The business environment is complex in nature which may either affect the sustainability of business organizations in a positive or negative way. For this, different analytical models should be used to analyze fluctuations in the market environment. The unit aims for the learner to understand different kinds of the business organization along with their size, scope, mission etc. Different analytical tools have been used to evaluate the market environment. To meet passing criteria, the following Learning Outcomes must be addressed:
- Identifying different types, size and scope of organizations
- Analyze the interrelationship of various business functions within an organization and how it links with organizational structure.
- Demonstrating contemporary examples to determine the positive and negative impact the macro environment has on business operations.
- Determine the internal strengths and weaknesses of specific businesses and describe interrelationship with external macro factors.
Business environment can be refer as the surroundings of an organization inclusive of its internal and external factors which impacts on the business. The environment of the a business is the major factor that affects the company growth and provides modification in activities according to the time. The business environment includes the various internal and external factors that influences the strategies and decisions of a company. In this report H&M is a Swedish multinational clothing retailer brand which offers a huge range of men, women, teenagers and children (Lee, Olson and Trimi, 2012). The organization is operated almost in 62 countries with approximate 4500 stores. The firm came in inception in the year 1947 by Erling Persson. The report includes different types of organization and their purpose to operate in different sectors such as public, private and voluntary with size and scope. It also comprises of relationship between different organizational functions and objectives, positive and negative impacts on macro environment, internal and external analysis with strength and weaknesses. Moreover it also involves the strength and weaknesses interrelation with exterior factors.
P1 Different types and purpose of organizations
Public Sector organisation – DCMS means Department for culture, media and sport is a public limited company that provides facilities its services to their customers. It is a department of culture, media and social business firm as they provide different types of services such as arranging funds from financial institution . The general purpose of DCMS is to provide quality products to their customers by raising funds and dividing the ownership of an enterprise with their shareholders. It is capable or allowed to sell shares to public through exchange and stocks of public listed companies by issuing shares at share market (Rossi, Vrontis and Thrassou, 2012). DCMS is generally originates from Department of national heritage, which was established nearby April 1992 from other department. It was renamed as Department for culture, media and sport in nearly 1997. Currently it is ministerial responsibility for Olympics returned to Secretary of State. The full title was Secretary of state for culture, Olympic, media and sports which was remained unchanged. Legal structure of Public sector organisation -
Central government: These authorised body has proper control on public sector organisations. They analyse all the working activities and approaches by monitoring approaches in order to modified them for public services.
State government: These governmental bodies analyse requirement of public organisation in the terms of fund to initiate their upcoming program easily. These activities assist to create legal framework for public sectors firms.
Local government: These governmental bodies initiate several programs in order to monitoring activities of public sector firms to manage them according to future procedure as well as activities. For this, they provide funds and capital for future activities as well as program to attain them easily.
Private Sector organisation- These are the organisation which introduced with the motive of profit maximisation and generating lots of revenue. H&M is the private sector company which is founded in 1947. Company deals in clothing and accessories at worldwide level with their headquarters is in Stockholm, Sweden. Moreover approximately 1,48,000 employees are working in the respective enterprise (Pham, Segers and Gijselaers, 2013). Structure of the company is given below :-
- Sole Traders – It includes the organisation which owned and controlled by single persons. Sole owner of organisation have total control over the operations of company and having unlimited liability towards their business obligations.
- Partnership – it is consider when business is introduced by two or more individuals then that persons and they all invest some predetermined amount of money as an capital for running company. Every partner is liable for profit and loss as well it is divided according to the ratio of capital invested (Bryman and Bell, 2015).
- Limited Company – LTD companies have their legal as well special identity in the eyes of law.
Voluntary Sector Organisation – Organisation which comes under this sector are non-profit or NGO because they are not working with the motive of profit maximisation. Oxfam is the organisation founded in 1942 and they are focusing on poverty eradication, advocacy, policy research and pro-migration. They are serving worldwide and its headquarter is in Oxford, England. Legal structure of the enterprise is mention below :-
- Unincorporated - Management commission are there of organization which is named as council due to formation and having don't detach categorize from trustees.
