Introduction to Business Environment
Business Environment refers to combination of internal and external determinants which impact organization’s business operations (Babin, Boles and Griffin 2015). The internal factors are those factors that are present within business and are usually controllable such as objectives, policies, production capacity, organizational structure and culture, manufacturing techniques and employees of the firm. On the contrary, external factors are those determinants that exist outside the organizations such as customers, suppliers, competitors and marketing intermediaries. The present report features business environment of Iceland Supermarkets which is a supermarket chain in UK (Bah and Fang, 2015). The report covers various aspects that impact the operations of the chosen retail company in national and international markets.
Identifying purposes of the following organizations
Every organization runs business to achieve their organizational purposes. The main purpose of businesses is to earn profits by increasing their sales. The purpose of the following organizations is as follows:
A) Iceland Supermarkets (Private organization): Iceland Supermarkets is a British supermarket chain that offers great deals on frozen food items to its customers. The purpose of the organization is to maximize its profits by increasing sales of its frozen food products through attractive deals. The British retailer lately introduced a free national home delivery service of its products to its valued consumers. For this, Iceland Supermarkets developed online shopping service and had made it available to 84 percent of its UK customers. In addition to this, the company has developed new products to capture larger market share. Besides this, the retailer also came up with innovative idea called The Food Warehouse that sells wide range of luxury and specialty frozen food including vegetables and meat items (The Iceland Story, 2015).
B) KFC (Fast food chain): Kentucky Fried Chicken is very well known fast food restaurant chain in the world. The company specializes in fried chicken and its aim is to popularize the concept of franchise business all around the globe. The purpose of fast food giant is to expand its market share and profits across the globe (Gaskill, Van Auken and Kim, 2015).
C) Transport for London (TFL) (Public sector) - TFL is a government organization which is responsible for providing transport services to the population of Greater London in UK. The main purpose of TFL is to implement transport strategy across London to provide transportation services to people through rails, roads, cross rails and underground commutation facilities.
D) Cancer Research (charity firm): Cancer Research is a registered charity organization in UK that aims to pioneer research to cure cancer without government funding (Cancer Research UK, 2015). The main purpose of the organization is to raise funds for the research for all types of cancer in order to cure it. The firm collects money from public for a social cause and does not aim to make profits.
Extent to which Iceland Supermarkets meeting the objectives of its stakeholders
Stakeholders are those individuals or groups who can significantly affect the actions and objectives as well as policies of an organization. The key stakeholders of Iceland Supermarkets are government, customers, employees, investors, suppliers and community. The company’s aim is to become a responsible retailer to meet objectives of its key stakeholders. Iceland Supermarkets is committed to provide healthy, safe and ethically sourced food products to consumers. In order to achieve this objective, it became the first retailer of UK to eliminate artificial colors, flavors and unimportant preservatives from its own brand. In addition to this, it also banned genetically modified components from its brand products. Besides this, it also banned mechanically recovered meat and hydrogenated fats which is a form of man-made trans fats from its products (Lee, Kim, Seo and Hight, 2015). Iceland Supermarkets source its products from approved suppliers in order to meet global food safety standards set by British Retail Consortium (BRC). It encourages healthy eating among consumers by providing them with full information about nutrition value and ingredients of its products through well defined labeled products. In addition to this, it also provides information related to allergies on the product labels to make those customers aware of the food allergens that are allergic to certain food items.
Apart from this, it also meets objectives of UK community by taking certain remarkable initiatives. This involves working as an official partner with UK government to promote public health by providing healthy and artificial trans fats free food items to its consumers. Further it adheres strictly to follow animal welfare policy regulated by Farm Welfare Council. In addition to this, the retail company ensures that Iceland brand suppliers must follow Fish Welfare Policy effectively. Iceland makes continuous efforts to reduce impact on the environment by minimizing carbon footprints. It successfully ventured environmental projects which aimed to achieve Carbon Trust Standard that include more energy efficient lighting and air conditioning system in its stores. This also includes methods of recycling and waste management. Besides this, Iceland also values its employees and provides great working place for them to work, enjoy and grow (The Iceland Story, 2015).
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Responsibilities of Iceland Supermarkets and its strategies to meet them
As stated above, Iceland Supermarkets is committed to become the most responsible retailer of UK. In order to meet its objectives and responsibilities towards key stakeholders, it has formulated certain strategies which are discussed in the following passage.
In order to fulfill its responsibilities towards community, it crafted various strategies to protect environment by working with partners like Carbon Trust and British Retail Consortium Environmental Policy Action Group. The retail company undertook certain projects to minimize its impact on environment by installing energy efficient lighting and air conditioning systems in its stores. This enabled the Iceland to reduce carbon footprints to a certain level. In addition to this, it made agreements with Climate Change Agreement with DEFRA including all of its distribution centers to reduce energy consumption. Besides this, it followed policy to replace its vehicles after five years to reduce vehicle emissions.
