Unit 1 Business Environment Assignment - Sainsbury
BTEC HND Higher National Diploma in Business
Unit Number and Title
Unit 1 Business Environment
Sainsbury has been chosen to understand how a firm in UK operates and how is affected other factors. The main objectives of a firm and how does it tries to meet those factors is also important. Firm employs different strategies to meet different stakeholder’s objectives. All the stakeholders have different objectives and these objectives have been analysed. Firm operations and business strategy is also affected by the global factors, market structure, European policies, fiscal and the monetary policies. All these aspects have been analysed and how this affect Sainsbury does has also been analysed.
The organization which has been chosen for this task is Sainsbury. This firm is in the industry of retail and has different retail outlets
AC1.1 Identify the type of the organization you have chosen and its main purpose
The chosen company is Sainsbury LLC.It operates supermarkets chain across UK. Currently it is the third largest supermarket store in terms of market share in UK. Sainsbury is a public listed firm and it main aim is to serve the customers and maximize the shareholder’s wealth. There are three divisions through which Sainsbury operates its stores. First is the Sainsbury Supermarkets, second is the Sainsbury Convenience Stores and lastly the Sainsbury Bank. Its main purpose is to serve the customers. Their main mission is to become one the trusted retailers where people would love to work and also shop.
Their goal is to make the lives of customer happy in their everyday lives, by giving them better services and quality products at reasonable prices. Their promise is that people live well for less (Sainsbury, 2012).
Their corporate values is to provide best food which is healthy, their source supplies with integrity, respect for environment, making a positive difference in the community and also provide a great place for work.
AC1.2 Describe the extent to which your chosen organization meets the objectives of its stakeholders
Sainsbury is a well know brand in UK and is one of the most trusted retailers. There are various stakeholders associated with the firm. One of the major stakeholders are the customers. Since they are in the retail business customers form the major stakeholders. If they are not happy with the service of the firm or their products or their prices then it will be difficult for the firm to continue their business and increase their sales as there is lot of competition in this area.
Sainsbury continue to the top 3 retailers of UK and have a strong presence in UK. They believe in providing customer service and the customers are also happy with the services of Sainsbury. Customers form important stakeholder and thus the firm is able to meet the objective of customers of providing a better shopping experience and also giving them good quality products at a fair price (Buchanan, 2014).
Firm has a good credit history and hence the creditors who are also stakeholders in the firm business also are happy. Firm is able to meet the objectives of the firm.
The next important stakeholders are the investors of the firm. Firm has been able to increase its revenues and seen a strong growth year on year. Firm’s financial ratios have been impressive and firms financials have been good. Firm return on equity is more than 10% and thus the investors are getting good return for their investment. Thus the firm has been able to meet the objectives of its stakeholders of the firm (Dunning, 2013).
AC1.3 Responsibilities of the firm and strategies employed to meet them
Firm major responsibility is to provide better customer experience and give good quality products. Firm needs to ensure that the customers receive the best products and at a fair price. The firm should provide best products and not compromise on the quality of the product. It is the responsibility to do a check on the product before they sell the products to the customers. Also they should not overcharge the customers. Firm needs to also provide better customer service post sales. If any product is bad then they should either replace it or refund the money. Also the firm needs to increase sales and perform for their investors. Firm has latest technology to meet the customer expectations and also provide training for the staff to treat the customers well (Sainsbury, 2012).
AC2.1Explain how different types of economic systems attempt to allocate scarce resources effectively
There are different types of markets and depending upon the markets and economic systems formed they try to allocate the resources to the different institutions in that economic system. First type of market is the traditional market where the business is done mostly done through the beliefs of the individuals. Traditional customs and beliefs play an important role in the market. It may not be efficient market. The other market is free market. Here the market is driven by demand and supply. Resources are allocated efficiently on the basis of demand in the market and the supply available in the market. Sainsbury operates in UK which is a free market. Customers choose the firm based on their convenience and their needs. Also in UK there is a tough competition in the retail industry. As a result the firm needs to keep competitive prices in the market. There are many firms which have the retail outlets and hence if the firm is not competitive enough then the customers will turn to other retailer. Also the retailer needs to understand the demand of the people. They need to stock the proper goods which are in demand. Normally as the demand for the product increases the price of the product increases and hence the supplier keeps more of the product in demand. As a result there is more investment in that product. If more competitors starts to manufacture that product unless there is a patent with the product there will be oversupply and as a result the price of the product will drop. This happens with Sainsbury. If there is oversupply of the products then the prices will drop and if there is shortage of the product and there is high demand then the price will rise. However as it’s a free market other firms start getting into the producing the product and hence the resources will be allocated to that and there will be stabilization of prices.
