In order to achieve the assessment, there is the need to address the following questions:
- Critically analyse the recent performance of UK economy since 2005.
- Critically analyse the market structure of the industry in which the company is operating.
- Analyse the prospects of UK economy, fiscal policy, monetary policy and the growth.
To develop the brand in a new market as well as evaluate the existing market performance it is necessary to analyse the economic condition of the firm. In the present report, there will be a discussion based on the market share and efficiency of Rolls Royce in Aerospace and Defence segmentation. There will be ascertainment of UK economy as well as impacts of Brexit on the business performance. The report is consisting various information which is based on the economic performance of the UK with the help of implicating various indicators. There will be identification of various stages of the business cycle, market prediction as well as critical evaluation of the market structure of the industry. Along with this, the influences of porter’s five forces in analysing the business strength as well as the market scenario of Rolls Royce in such segmentation.
GDP growth rate
The GDP of the country is one of the effective measuring market value of final goods and services being produced annually in a particular country. UK has good trend of GDP over the past years and has been increasing at a rapid rate. The chart represents that GDP of UK was averaged $1162.89 billion from 1960 until 2017. The all time high GDP was in $3074.36 in 2007 and was record low in 1960 as it was $72.33 billion. On the other hand, record high was attained in 2014 reaching to 3022. 83 billion but GDP has decreased to 2622.43 in 2017. In accordance to the economic trend, UK GDP is projected to around $3170 billion by 2020.
It can be analysed from employment rate of UK that it was 73 in 2008 and was all time low in 2010-2012 by reaching to 70 % only. However, after 2012. UK employment rate has increased gradually 70 % to 75.50 % in July 2018 which shows that record high employment has been provided to people and as a result, employment rate has maximised up to a major extent. As per the econometric model, it is projected that employment rate of UK will trend 74.60 in 2020.
Global Competitiveness Index-
The term represents ability of nations to impart high level of prosperity to its citizens which effectively depends upon how efficiently available resources are utilised. World Bank provides rank to the countries by concerning factors such as innovation, education, stable macroeconomic environment, adequate infrastructure and related factors. Points are given to countries out of 100, higher the better for nation. UK scored record low in past 12 years with point around 5.18. On the other hand, from 2017 and 2018, points reached 82.11 and 81.99 respectively which is good for nation. It is forecasted that point will reach 80.60 in 2020.
Identifying stage of the business cycle in which UK economy is now
There are four stages of business cycle listed below-
As the name suggests, expansion is the stage of business cycle where country is attaining healthy growth in employment, enhanced economic growth and upward trend or pressure on prices.
It is a stage which is highest of all stages where every economy would try to reach at. The economy at this stage is generating maximum quantity of output, higher employment or full employment is accomplished and pressure of inflation on prices are evident up to a major extent.
After economy is in peak, correction is being observed where economy slows down at contraction stage, unemployment starts and inflationary pressures subside.
The trough stage is a point of business cycle stage where economy is at the bottom level. In relation to this, after trough, contraction and expansion will emerge leading to achieve economic growth.
It can be analysed from the GDP, employment rate, Global competitiveness index and various stages of business cycle, UK economy is at expansion stage. This is evident from the fact that economy is increasing quite healthy despite of weakening pound that is making exports from British more competitive than ever. Thus, economy is at expansion stage and is projected to rise steadily as per economic trend. Hence, Rolls-Royce will be able to accomplish growth quite effectively.
Providing prediction of the business cycle stage for next two years
The business cycle stage of UK has been carried out which is presently at expansion stage. It is at this stage as GDP will grow steadily and reach to $3170 billion by 2020. On the other hand, Global Competitiveness Index is also good as 82 points are being accomplished by the UK in accordance to ratings given by World Bank. While, looking at employment rate, it is growing rapidly from recent time period and remaining unchanged to 75.50 in 2018. This statistical data clearly shows that UK economy will be at peak in next two years as per the current economic trends.
It will produce steady growth being favourable for exports and more GDP will be attained. However, in 2019, Britain will exit from EU which could have economic downturn of UK. This is possible as economic growth of UK is dependent on EU and integration of both leads to effective for nations. On the other hand, it is unpredictable where UK economy will stand. But it is certain that due to influence of Brexit, short-term impact on economy will be seen.
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B. Critical evaluation of the market structure of Rolls Royce
The market has been enrolled in the aerospace and defence market which are approached towards manufacturing the civil and military aerospace and defence procurements. Therefore, there will be influences of various gadgets, machineries, equipment, maintenance and parts (Kenward, 2017). On the other side, the company have been enrolled in manufacturing the various vehicles for civilians such as planes, cars, space equipment etc.
