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Impact of Macro Environment on Business Performance - British American Tobacco Plc.

University: Imperial College London

  • Unit No: 5
  • Level: Post Graduate/University
  • Pages: 9 / Words 2333
  • Paper Type: Assignment
  • Course Code:
  • Downloads: 55
Question :

This assessment will cover following questions:

  • American Tobacco plc is the top most international tobacco group. Explain the impact of macro environmental factors using PESTLE analysis?
  • Explain the strength and weaknesses associated in American Tobacco plc using TOWS matrix?
  • How the models used influence the decision-making process?
Answer :
Organization Selected : British American Tobacco plc

INTRODUCTION

The term business environment can be defined as a combination of internal and external factor which can impact to companies monetary and non monetary performance. The aim of project report is to demonstrate understanding about impact of environment on business performance (Patnaik, 2017). In the project report a company has been chosen which is British American Tobacco plc. This company operates its operations in the context of manufacturing of Cigarette and Tobacco products. The project report covers detailed information regards to positive & negative impact of macro environment. As well as internal & external analyse of chosen business entity.

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MAIN BODY

1. PESTLE analysis in order to identifying and discussing different macro environmental factors which have impact on businesses.

PESTLE analysis- This can be defined as a kinds of tool which is applied by business entities in order to evaluate macro environmental factors. It is useful for those companies who started a new business or entered into new market (Jenkins and Williamson, 2015). Under this method, a vital range of factors analysed. Herein, below in the aspect of British American Tobacco plc this framework has been applied in such manner:

Political factor- It is a type of factor which includes government policies, political stability & instability, political relation of one nation with another etc. This can impact to performance of businesses in both positive and negative manner. In the aspect of above respective company, its positive and negative impacts are demonstrated below in such manner:

  • Positive impact- In the case when political conditions in UK are stable and in the favour of doing business then it can be easier to British American Tobacco plc to conduct their operations effectively.
  • Negative impact- The negative impact of this factor is that if political relations are not so good between UK and other countries then above respective company can not expand their services in rest of nations.

Environmental factor- Under this factor different kinds of elements are included such as economic growth, exchange rate, inflation & interest rates and many more. These aspects can impact to performance of businesses for long time period in both positive and negative manner. In the context of British American Tobacco plc, its impact are demonstrated below:

  • Positive impact- This factor can affect in positive manner to business entities if market condition is favourable (Hassanien and Dale, 2019). Such as in the above company, they can generate higher profit if demand of tobacco products is higher in UK market.
  • Negative impact- It can become cause of negative affect of performance of companies if there are too much fluctuation in economical environment. Such as if exchange rate in UK gets lower then it can be difficult for British American Tobacco plc to do import and export with other countries.

Social factor- In this factor demographical characteristics, norms, age & income distribution, cultural barrier etc. are included. These elements are necessary to be followed by businesses during preparation of plans and policies. It has some positive and negative affect on companies' performance which are as:

  • Positive impact- This can affect positively to businesses if they prepare their strategies in accordance of social factors. Such as in the British American Tobacco plc, it can impact them positively if they follow all above mentioned elements. For example, it is essential to them to not offer their tobacco products in area of schools and colleges.
  • Negative impact- It has some negative impact too on businesses such as if customers perception changes then this can be difficult to above company to sold out previously produced products.

Technological factor- This factor is related to innovation in techniques and technologies which can affect businesses in both positively and negatively. It includes technological advances, automation, R&D activity etc. Below its favourable and unfavourable impact on companies are mentioned in such manner:

  • Positive impact- It can impact positively to above company if they implements new and advanced techniques in production process. This is so because by help of it cost of producing tobacco products will be lower.
  • Negative impact- This may affect negatively to companies if they will not adopt new techniques because competitors can beat them. Same as in British American Tobacco plc, this factor can impact them negatively if they will not adopt new and advanced technologies.

Legal factor- This factor includes various kinds of laws and legislations such as discrimination law, employment law, consumer protection law and many more (Falkner, 2017). It is essential for companies to follow all rules and regulations so that this can not be affected them negatively.

  • Positive impact- It can impact positively to British American Tobacco plc' s monetary and anti monetary performance if they follow all laws regards to employment and health of work force.
  • Negative impact- This may affect negatively to above company because if they ignores some key legislation like discrimination law and wages law then their employees can protest against them.

Environmental factor- It can be defined as a type of factor which includes different aspects such as weather, climate changes and many more. This factor is uncontrollable and it may effect positively and negatively to business entities.

  • Positive impact- This factor can impact to performance of businesses positively if their operations and activities do not harm to environment. Such as for above company, it is essential to them manufacture tobacco products by considering protection of environment.
  • Negative impact- It can effect negatively to above company if weather changes or any natural disaster occurs such as flood. Due to this their existing operations and activities can be affected in a negative manner.

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2. SWOT analysis in order to identify strength, weakness, opportunity and threat of chosen business entity.

SWOT analysis- It can be defined as a type of framework which is used by business entities in order to analyse strength, weakness, opportunity and threat. In the context of above chosen British American Tobacco plc this tool applied in such manner:

Strength- This can be defined as those positive elements which a business entity has inside its functions. Such as strong brand name, goodwill are some example of strength for companies (Ott, 2018). British American Tobacco Plc has below mentioned strengths which are as follows:

  • Cost structure- The company has lower cost structure which helps in producing and selling tobacco products at lower cost.
  • Financial position- The company has a better monetary condition with regular profits in previous five years. As well as they have accumulated profit reserves which may be used for further capital expenditures.
  • Dealer community- British American Tobacco has effective relation with its dealers which helps them in offering suppliers of needed material as well as in promoting their products and services.

