand can be stated as the willingness of clients for specific product at given prices. While, supply states that the quantity of services delivered by businesses in market. However, both the factors posses inverse relationship in order to shape the organizational responses. For example, if demand is created by clients for the products of firm then business has the chance to charge high prices from consumers. While, if supply is lower down then the firm has the chance to increase the prices of the products which are in demand. Therefore, it is essential for Sainsbury to take effective decision in order to attain high profits and enhance market share.
Most of the organizations in any sector rely on the perception of customers and produce goods and services according to their needs and requirements. The pricing decisions taken by the firms depend on the target customer as well as their estimated revenue and costs. In addition these are also taken keeping in view the prices set up by other competitors. For example, ASDA take its pricing decisions based on prices set by its competitors like Morrison and Sainsbury. Labor markets also influence the responses of organizations (Nkowani, 2009). For example, if the cost of labor is high then this will raise the cost of production for the organizations and they respond by raising prices of products.
3.3 Business and cultural environments shape the behavior of an Anglo American business as these determine significant factors that influence business operations. The business environment includes both internal and external environments which consist of employees as well as the customers and suppliers along with the government. All these shape the behavior of business as a firm operates and functions in order to satisfy the needs and demands of all the stakeholders. An organization has to provide a healthy and positive working environment for the employees so that it can provide best of services to its customers (Keiningham and et.al., 2003). A firm makes use of its limited available resources according to the changing needs of the customers. PESTEL analysis of Sainsbury are as follows-
It states that business is required to follow different rules and regulations formed by the UK government. Sainsbury needs to follow proper employment law as well as taxation policy so that best results can be attained (Borsch, 2004).
It states that there are different factor such as inflation in the economy that affects the prices of products. For instance, due to prevailing economic slowdown in the country, business faces issues in attracting customers as they have low purchasing power.
It involves taste and preferences of customers therefore, it is essential for firm to undertake different factors and provide them best products in order to attract and satisfy them (What Is Business Environment?, 2013).
Business is also required to adopt innovative technology so that customer can be attracted. However, it increases the cost of firm but in order to sustain in the market business is required to cope with such situation.
It involves different factors that helps in protecting the environment business can attain this by complying with the environmental laws and thus ban using of plastics and uses recyclable products so that best results can be attained (Ayyagari and et.al., 2008).
Government of UK is required to formulate different laws and regulations in order to carry out best legal practices. For instance, firm should provide best products as compared to competitors so that it does not affect the health of customers and do not provide chance to them for taking any legal action.
Similarly, the cultural environment is also responsible for shaping the activities for the organization like Sainsbury. For example, the company provides a friendly working environment to the employees and the culture is such that work staff enjoys working at the store. The traditions and ethnicity at the stores of Sainsbury are well maintained and employees work according to the culture being established there (Laxman and Ansari, 2011).
4.1 International trade is the exchange of capital, goods and services across the national boundaries of UK to other economies of the world. The trade also represents a significant share of gross domestic product of the country. International trade holds a lot of importance for UK based mining companies as with this it is now possible for the mining sector to carry on business in the international markets. It is the trade across the borders that have made possible the easy flow of communication or information from one place to another (Venter and Clercq, 2007). The mining sector also has the advantage of fulfilling the need of shortage of certain minerals or resources in UK because of the international trade. This form of trade has enabled the increment of imports and exports in the sector and is the way for the incoming of foreign exchange into the country. Along with this, the sector has also been able to increase its revenue by getting reduction in the overall production costs as well as benefitted from the international trade as the sector has also been able to generate profits from an expanded market across international borders.
In addition to this, the trade across national boundaries has also helped in maintaining the competitiveness within the nation and ahs also lead to an increase in sales and profits for the organizations. It is because of the globalization that mining sector has flourished in UK and is now able to contribute a significant portion in the overall economic development of the country (Boyle, 2002). With this, the mining sector in UK has able to gain a share in the global market and reduce their dependency on the existing domestic markets.
4.2 There are a large number of global factors that have an influence on the business operations of the UK based mining companies. The market opportunity that exists for the mining sector in UK is huge as it has the chance to tap on the growing emerging economies in Asian developing countries like India and China. These emerging countries consist a lot of labor skills and also that there is a cheap labor available. The UK based mining sector can take the advantage of such opportunities in the developing nations (Gibson, 2003). In addition to this, the companies in these sectors can also have an access to such minerals which are shortage in UK and get the opportunity to have an access to such resources because of cross border trade.
Exchange rates also have an influence on business operations of mining companies as when fluctuation occurs these have an impact on exports or imports of the nation and also on the return. For example, there will be a rise in imports with a fall in the exchange rate of foreign currency of UK. Likewise, when they increase, there will be an increment in the value of exports. Trading blocs like WTO (World Trade Organization is also factors that determine international trade (Krasner, 2003). This is so as these have reduced the international trade barriers in form of tariffs so that the UK based mining companies can carry on trade in the international markets. The wider business environment also has an influence on the business operations as stability in the international market stabilize the seasonal market fluctuations and so favors the business operations globally.
4.3 European Union (EU) operates as a controlling body of the member nations of the unit. The policies that are passed by the body have brought in stability in the retail market of UK and facilitate a free trade for the UK based organizations. An increment in the European Union’s free trade agreements allow the organizations in UK to carry on their trade freely across the national boundaries also. Most of the policies of EU have increased the opportunity for firms in UK to expand exponentially and make investments (Archer, 2008).
One policy of EU is Common Fisheries Policy according to which EU sets the quotas for the member states in which they are allowed to catch specific amount of each type of fish as well as encourage the fishing industry by introducing various market interventions. But the policy has negatively affected the business organizations in UK as with the policy there was overfishing which lead to an increment in price of fish and seafood. As a result, the organizations like that in the retail sector or in the fish industry are forced to buy fish at high price which costs them higher (Common Fisheries Policy, 2013). Eventually the sales of fish went down because owing to high price and leading to low profit margins.
From the present report, it can be said that organizations and their business operate in an environment that is influenced by a number of factors that lie both inside and outside the business. It can be said that there are various economic systems along with legislations and policies that have an influence on the working of the enterprises. The market structures in which most of the companies of today function are the oligopolistic market and each one is influenced by the market in which they operate. International trade is also practiced in most of the economies and this is also influenced by a number of global factors.
Aras, G. and Crowther, D., 2009. The Durable Corporation: Strategies for Sustainable Development. Gower Publishing Ltd.
Archer, C., 2008. The European Union. Taylor & Francis.
Ayyagari, M. and et.al., 2008. How Important Are Financing Constraints.The Role of Finance in the Business Environment. The World Bank Economic Review. 22(3).
Borsch, A., 2004. What happens after privatization? Globalization, corporate governance and adjustment at British Telecom and Deutsche Telekom. Journal of European Public Policy. 11(4).
Boyle, E., 2002. The failure of business format franchising in British forecourt retailing: a case study of the rebranding of Shell Retail’s forecourts. International Journal of Retail & Distribution Management.
Dutta, M., 2011. Historical Progression of the EU - The United States of Europe: European Union and the Euro Revolution, Revised Edition. Emerald Group Publishing Limited. 29.
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