- Others - Royal bodies, community interest company, co-operative communities are all considered here.
- Trust – Trustees are the person who provide money which is known charity (Carroll and Shabana, 2010).
P2 Size and scope of different types of organisation
There are several types of enterprise in business environment which is categorised on the basis of their nature and size such as small, medium and large scale companies. Description of these is mention below:-
Public sector – Department for culture, media and Sport is the company which comes under public industry. Therefore, huge financing will play an important role for easy and smoothly running of enterprise for giving authorities, trustees and by government. Such mission, vision are explained below :
- Mission : The Department for Digital, cultural, Media and Sport main mission is to spread awareness of sports across different sections of society, resulting in character building and inclusive development (Gharajedaghi, 2011).
- Vision : Their vision statement is to emphasise on traditional games for healthy and happier life such as Yoga, chess , Kho -Kho, etc.
- Size : From the analysis of past year information determined that having approximate annual budget of £1.4 billion (current) & £1.3 billion (capital). Apart from this there are approximately 550 employees are working in their business .
Private Sector – This sector is mainly governed by an individual or group of people and their main aim for starting a private venture is to earn maximum profits. H&M is a retail company and is privately owned which is established in Sweden. Following are the vision and mission statement of company:
- Mission: Mission of company is that, they believe in a better fashion for future ones that makes fair and fashion affordable and desirable for all.
- Vision: Their vision is that their operations run in a way that is economically, socially and environmentally sustainable (Crane and Matten, 2016).
- Size: According to 2015, there are 148000 number of employees are working in company.
Voluntary sector – This sector is non profit organisation which works by the donation and sponsors of interested party. Oxfam is one such NGO operating in voluntary sector and providing necessary services to needy and homeless people. Following is the vision and mission of company:
- Mission: Their main purpose is to create lasting solutions to the injustice of poverty. They are part of global movement where they empower people to create a future which is secure and free from poverty (Chesbrough, 2010).
- Visions: Their main aim is to create a world without poverty. Their are creating a world where people are valued and are equally treated and enjoy their rights as full of citizens and also can influence decision that are affecting their lives. There are more than 20,000 volunteers across the United Kingdom.
P3 Relationship between different organization functions and their objectives and structure
Organizational structure is a relationship and interaction between business that assist in identifying it through different levels. It helps in determining roles and responsibilities which flow within a business firm. Business firm is a structure for conducting their activities efficiently and effectiveness. It specifies which individuals will work as superior and which as subordinates that exist between individual and work. The function of organization is depending on various functions such as human resource, accounts and finance, marketing and many more. Marketing is considered as bridging gap between market and customers to satisfy their needs and demand. By using organizational structure to increase their cost productivity and enhance their working conditions (Welter and Smallbone, 2012). It helps in a company like H&M to deliver customer information for developing new product and support to its quality. The major functions of organisation functions are discussed below as:
- Research and development: This function is used to discover customers needs and their desires what they expect, wants and also it depends on social culture. It will helps in to improve H&M product and assist them for introducing new products H&M company. By using research and development method it will enhance their existing products and also, company will able to know about their goods and services and guide them by innovative and creative ideas. This will provide company as a hint for their new ideas to generate differentiated products. By using this approach H&M able to operate there activities by enhancing through research and development and also helps in improving overall department performance. It includes marketing, finance, HR and many more (Elliot, 2011).
- Marketing department: This function is related to marketing which covers a major area of H&M company. It is a foundation of every organisation to increase their production and profitability. This is beneficial for both suppliers as well as customers. The H&M company has to develop and design their product according to a need and wants of customers. It will create business strategy and ensure company's image and reflect its high quality. Marketing department includes production, promotion, advertising and publicity to increase their sales, production and they provide relevant information to finance department so that they can develop better and cost effective budget for H&M company.
- Production department: This department will focus on H&M company which is an essential element of a business firm to improve their productivity and increase sales of an organisation. If an enterprise directs or improve their cost effective method, this can also increase in production and distribution channel which can bring more profits and helps in increase in marketing of H&M company with greater profitability. This will result in higher cost production that will improves employees living standards and enhance their overall sales (Cotter and Fritzsche, 2014).