Iceland values its customer’s health and strictly follows strategies to maintain highest standards of food quality and safety. It strongly discards the use of artificial colors, flavors and preservatives in its brand owned products to promote health and well being of consumers. It sources food products from approved and reliable suppliers who meet the standards set by BRC. At the time of new product development, Iceland makes sure that its technologists monitor the first production batch (The Iceland Story, 2015). In addition to this, quality assurance systems of the retailer regularly check products for their quality against set standards after delivering it to its depots. In addition to this, it works in partnership with UK government health promotion program to encourage public to opt for a healthy life. In order to achieve this objective, it strategically promotes consumption of food products which are healthy and are free from genetically modified ingredients. Further it banned the use of hydrogenated fats which is a form of man-made trans fats responsible for major cardiovascular diseases. Therefore it makes efforts to promote health and well being of its customers through sage and healthy products.
For its employees, Iceland always makes efforts to provide clean, healthy and safe working conditions to fulfill its duties as a responsible employer. It works closely with Gangmasters Licensing Authority (GLA) to safeguard the rights of workers (Van Auken, 2015).
How different economic systems attempt to allocate resources effectively?
An economic system refers to a system of manufacturing and exchange of products and services along with allocation of resources in a community. The global economic systems fall into four categories which are discussed briefly under the following headings:
Traditional Economic System
This economic system produces goods and services which are basically outcomes of traditional beliefs, traditions, customs, religions, etc. It relies greatly on historic success of social customs. For instance: Asia, Africa and South America support this type of economic system where agricultural farming is still a primary economic activity.
Market Economic System
Market economies are based on customers and their purchasing decisions. The government does not control resources, valuable goods and other segments of the economy. Market trends and demand of product impact business decisions of the organizations. The producer manufactures the products by selecting right production methods, machines, labor and capital (Turley, Langkamp and Milliman, 2015). In this economy, the market decisions rely upon demand and supply for pricing. Production is stimulated by a motive to increase profits. Organizations operating in market economies prefer less regulations of industry by the government. Separation of market and government proves to be biggest advantage in market economy as there is less control of government over resource allocation.
Command Economic System
In this economic system, government controls all the economic activities. In command economies, market does not play any significant role in the production decisions. The government regulated economies are less flexible than market economic system and react gradually to demand and supply fluctuations. Demand is not impacted by consumer’s buying behavior. The government regulates vital resources and it owns industrial processes, machinery and production facilities. One such example of this type of economic system is China (Wang, 2015).
Mixed Economic System
This type of economic system combines properties of both market and command economic systems. In mixed economies, both government and business firms work together to facilitate the production. There are certain resources which are allocated by government whereas others are allocated by business entities (Mitrega and Pfajfar, 2015). UK's economic system is a perfect illustration of Mixed Economic system where resources are allocated mainly by the market forces.
Impact of fiscal and monetary policy and other regulatory mechanism
Fiscal Policy refers to a means by which a nation's government adjusts tax rates and spending levels to monitor economy of the nation. On the contrary, monetary policy is defined as a tool by which the central bank of a nation controls supply of money in the economy. Fiscal and monetary policies significantly impact Iceland Supermarkets and its activities. The government utilizes fiscal policies for setting tax rates and adjusts levels of spending to steer economy of UK in the right direction to increase or decrease the demand and supply of goods and services (Liebl, 2015). Similarly, monetary policy controls the flow of money in the economy which in turn affects the purchasing power of public to spend on retail goods which in turn influences the demand for products of the retail firm. For Iceland Supermarkets, fiscal policy impacts the investment decisions, cost of business operations, consumer demand and ability to fight the competition. These are elaborated in the following passage:
Fiscal policy related to taxes directly affects the disposable income of consumers. When taxes are high people will have less net income which can provoke them to limit their expenditures. On the contrary, reduced tax rates will enable consumers to have more disposable income to purchase retail products and services of Iceland Supermarkets which in turn increases its sales as well as profits. When government imposes low taxes, the retail company may want to invest in other sectors which can create job opportunities for people. In addition to this, fiscal policy largely influence the investment decisions of Iceland Supermarkets as lowered taxes and tax incentives encourage the retailer to invest in business expansion and funding into staff hiring and training (Hamilton and Webster, 2015). In addition to this, fiscal and monetary policies greatly impact competitiveness of Iceland as few store visited by the buyers can lead to reduced sales and profitability.