AC2.2 Assess the impact of fiscal and monetary policy on the chosen organization
Sainsbury is in the retail business and hence its sales are largely dependent on the economy of UK. Economy of UK plays an important for large sales of the firm. Fiscal and monetary policy can play a important role and have a huge impact on the economy of UK.
Monetary policy for countries is decided by the central bank. In the case of Sainsbury it will be the ECB- European Central Bank. The main function of the central bank is to decide base interest rate of economy at which the banks can lend to the central bank or at which they will receive the loans from central banks. On this basis on the bank will decide at which rate it will lend in the economy to the people and other firms. The main aim of the central banks is to stir the economy using lower interest rates or decrease the inflation rate by increasing the interest rates.
If the central bank decreases the interest rates then the banks will lend at a lower interest rates in the economy as a result a result people and firm will borrow more and hence there will be more economic activity. As a result the employment will increase and hence the disposable income in the hand of the people will increase. As a result there will be more spending and thus the sales of the retail firm are bound to increase Thus it will be beneficial for the firm. If the central bank decreases the interest rates then the economic will slow down as there will be less lending in the economy and hence there will be less employment and less increase in the salaries. Also as a result the disposable income will decrease. Thus the firm will face a slowdown in the sales. Thus the monetary policy will play an important role in the economy which will affect the sales of the firm.
In terms of the fiscal it is less effective than the monetary policy and its direct effect is not fixed. Fiscal policy is decided by the government of UK. They decide on the tax rates and the government spending. If the government increases the tax rates to higher level then there will less disposable income in the hands of the people and also the people will be less motivated to work as they are paying huge taxes. Also if the tax rate is low then the government will have fewer revenues. Hence there should be optimal amount of tax rate in the system. Government spending increases the economic activity and hence there will be more employment if the government invests in the economy. This will also lead to better sales for the firm.
Thus for Sainsbury monetary and the fiscal policy play an important role.
AC2.3 Evaluate the impact of UK competition policy and other regulatory mechanisms on the activities of your selected organization
UK government has formed strong completion laws to prevent the organization from taking advantage of their market share and position. It can be often seen that some of the firms become too big so that they can affect the prices in the market and their try to take advantage of the people.
There is a Competition Act and also Enterprise Act of 2002 which act as tough regulations for the competition policy (Bayoumi, Laxton, &Pesenti, 2004).
There is a Competition and Market Association which keeps a tab on the activities of firms and tries to analyse whether the firm is not taking undue advantage of the firms. There is also EU commission which tries to monitor monopolies, cartels, merger and acquisition and appeals of the consumers. It has lot of powers and has taken actions against my big firm like Microsoft when they try to take advantage of their positions.
AC3.1 Explain how the market structures determine the market pricing and output decisions of the chosen organization
There are different market structures which exist in the economy. First is the monopoly. Here is only one entity in the market which sells the product and hence there is a dominance of the firm in terms of price. The firm has the power to decide on the price of the product. Here if the product is in demand then the price can be kept high. Thus the monopoly is not good for the economy as there is inefficiency in the market and the firmcan ask for higher price and as a result the consumers will suffer. Thus the monopoly is bad for the economy. It mainly exists when there is a patent for the firm or if the government has given power to distribute the products to only certain people then there can be monopoly.
Then there is other type of market known as duopoly. In this there are only two producers of the product. Hence there is little bit competition. But the firmstill gets to decide on the price and they have powerto decide on the price. Also the product can have a scope of improvement.
The other market is the competitive environment. Here the market has enough buyers and sellers in the market. Hence the price is set up by the demand and supply. This is the optimal market structure. The price is appropriately determined by the market.
AC3.2 Market forces shape the way business operations
Market forces determine the way business operates in UK. In UK there is free economy and hence market forces play an important role. Demand and supply play a major force in the way business operates. Sainsbury is driven by demand of the product. If there is more demand of a product or a brand then the Sainsbury will keep more of the product and there will be increase in supply. Initially the price of the product can be high however if there is more supply then the price of the product decreases due to oversupply. Other factor which can decide on the way business operates is GDP, inflation or unemployment. GDP growth rate is one of the important factors affecting the Sainsbury operation. If the economy is doing well and GDP is growing then the firm will keep more stock of the inventory as it can expect good sales.