This firm has been operating in various market segmentation on which there are various European countries which are being enrolled in the operations (Los and et.al., 2017). In Western Europe there are countries such as France, Germany, Greece, Belgium, Denmark, Norway, Turkey, Spain, Sweden, Switzerland, United Kingdom, Italy and Netherlands. Along with this, there are various Easter European nations such as Hungary, Romania, Ukraine, Russia, Czech Republic and Poland.
Performance details of the organisation:
Rolls Royce have been operating facilitating the UK aerospace and Defence market which have growth rates tempered between 2009-2013. There has been modest growth in 2011 as well as 2 to 3% till 2013. Along with this, there have been revenue of $34.8 billion have been gathered through the firm in UK aerospace and defence market (McCann, 2018). The compound annual growth of industry in this segmentation in between 2009 to 2013 was 3.8%. Along with this, there have been positive reviews from the European countries on which Germany and France have growth of 4.2% and 4.4%. Thus, such thing impacted over reaching to the $47.4 billion and $39.1 billion in 2013.
As per considering the defence segmentation the market had lucrative in 2013 which is consist of revenue for $19.3 billion which is equivalent to 55.3% in overall market value. The civil aerospace segment contributed the gains of $15.6 billion 2013. To accelerate the business performance in the UK market which is required that there must be growth of 4.6% in every 5 years from 2013.Therefore, this prediction will be helpful in generating the revenue as well as creating the brand value in market (Shaw and Tasker, 2017).
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Porter’s five forces model:
To analyse the competition stated in the market on which determination of various operational efficiency which can have impacts over market value and brand image of Rolls Royce in the market (Kenward, 2017). However, addressing such factors there will be consideration on aerospace and defence market which are manufacturing the machineries and equipment for the product systems as players. Therefore, there are various potential buyers to the organisation on which space programs, militaries, airline companies and the governmental agencies have the appropriate estimation over key supplies.
There have been various potential buyers to the organisation on which there are various governmental agencies, Space units as well as military agencies which have made efforts in making adequate ascertainment of operations. The Boeing Company and Airbus Group which have been favouring the local incumbents (Unwin, 2017). Therefore, there have been exhibiting defence sector based on Oligopoly tendencies in Europe. On the other side, the consumers of organisation in defence segmentation are considered to be financial muscles. Thus, they spend more on obtaining the appropriate quality of equipment and machineries that will be used in army and submarines.
To deliver the best quality of products among the society on which there will be requirement of best quality material on the required costs. It is necessary to have the elective quality of material to be used in manufacturing the products, equipment and gadgets for the aerospace and defence industry (Jefferies and Barnard, 2018). There will be requirement primary raw material which includes steel, demand-pull inflation which increases the price globally. Therefore, on the basis of such influences there have been higher supply price.
As per ascertaining the market segmentation on which the military and governmental agency mainly trust the loyal and efficient industries. Therefore, due to such impact there will be comparatively less competition and threat of new entrants (Sweet and Smith, 2017). Along aside the prices and the costs of this industry products are comparatively luxury than other due to this there will be less number of buyers and higher competitors which will offer the low-cost products among the society.
Threat of substitutes:
There can be no real substitution to this aerospace and defence segmentation. Therefore, the risk of having substitution and the damages to the brand image is comparatively lower (Edmonds, 2018). Thus, the conveyancing power business toward offering the best quality services will have positive influences in making the adequate rise in the operational gains to the business.
Degree of Rivalry:
The aerospace and defence segmentation have been dominating in the world which have the influences in terms of making adequate rise in the operational goals and administration of practices (Gibney, 2017). Thus, due to such impacts there have been less challenges and rivalries stated in the world. Rolls Royce have also reduced dependency over particular markets which have positively impacts on reducing the rivalries.
Analysing the type of market structure
There have been various types of market types on which the business will analyse the potential and efficiency to retain the higher profitability. However, to analyse the market type for Rolls Royce there have been ascertainment on various segmentation and practices in the market:
This is the market segmentation competition on which there will be positive situation for the organisation (Los and et.al., 2017). Therefore, there are large number of buyers as well as large number of sellers stated in the market. The BEP rate will be near to a certain point.
This is the imperfect competition in the market which indicated that the manufactures or producer’s sales differentiating products and services (Shaw and Tasker, 2017). therefore, there are less number of buyers to the products. The sales have been divided into the several kinds of product and product line of business. There are changes of retaining the higher revenue but the succession of a particular product is less. There has been higher threat of rivalries as there are large number of competitors’ states in the market.