Impact of competition policy and other regulatory mechanism on Iceland Supermarkets
Competitive policies significantly impact business activities of Iceland Supermarkets. Retail market is highly competitive. In order to gain competitive advantage over rival retail firms, Iceland Supermarkets makes competitive policy. Competitive policies improve the efficiency of retail firm as the company develops strategies to ameliorate its product range and operations to fight competition. The policy ensures broad range of products for customers to choose at the competitive prices. In addition to this, the competition policy positively increases productivity of labor in the retail sector.
There are four policies on which the competition policy is based. These are market liberalization, state aid control, merger control and antitrust and cartels. Competition encourages Iceland to improve quality of its products and services which in turn enable the firm to capture larger market share to maximize profit (Kindsfaterienė and Lukaševičius, 2015). On the contrary, regulatory actions of government impact the business operations of Iceland Supermarkets. The regulatory mechanism involves functions such as to monitor prices of product offerings, and quality of customer’s services. In addition to this, they also check whether Iceland is conducting business as per environmental policies or not in order to reduce pressure on environmental resources.
How market structures determine the pricing and output decisions of businesses?
Market structures refer to nature and extent of competition in a market for goods and services. In other words, it can also be defined as number of organizations in market that manufacture identical goods and services. Market structures greatly influence behavior of retail firms. It plays important role in determining pricing and production decisions of Iceland Supermarkets. UK's retail market structure is oligopoly in nature. In oligopoly markets, there are few retail firms and the competition is also fierce. These retail players compete with each other in the market for fewer commodities. The pricing decisions of Iceland are greatly influenced by the pricing strategies of its rivals. If the retail leader changes prices of the commodities, Iceland Supermarkets will react to this change in order to capture larger market share in that product range (Coetzee and Baker, 2015).The behavior of retail firms in oligopoly markets is interdependent. In addition to this, it is also difficult for the new entrant to enter in these market structures. In order to fight with rival firms, Iceland Supermarkets is required to keep the prices low in order to retain price sensitive customers. In order to attract larger market share, the company needs to provide differentiation over customer’s services to gain competitive advantage.
Ways in which market forces shape Iceland Supermarket responses
Market forces largely impact the demand and supply of products in a market. Responses to market forces greatly influence Iceland Supermarkets brand image and profit earning. Iceland is a popular British supermarket chain which indulges in a great deal of market research to analyze market demand and consumers preferences. Iceland has been successfully established in UK market as a responsible retailer (Beatty and Samuelson, 2015). It carried out extensive research to know preferences of its target customers. Iceland’s majority of its business revenue generation is from the sale of frozen food items. The retailer sells high quality of frozen meats and vegetables that are free from artificial colors and flavors which are liked by health conscious customers.
The retailer correctly estimates the demand for its frozen food and maintains the stocks in its stores to meet the demand. In addition to this, it also helps the company from over stocking of products and reduces the cost of cold storage. Further, Iceland gives attractive offers and deals to its customers in order to increase sales. This in turn maximizes the profit generation of Iceland. Increasing profit further enables the retailer to invest in new technology, product development or business expansion (Mitrega and Pfajfar, 2015).Thus, market research is very important for Iceland to keep track of market trends in order to respond effectively to the market forces. Further it regularly interact with suppliers to convey them the advance demand of specified products such as meat, seafood, vegetables and fruits in order to meet the market demand in timely manner.
How business and cultural environments shape the behavior of Iceland Supermarket?
Business and cultural environment significantly shape the behavior of Iceland Supermarket. The business environment falls into two types: Economic and Non- Economic environments. The economic environment consist of economic systems, conditions and policies whereas non economic environment include demographic, technological, legal, political and social environment. Since Iceland Supermarket operate in different markets its business depends largely on business and cultural environment. Economic environment is different in different markets. Economic policies such as fiscal , monetary, EU policies, international trade laws affect the operations of Iceland Supermarket in EU region as well as in UK.
Cultural factors also shape up the organizational behavior of Iceland Supermarket. Social determinants such life expectancy, social and cultural belief, educational level, traditions, customs determine the buying behavior of consumers. Political factors include stability of national and foreign governments which pave the way for business expansions of organizations. If there is no political stability then Iceland Supermarket will not move into those markets. Further technological factors affect the methods and techniques of product storage and their distribution in Iceland Supermarkets. Since the company is majorly into the business of frozen food items it need to install technologically advanced cold storage systems in its stores to maintain the quality of the perishable items such as meat, fruits and vegetables. Apart from this, Iceland formulate business practices that are in accordance with national and EU policies. Iceland Supermarket is also committed to various environmental laws to reduce pressure on environment (Bah and Fang, 2015). Thus the retail company need to consider all these factors in account while formulating an effective operational strategy to achieve its business objectives successfully.