If the inflation is high then the sales of the firm will be low as people will buy less due to the high costs. Also when the employment is low then there will less sales for the firm as the people will have less income to spend.
Other market force which can affect the firm is the technology. With the introduction of new technology there can be change in the dynamics of the markets. Firms need to be updated on the technologies existing in their area. For Sainsbury one of the important things is to maintain the inventory of the products. Hence if any product is getting depleted the firm need to be aware of it. Hence inventory management is an important factor for the firm. Thus if there is a new technology which can manage the inventory in a better manner can be used to the advantage to the other retail firms. Thus Sainsbury can be affected by the technology being used and is one of the important market factors which can affect the decisions of the consumers.
AC3.3Discuss how the cultural and behavioural factors shape the organization
Culture plays an important role to shape the organization. Sainsbury focus is on the customer behaviour. For a firm like Sainsbury they have to deal with customer’s real time and hence need to be prompt and courteous to the consumers. Thus the culture of the firm plays an important role in this aspect. Business management should realize that culture is percolated from the top and hence they need to tell the store operators about this aspect that they should treat their customers with respect. This can help the firm increase their customer base.
The main goal of the firm is to give customers the best products at a fair price. With this goal in mind the culture of the organization is also moulded into fulfilling that objective. Also the behaviour of the employees needs to reflect this and their actions need to speak about this objective. They should put the customer at the centre and actions should try to benefit the customers.
One of the important things is to be honest with the customers and not cheat them by providing low quality products. As the firm also gives grocery products, thereby the firm need to ensure the quality of the product as it is a trusted brand in the country.
Another thing which is important is serving the customers better. Firm needs to decide on how it can serve the customer better. Firm needs to come up with new ideas to serve the customers. If this is the culture of the organization then the firm will come up with ways to help the customer better. Thus if it’s ingrained in the culture then the firm will succeed to help the customers. Another important aspect is the bribery. Firm should not engage in any activities which can destroy the brand of the firm. Mainly the firm need to establish the culture that they will be honest and have integrity in their work. This will help the firm treat the employees with respect and also have integrity in their work.
AC4.1 Significance of international trade
International trade forms an important aspect for the UK government and their business strategy. London in UK is one of the financial centres of the world. Also a lot of tourists come to UK and thus the economy gets a lot of revenue from the tourism industry. Thus the economy derives a lot of trade from the international trade. In addition to this a lot of students come to UK for their studies. Thus a lot people visit UK and thus there are high chances of increase in sales of the firm. Plus firm can increase their product line with the products from outside UK. Firm can get new products and better products due to the international trade.
Also firms set up new stores in other nations. This can help the firm to increase the sales. With new people coming UK they will also buy grocery and thus this can also lead to increase in sales of the firm.
AC4.2 Impact of global factors on UK business organization
Global factors play an important role in driving the business of the firm. Global economic has a major impact on Sainsbury business. For e,g, during the financial crisis of 2008 and post that there was decline in sales of the firm. Also during the Euro crash the firms’ revenues decreased. The global factor played an important role for the revenues of the firm. If the global factors are positive then the firm will see a increase in revenues. Since London is the financial hub it will affect UK in terms of revenue if the global economy is doing well. Also if the economy is doing then people will visit more and thus there are chances that the sales of the firm will increase (Sila, 2013).
Since in UK there are people from across the globe who work in London and UK it makes sense to have products related to those people or which they prefer. With the increase in international trade, Sainsbury can get the products and thus increase its sales with the increase in the portfolio.
AC4.3 Impact of European policies
European policies play an important role in the economy of UK and thereby the sales of the firm.ECB decide interest rates at which the banks will lend to the central bank. This as explained in the above task will affect the economy and thus the sales of the firm will change according to the economic conditions of the country. Also many individuals living in Europe visit London, this affects the revenues of the firm. Also since UK is also part of European nations, European policies of businesses, competition policies, and business friendly environment also helps the firm to have more sales. European policies have a deep impact on the firm business. The Euro crash and the policies which were made to solve the Euro crash 2010 had a deep impact on UK and its economy and thus affected Sainsbury business. Visa rules applied by Europe also plays an important role for the firm. If there are relaxed Visa norms then more people will visit the country and there are more chances for sale of the products of the firm.