- Human resource management: This function plays a vital role in organizational structure which empowers human resource of an organisation. It will enhance their skills, abilities and experiences while using training and development in HR department. By using this element it will ensure about the quality of work and enhance their working conditions by using different techniques which can reduce work into simpler and easier form. This also includes advance human resource to look after the employees by using upgraded techniques such as payroll, employment laws, compensation and benefits that will motivate existing employees skills. This will improve their living standard also enhance marketing, production and research and development department of H&M company (Zott, Amit and Massa, 2011).
P4 Positive and negative impacts of macro environment has on the business operations
Every business organisation get affected from its internal as well as external environment. Organisation need to modify them according to the situation prevailing in the external market. PESTLE stand for political, Economical, Social, Technological, Legal, Environmental .External factors are those which are not in the direct control of firm due to which business have to perform activities in accordance with prevailing scenario. Macro environment include trade barriers,tax changes,laws and so on. Factors which affect business are as follows-
Political factors: Existing or changing government policies have a direct impact on the business and its working. These factors include labour law,environmental law,trade tariffs,foreign trade policy,tax policies,monetary policies etc (Hair, 2015).
- Positive impact: Stable political environment help the business to expand in their country as well as other country. H&M have the trade agreement with the European countries like German and UK without custom duties. The economic instability create effect on the business due to trade barriers on North America. Reduction in Swedish corporate tax rate from 28 to 26.3% increase the sale of the country. Swedish country produce their product in Bangladesh due to availability of cheaper labour and cotton which are beneficial for the company for the sometime because there is no fulfilment of safety rules. Later on they realise that exploitation of underdeveloped market destroy their image and decrease sales.
- Negative impact: H&M face great problem in opening stores in Israel because they don't respect international laws. The company have to follow law of each country in which they are entering. H&M sources mainly from countries like china, India ,Bangladesh with custom duties. Instability in political condition of the country in the form of change of leaders of USA ,Europe, Asia affect the business policies and strategies.
Economical factors: These are the factors which impact business and its earning for a longer period of time. Economic factors include interest rates, foreign exchange rate, unemployment rate, foreign trade, inflation rate etc. Increase in unemployment rate affect the living standard of the people of the nation. Due to these element business not able to avail market opportunities prevailing in the country.
- Positive impact : Company always produce product in the country which provide raw material at best price for designing and inventory management system. Due to Brexit, currencies of many countries decline but this situation risen the sale of the H&M company as compared to earlier years (Low, Chen and Wu, 2011).
- Negative impact : Situation of recession always lose confidence of consumer on the company's product. Due to economic problems H&M difficulty in expansion to different countries has been surfaced. Change in Inflation rate,interest rate make trouble for MNC to operate with same or stable pricing policies. Different taxes and import duties unable the company to source at list price .
Social factors: Social factors are related to cultural aspect ,attitudes and beliefs which affect the demand of the company commodity. These factors include population analytics, cultural trends, demographics, attitude changes, lifestyle trends, ethical issues etc.
- Positive impact: H&M customer is getting the variety of products according to their taste and preferences. Now a days people is more concentrate about the celebrity lifestyle and luxury they always want to copy or imitate them which directly increase the demand of fashion products.
- Negative impact: Changes in the trend create major problem for manufacture while designing something new. H&M operates in middle east Asia for launching cloth they have to take in account the social and cultural changes (Van Vuuren, Roberts-Lombard and Van Tonder, 2012).
Technological factors: Continuous innovation and development in the technology affect the all market or industry. These factors include digital technology,intellectual properties issues,information and communications, mobile technology etc. Companies always focus on improving digital technology but they have to put consideration on new techniques of distribution and manufacturing.
- Positive impact:Development of media and internet help H&M to rise its popularity among society. Due to technology more advanced machines are required to follow certain colours and prints for customer. H&M recently revel the club function for the consumer to collect rewards points from online or in-store purchase with an aim to increase repetition of behaviour by prospects (Reeves, Love and Tillmanns, 2012).