Significance of International trade on Iceland Supermarket
International trade plays very significant role for Iceland Supermarket business as it is not feasible for any organization to expand its operations only within domestic markets. In addition to this, all goods needed for manufacturing is not available in domestic economy. For acquiring raw materials and services organizations need to cross international boundaries (Turley, Langkamp and Milliman, 2015). This is where International trade comes into picture. International trading is very profitable and economic for Iceland Supermarkets. In order to discuss the significance of International trade in detail following points can be elaborated:
Larger market share
Iceland Supermarkets if expands its business in global markets then there are lot of growth opportunities for the retailer. Operating in national market provide limited market share to Iceland which means limited profitability and growth. On the other hand, by making its retail business global the firm has opportunity to explore untapped potential markets and better revenue generation.
Better brand image
International presence of Iceland Supermarkets create a better brand image in global markets. It enables the retail firm to create desired brand value among global consumers. This not only helps in fulfilling organizational goals but a sustainable future for its business (Gold, 2015).
Availability of meat and fruits
For the supply of many seafood items such as fishes, prawns, etc. Iceland Supermarkets depend on other nations. Similarly it also depend upon other countries for the supply of certain fruits such as banana and mango as they do not grow in UK. Therefore Iceland need to import these goods in order to make them available to consumers in UK.
Lower operational cost
Operating business in other countries may be economic for Iceland due to low production cost. Availability of cheap land and labor reduces the operation cost of the retailer. This proves very profitable and economic for Iceland Supermarkets. This enable the retailer to save for future investment plans for its business growth and expansion.
Analyzing the impact of global factors on Iceland Supermarket
The impact of global factors on Iceland Supermarket can be analyzed effectively through PESTLE Analysis (Dudovskiy, 2013). It is an abbreviation for Political, Economical, Social, Technological, Environmental and Legal factors.
These are the determinants that explain the level of political stability of the global markets. It is very important for Iceland Supermarket to expand its business in a politically stable economy. Further other aspects such as international trade tariffs, threat of terrorism, global patents and intellectual rights are also considered important for business expansion. For example: Iceland Supermarket will discard the idea of opening its store in nations that support terrorist activities.
These factors include economic conditions prevailing in global markets. World Bank and World Trade Organization also play important role in determining the expansion decisions of Iceland Supermarket. The retailer will consider economic conditions and market fluctuations of foreign markets into account to open its offshore stores. The fiscal and monetary policies of different nations impact the business decisions of Iceland Supermarkets.
These factors determine the social and cultural aspects of markets. Changes in family values, sexual orientation, size of families, social and cultural beliefs of people, their income levels, age gender all are considered by Iceland Supermarket to formulate an effective marketing plan to address consumers needs in international markets. For example: If Iceland plans to operate in Indian markets then it need to stop the sale of beef as cow is treated as a sacred animal in Indian culture (Keršienė and Savanevičienė, 2015).
The level of technological infrastructure is another important factor that Iceland Supermarket need to consider for global business expansion. In a technologically advanced market the retailer need to invest in technological development of its operations in order to gain the competitive advantage over established foreign retail rivals. The firm has set up innovative technological infrastructure at its stores in order to increase its operational efficiency.
These include environmental laws which Iceland need to abide by while operating in foreign markets. These laws are meant to regulate the impact of businesses on global environment. Iceland Supermarkets make serious efforts to address the ecological issues by making effective changes in its operations to reduce pressure on global environmental resources. Further it follows all laws related to animal welfare and discard illegal and unethical business practices at its slaughter houses.
Legal factors include laws, regulations and policies related to trade which affect the operational decisions of Iceland Supermarket while going global. The retail firm need to abide by laws and policies related to employment and business practices in order to establish in international markets.
Impact of policies of European Union on Iceland Supermarket
European Union policies significantly impact the operations of Iceland Supermarkets. All UK based organizations need to comply of the rules and regulations of EU. The laws and regulations are similar for all EU countries. Since UK also comes under EU, the organizations operating in UK markets need to run business operations in accordance with EU policies (Bah and Fang, 2015).The businesses need to contact with European Money Union and make transactions in Euro. These policies greatly affect Iceland Supermarket business through taxation laws. Further its business activities need to be in line with defined subsidy norms. Iceland Supermarkets can exchange its products and services to other EU countries without any barrier. In addition to this, the retailer can easily export or import goods and services with other organizations of EU nations on the basis of licenses.
In a nutshell, Business Environment of an organization consist of internal as well as external factors that affect its business operations. Therefore it becomes very important for organizations to understand their business environment to effectively achieve organizational goals and objectives. The report provides clear understanding of the nature of the national environment in which businesses operate. In addition to this, it also provide extensive learning on the market structures which determine the pricing and output decisions of businesses. Besides this, it also elaborates the ways in which market forces shape organizational responses. Apart from this, the report also analyses the impact of global factors and European Union policies on organizations through PESTLE Analysis. The global factors include political, economic, social, technological, environmental and legal determinants that largely affect the business decisions of a firm while making an international move.
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