Here we have looked at different aspects which affect the firm Sainsbury in UK. It can be seen that the success of the firm depends on many factors and there are many stakeholders of the firm which get affected by the firm performance. There are stakeholders which get affected by the firm operations. Customers are mostly affected by the way firm operated and investors are affected by the performance of the firm. Also firm performance is also dependant on the market structure of the economy. If the market is competitive then the margins will be low for the firm and the growth will be stable. However if the there is less supply and high demand for any product then the firm can get high margins for that product and thus can be more profitable. Cultural and behavioural factors play an important role in which the firm is shaped and treats its customers. The firm’s brand is built on the basis of these factors. Fiscal and the monetary policies of the government and the central banks respectively play a major role in driving the revenues of the firm. If these policies are supportive then the firm business can see low growth. Global factors play an important role and positive global factors can drive up the sales for the firm. Lastly the international trade and European policies can also affect the business of the firm.
Sainsbury, 2012.Annual Report.[pdf] Available at http://www.j-sainsbury.co.uk/media/649393/j_sainsbury_ara_2012.pdf[Accessed on 13th October 2014]
Balassa, B., 2014. Resolving policy conflicts for rapid growth in the world economy. PSL Quarterly Review, 31(126).
Dunning, J. H., 2013. Kingdom economy. Structural Change in the World Economy (Routledge Revivals), 167.
Bayoumi, T., Laxton, D., &Pesenti, P. (2004). Benefits and Spillovers of Greater Competition in Europe: A Macroeconomic Assesment (No. w10416). National Bureau of Economic Research.
Sila, I. (2013). Factors affecting the adoption of B2B e-commerce technologies.Electronic commerce research, 13(2), 199-236.
Buchanan, M. A. (2014). CSR and the Social Contract: New Lenses for Stakeholder Analysis and Strategic Management.
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Unit 1 Business Environment Assignment – Armani
Giorgio Amani Spa (Armani) is an Italian fashion company, known for its fashionable design for men and women cloths. The company was founded in 1975 as small fashion company was named after its founder and CEO, Giorgio Amani. The Unit 1 Business Environment Assignment Armani will throw the light on the allocation of resources through economic system. The study will assess the respond of competition, monetary and fiscal policy on the Armani. Armani has achieved global fashion status in during the company’s 40 year history. Armani operates in 46 countries and in 2011, achieved revenue to almost £1.8 billion and operating profit of $282m. The company head office is in Milan, Italy.
1.1 Provide a brief background of Armani. This should include a description of its mission, vision, short and long-term objectives, type of sector it belongs (private or public sector.
Discuss how this organisation has been impacted by changes in its industry. In this part, focus on the constraints within which Armani has to operate in its sector. Provide evidence and reference the sources. Identify the purposes of different types of organisations behaviour and compare them with purpose of Armani.
Armani’s brands or labels include:
- Emporio Armani
- Armani jeans
- Armani exchange
- Armani junior
- Armani casa
- Giorgio Armani s.p.a
- To provide prestigious and high quality products
- To add style and pleasure to our customers' lives
- To commit to excellence
- To provide a unique shopping experience
- To accomplish the highest service standards
To be the regional leading company in the management of a prestigious portfolio of luxurious, fashionable and lifestyle brands. Despite its global brands and large market operations in 46 countries, Armani is private company and its nature of business or industry is fashion, hotel and leisure. There are a number of organisational changes that are having impact every industry including the fashion industry. These changes include for example, competition, consumers buying behaviour, regulations, social attitudes, social corporate responsibilities, ethical issues.
Competition from the market will have impact on sales revenue, market share, growth and expansion, profitability. Consumers’ buying behaviour will affect profitability, sales, growth and its global strategy. Social attitudes and changes in consumers’ buying behaviour will have impact on the way Armani design its product and this may also have cost implications (Botha, Kourie & Snyman, 2014).
There are also constraints within which Armani has to operate. These include for example, financial constraints, technological, market, social and cultural, economic and legal constraints. As a private seeking global market expansion, the financial resources require would have huge financial implications. Unlike public company, access to financial resources would be unlimited. Armani needs to funds it new market with perhaps, debts or long-term loans, and this will expose the company to financial risks. Apart from the above, high operating costs will mean high prices for its function products especially those design and stylish fashion products at the high-market end (Chavis, Klapper & Love, 2011).