- Negative impact: Continuous change in the technology create problem for H&M to remain in fashion industry as they need to modify their designs and patterns after every lapse of time. Due to complexity involved in style industry the respective company need to use new technologies for fulfilling latest demand of the consumer.
Legal factors: Every country have their own rules and regulation which have to be follow by the organisation who want to enter in some other nation. These factor include employment law,consumer protection, health and safety regulations etc.
- Positive impact: Due to health and safety law, business have to ensure that there is safety and emergency exist,fire alarms,fire safety gadgets for the country and its people. H&M a follow the labour law regarding hiring employee and not making forced contract and not hiring any criminal which help the business to make profit.
- Negative impact: Legal disputes sometimes create a huge damage to the companies as it was in the case of H&M who lose the big patent dispute of multi-millions pounds against UK manufacture. To protect from this situation company started risk management system.
Environmental factors: With the increase in awareness people are more concerned about the environment which affect indirectly the demand of the company's product. These factors include geographical location,climate change,recycling procedures,waste disposal,reduction of carbon footprint etc.
- Positive impact H&M mission is to produce 100%r renewable products till 2030 from the old products of the firm for that they used durable materials which will be used for products. This help in saving the natural resources of the country.
- Negative impact: H&M always remain in spotlight because of its competitors and possessing high position due to which they have to make sure and careful whatever actions it take. The respective company always have to look that there is no environmental hazards involve in making those products from the sourcing country (Reeves, Love and Tillmanns, 2012).
P5 Internal and external analysis in order to identify strength and weaknesses
The internal analysis includes the interior aspects of the H&M through SWOT analysis which covers under strength and weaknesses and external analysis underpins the opportunities and threat. These both analysis covers the all factors which impacts on the business environment through inside and outside of the firm. The strength and weaknesses of both the analysis is as follows -
H&M is renowned clothing brand from almost seventy one years ago and at present it is the most fascinating customer brand. It has a wide range of products that's why the customers has broad range of selection such as the customers can select any of their favourite outfits. As it offers huge pool of variety of fashionable range of apparels. People also appreciates its products because their expectations are being fulfilled.
As the people can attracted towards a brand which has a big impression in the market. Although, H&M is one of the biggest brand across the globe but it does not has a strong e – commerce website which seems too weak to engage the customer on its website. Until the people will not get the navigation pages and product images they will not attract to purchase product.
Each product from H&M is tested by the experts across the world before it release in the market. It guaranties that all of its products are allergy test made with skin friendly material and that will not harm the skin. The company adhering to guidelines and regulation tends to achieve a credible position in the market (Reeves, Love and Tillmanns, 2012).
H&M depends on the third party suppliers for its merchandising. It outsources approximate 800 suppliers and because of this it has a lower control over production and there is a fluctuation in the cost of production. As it has a dependence on third party the vendors can impact on order commitments and a bad customer impression that can influence the brand.
It also displays an innovative and creativity at its stores because people are attracted towards the creativity and alluring showcasing because the customer purchases the products on impulsive decision-making.
It is an affordable clothing brand but at some point to maintain the economic prices it needs to compromise with quality of clothes. This makes it a weak brand because it competitor like Zara offers a extensive range of apparels with quality assurance. That's why H&M comes after Zara in terms of quality.
It has top research and development teams that conducts a valuable research about the market and analyse what are the customers preferences because there are so many things which has can impact on the product development. For an example, the customer buying power which influences the purchasing decision of the product. If a person low income then they would like to buy the affordable product but if the product would have high price then it will not attract to the customers. So the research team recognizes the needs and requirement of the people to make them satisfied with the affordable prices. That's why it utilizes the research and development team.
It invest a high amount of money to maintain the machines and producing the clothes.
H&M can grab the opportunities to expand its stores in the Asia, Africa and rising economies.
As there are so many clothing brand like Zara, Mark and Spencer Lewis, etc. They are the big challenges of H&M to sustain in the market.
As its has a low customer visits on websites it can improve the website in order to increasing it reach to the customers. Because customer can easily purchase the products according to their convenience.
Change in tax rates in Asian markets is also impacts its business in countries.
The purchasing power and lifestyle of people is improving across the globe which is making people more brand conscious so it is big opportunities for the people to look at the social factors.