This is relevant with the market competition where there are less number of producers as compered with the buyers. There will be competition based on the quality of products and the costs offered by the brand. Rolls Royce have enrolled in the oligopoly market competition on which there are handful producers which are being stated in the market (Jefferies and Barnard, 2018). The only difference in oligopoly and monopoly market is that, there have been influences of the government in deciding the prices and various regulation which are have to be obeyed by the organisation in performing in market. Due to aerospace and defence market activities there are higher influences of governmental regulation in Rolls Royce.
These are the market competition where the number of buyers is comparatively more on a single producer. therefore, the market value and the gains to the firm is comparatively more than the other operational entities in the market.
C. Determining the prospects of UK economy
There have been influences of various economic elements which in turn affects economy and industrial practices. There are several plans and policies which are being determined and presented by the government with the motive of improving the sales and managing the practices (Sweet and Smith, 2017).
- Fiscal policy: as per considering the fiscal policies in UK it has been budget by the economists that there will be 2.3% of rise in GDP rate which was £46 billion in 2009. However, the main focus is payable over increasing the real employment rate as well as per capita income which reduce the impacts of GFC.
- Monetary policy: It depends on the rise in the prices of commodities tat is inflation. Thus, the rate of inflation if raises than there will be impacts on increasing the monetary circulations. It can be said that, prices of a commodity increase the spending power of consumers.
- Potential for growth: As per understanding the market scenario and economic stability in UK on which it can eb said that, there will be growth in the manufacturing industries in the upcoming period. Thus, due to impacts of that there can be rise in the revenue and profitability of the firms. Rolls Royce will have stable market reviews and gains and there will be better economic development which will lead the firm in having better operational management.
- Critical analysis over market scenario of Britain’s performance after Brexit
It has been estimated by various economists that there will be growth in UK economy after Brexit there will be opportunities for the small and medium size enterprises. Along aside, the dependency of the nation has been reduced over other nation which will bring stability in the financial scenario (Edmonds, 2018). There might be negative influences due to changing governmental polices and plans which have affected the operational practices of various multinational industries. there has been comparatively lower value to the domestically produced supplied while there will be higher charges payable on the imported goods. The changes in laws, tax policies and various regulation will affect the market for Rolls Royce also. The strength of currency has will have negative impacts on the operational practices.
Challenges and benefits of doing business in UK
The legislative as well as operating scenario in UK market have been influenced by the multinational companies which insist that there will be higher opportunities and benefits to the small and medium size enterprises. The easy laws, regulation and legislature in UK will be beneficial for the industries in doing trade practices. There is comparatively manageable taxation system on a stable corporate tax as well as PAYE system have benefited the country in managing the taxation systems as well as the economic stability in the firms (Gibney, 2017). Along with this, as per considering the literacy rates in UK there are more efficient and skilled employees which will help an industry to have potential growth in the upcoming period.
On the other side as per considering the challenges there have been various issues and obstacles which will affect such as inflation, monetary as well as economic policies which creates hurdles in importing as well as exporting the material for manufacturing units. The tariffs and various duty charges have negative impacts on operating practices.
On the basis of above report, it can be said that, UK economy have been denoted as the developed and stable economy. There are various rules and regulation which are being imposed by HMRC to govern and regulate the commercial activities in nations. Moreover, for Rolls Royce it will be beneficial to operate the business activities in UK as the oligopoly competition as well as less rivalries stated in the market. Report has discussed about the market structure, business cycle and efficiency which are to be required for surviving in UK economy. It had discussed about the segmentation of industry in aerospace as well as defence product line which are the prime concerns of any economy. Further, there had been analysis based on Britain’s performance after impacts of Brexit in country.
- Edmonds, S., 2018. An innovation economy. Impact. 2018(5). pp.54-55.
- Gibney, E., 2017. Budding UK innovation agency gains cash—and clout. Nature News. 547(7664). p.390.
- Jefferies, M. and Barnard, K., 2018. Rolls-Royce University Technology Centres: Relationships Matter. In Strategic Industry-University Partnerships(pp. 81-103).
- Kenward, M., 2017. Advanced materials receives big push to bridge UK university–industry gap: www. royce. ac. uk. MRS Bulletin. 42(6). pp.410-411.
- Kenward, M., 2017. UK assesses impact of spending on academic research. MRS Bulletin. 42(1). pp.13-14.