Weakness- This can be defined as those negative elements which a business entity has inside its functions. Above company has below mentioned weaknesses which are as follows:

  • Higher day sales inventory – British American Tobacco plc consumes higher amount of time in order to buy and sell products in compare to rest of their competitors. This is a main weakness for above company.
  • Higher employee turn over rate- In the above company, employee turn over rate is too much higher which is showing that there are more number of people who are leaving jobs. Due to this company is making higher spending on training and development of new joined employees.

Opportunity- It may be defined as those positive aspects which are existing in external environment and can be beneficial for companies. British American Tobacco Plc has some opportunities which are as follows:

  • E-commerce- In the present business scenario, companies are expanding their products and services by help of e-commerce. British American Tobacco plc has an opportunity of selling their products by help of e-commerce which may lead to generating higher sales revenue in less cost.
  • Social media- The users of social media are increasing day by day. There are three key social media platforms which are Facebook, Twitter and Instagram. Above company can use social media sites for promoting their tobacco products. This way of promoting products can be helpful for them in order to reach large number of customers in less time and cost.
  • Interest rate- Lower interest rate in the market of United Kingdom can provide opportunity to British American Tobacco plc to expand their business operations by taking loans at cheaper rates.

Threat- It may be defined as those negative aspects which are existing in external environment and can affect negatively to companies (Hillary, 2017). British American Tobacco Plc has some threats which are as follows:

  • Technological developments by competitors- Competitors of above company are applying new and advanced techniques which is becoming a cause of threat to them. It is so because due to this customers are attracting towards competitive companies to acquire products at lower cost and with advanced techniques.
  • Suppliers- The bargaining power of customers is increasing year by year which is leading to decreasing in number of suppliers. As a result, they are unable to produce products at lower cost.
  • New entrants- There is no barrier to enter new companies and due to this competition is increasing. Such as the above company can face issue of higher level of competition in external environment. Due to this their sales revenues can be fell down.

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3. Key findings and role of SWOT and PESTLE analysis in decision-making for companies.

In the current business scenario businesses can be successful if they have analysed macro and micro environment in which they operate. Herein, below reason to use SWOT and PESTLE analysis is mentioned in such manner:

  • Evaluation of business- Both of the techniques are crucial in order to conduct a systematic evaluation of all business processes and functions. Such as in the above chosen British American Tobacco plc, they apply both of frameworks which are helping them in order to make overall evaluation of different aspects.
  • Helps in understanding changes- SWOT & PESTLE analysis techniques are useful for companies in order to understand changes in environment and its impact on performance of companies. Such as in the above company, their management department is aware regards to environmental changes and they make strategies accordingly.
  • Contributes in understanding pros and cons of major decisions- Another reason to apply both of frameworks is that by help of it managers can become aware about impact of major decisions on companies' performance. Like in the British American Tobacco plc, their manager critically evaluates affect of major decisions on companies performance.

Role of PESTLE and SWOT analysis for decision-making:

Importance of PESTLE analysis- This framework contributes in an effective manner in order to take crucial decision-making. It helps to managers by evaluating impact of each aspect of macro environment. Herein, below role of this tool for making decision is mentioned in such manner:

  • Informs about both internal and external factors- PESTLE analyse plays a key role in providing information regards to internal and external factors which can affect to company's performance. Such as in the above company their managers use this framework to become aware about internal and external factors.
  • Overview of current position- In addition, this framework helps to managers in providing information regards to current condition in external environment so that they can make policies accordingly.
  • Helps companies to understand economical aspects- As well as it is useful for managers in the context of understanding about current market and economical conditions. By help of this, managers of British American Tobacco plc can take suitable steps in financial decision-making.

Importance of SWOT analysis- Same as the above framework, it also contributes in better decision-making. Below its importance in context of taking suitable decision is mentioned in such manner:

  • Helps in identifying threats and opportunities- This tools provide mechanism to companies in order to finding key threats and opportunities that helps in effective decision-making.
  • Helps in setting objectives- In addition, SWOT analysis contributes in an effective manner for companies in order to set objectives and goals. Such as in the above company, their managers set further goals and objectives in accordance of identifying own weaknesses and strengths.
  • Identify core competence- Along with by help of this framework managers can find out core competence and accordingly can make plan for further time span.

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CONCLUSION

On the basis of above project report it has been concluded that SWOT and PESTLE analysis are helpful for companies in understanding overall performance. The report concludes about SWOT analysis of chosen business entity. Along with positive and negative impact of different factors of PESTLE analysis is also concluded in report.

You can also check out:-

Swot and Pestle Analysis on Business Environment- Unilever PLC

REFERENCES

Books and journal:

  • Patnaik, P., 2017. Handbook of environmental analysis: chemical pollutants in air, water, soil, and solid wastes. Crc Press.
  • Jenkins, W. and Williamson, D., 2015. Strategic management and business analysis. Routledge.
  • Hassanien, A. and Dale, C., 2019. Hospitality business development. Routledge.
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