P6 Explain strength and weaknesses interrelate with external and macro factors
Macro factors describes the external aspects such as political, economical, social, technological, environment and legal. These factors are dynamic in nature and has a major affect on the business activities of H&M. All of these are not are part of a company but still made an impact on business and they has some strength and weaknesses that are given below -
Political - The de-globalization surges across the globe and it also give an opportunity to explore the business across the world. On the other hand, in Israel the H&M is facing a political to open and run the business to maintain the economic stability.
Strength: The company can expand its business according to the laws and government legislation of the country. It can take the advantage of low tax rates to explore the business (Pham, Segers and Gijselaers, 2013).
Weaknesses: The stores in Israel opened due to political force are facing the boycott from the conditions as it serving in the most controversial region Palestine.
Economic - Changes in tax rates of Asian market causes to ups and down in business.
The business has an different impact according to the distinct economy of the countries.
Strength: When a country has a low economy then H&M can take the benefit of low labour cost and raw materials cause it will maintain the less production rates according to the company. Secondly, if the inflation rate is high then people has high purchasing power.
Weaknesses: H&M need to pay more labour cost to reduce the logistics cost from the low economic country to the developed country.
Social - Customer preference is most important factor for H&M because they are end user of the clothing products. They need to maintain a social media presence to make them aware about the products.
Strength: If H&M promotes its brand among the people then it should manage the appearance of on social media platforms to boost the brand clothing.
Weaknesses: Its compromise with quality impacts the business due to decrease in customer demand (Bryman and Bell, 2015).
Technological - The innovative technology makes the approaches easy to the customers. It can use the data analytics and artificial intelligence to serve the better quality service so that the costumer does not need to wait for long (Reeves, Love and Tillmanns, 2012).
Strength: H&M can boost the business with the e – commerce website because it has the easy reach to the customers as they can purchase the product with less time.
Weaknesses: The company needs to capture the attention of its customer through the e – commerce website.
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Business environment can be influence by such factors like customers, stakeholders, government, supply, demand, laws and so on. Along with these elements there is a huge range of such factors that jolts business operations and process. Therefore this reports covers the different organizational that are public, private and voluntary sector which has different sizes and scope and regulation rules according to the government. The above report underpins the relationship among the organizational objectives and structure, positive and negative impact of macro environment along with the strength and weaknesses of internal and external environment of an organization.
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Books and journals
Lee, S. M., Olson, D. L. and Trimi, S., 2012. Co-innovation: convergenomics, collaboration, and co-creation for organizational values. Management Decision. 50(5). pp.817-831.
Rossi, M., Vrontis, D. and Thrassou, A., 2012. Wine business in a changing competitive environment–strategic and financial choices of Campania wine firms. International Journal of Business and Globalisation. 8(1). pp.112-130.
Pham, N. T., Segers, M. S. and Gijselaers, W. H., 2013. Effects of work environment on transfer of training: empirical evidence from Master of Business Administration programs in Vietnam. International Journal of Training and Development. 17(1). pp.1-19.
Gharajedaghi, J., 2011. Systems thinking: Managing chaos and complexity: A platform for designing business architecture. Elsevier.
Crane, A. and Matten, D., 2016. Business ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.
Welter, F. and Smallbone, D., 2011. Institutional perspectives on entrepreneurial behavior in challenging environments. Journal of Small Business Management. 49(1). pp.107-125.
Elliot, S., 2011. Transdisciplinary perspectives on environmental sustainability: a resource base and framework for IT-enabled business transformation. Mis quarterly. 35(1). pp.197-236.
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Low, C., Chen, Y. and Wu, M., 2011. Understanding the determinants of cloud computing adoption. Industrial management & data systems. 111(7). pp.1006-1023.
Van Vuuren, T., Roberts-Lombard, M. and Van Tonder, E., 2012. Customer satisfaction, trust and commitment as predictors of customer loyalty within an optometric practice environment. Southern African Business Review. 16(3). pp.81-96.
Reeves, M., Love, C. and Tillmanns, P., 2012. Your strategy needs a strategy. Harvard Business Review. 90(9). pp.76-83.