Social and cultural attitudes will be major constraints. For example, each country product marketing strategy needs changing and also designing product that meets local taste and needs. This constraint means changing its market structure and segmenting the market in each country of operations. Legal constraints and ethical issues would be a huge challenge for Armani as each market overseas needs to comply with its customs and legal practices
There are different types of business organisation. These include for example, sole trader, partnership, private company, public company, co-operative, voluntary or charitable sector. Each of this type of organisations has one or multiple objectives. The private and public companies primary goals and objectives are to make profit or maximise the value of the company, achieve higher return capital employed, growth, high market share and satisfy the needs of other stakeholders, e and improve customer satisfaction. The sole trader aims to make profit for him/herself and grow the business whilst the partnership organisation have the same aims and objectives, but for the interest of partners and close stakeholders.
The voluntary or charitable organisations purpose and objectives are to provide charitable activities for the interest of general public or specific group stakeholders. The co-operative society aims and objectives are to provide goods and services to its members. Armani is not a charity organisation. It is a private company, and like all private organisations, its primary business objective is to increase the value of the company. Apart from this objective, it has other secondary objectives, for example, to provide prestigious and high quality products add style and pleasure, to our customers' lives, provide a unique shopping experience and to commit to excellence.
It is to be noted that Armani is one of the few organisations who are still completely privately owned and because of this; the purpose of the organisation is always affected by the thinking of one man Mr. Armani, the founder and owner of the organisation. The main purpose behind opening the organisation was to bring a change in the fashion industry and Mr. Armani has done it. The purpose of the organisation is to fulfil the dreams of Mr. Armani to become the world leader in the fashion industry and make sure that all the stakeholders of the company whether they are the employees, shareholders or the customers should receive the profit from the company operations. Armani in the current days not only dealing with the clothes but also in many other industries such as hotels and tries to make an impact on the people by not ever compromising with the quality. But in the end, the main purpose of the company is to make the company owners wealthy and expand the family business. On the other hand, there are public organisations which are under the control of the government tries to make the lives of the people of the country easy and comfortable by providing them the excellent services for their money which they pay in the form of different taxes. The NGOs or Charity Organisation do not work for the profit of the owners or the trust of the organisation but for the people of the society. Where Armani tries to provide a luxurious life to the wealthy people, the public organisations and NGOs try to provide the services to the people of the country which are necessary for their lives.
1.2 Identify the key stakeholders of Armani?
Identify their interests in and how they influence and impact Armani. How the organisation is meeting the objectives towards their stakeholders.
The following are the key Armani stakeholders:
- Business Partners
Stakeholders are individuals and groups of people or institutions that have interest in Armani businesses. Customers are interested are interested in the products and services that Armani produces and supply. They want to ensure the quality of the products; design and the price meet their expectation. Customers’ buying behaviour influences the design of the products in terms of specification and taste. This also influences the quantity to be purchased and quantities that need to be supplied, the cost of production and distribution channel chosen by Armani. In turn, Armani ensure the design of the products meets customers’ quality and price expectation or needs (Fanta, 2012).
Management activities are critical to the success of Armani. Management is responsible for making and influencing investment decisions, technology, design, choice of market and pricing decision and all this have impact on Armani’s mission of providing prestigious and high quality products to its customers. Armani senior executives eg board of directors are always meetings management request to provide the necessary tools and resources for the company to achieve its objectives. Employees are resources for Armani. They are involved in the day operations, including designing, development, and production and selling of its product. They influence all these activities to ensure Armani strategy is successfully implemented. Armani is putting resources into staff development and training, providing generous staff incentives including good working condition of service, salary, and bonuses.
Suppliers want to ensure that Armani is profitable, have enough liquidity and reliability of good business relationship. Suppliers influence is the supply of good and services and contract term of those business for their interest as well as Armani interest. Armani’s responsibilities to ensure suppliers are paid on time and take necessary steps to ensure good supplier-customer relationship. The banks and other debt providers’ interests are the profitability, liquidity availability and growth of the company. They influence Armani by determining the level finance to be provided and the cost of the finance, and the terms. Armani ensure the company meets these debt providers by meeting its financial commitments to these stakeholders.
1.3 Using the Stakeholder Analysis matrix, plot where, in your opinion, each stakeholder might stand based on your research and analysis.
Make sure your analysis is based on evidence and research and do NOT guess or make wild assumptions. Explain Armani responsibilities to its stakeholders and identify the strategies it adapts to meeting their needs and expectations.
Stakeholder Analysis matrix is Engagement Plan, which helps organisations analyse and identify the key importance of stakeholders and their influence on the business.
Box E, F & G are the key stakeholders of Armani. Box E stakeholders e.g., employees, suppliers, designers have a high degree of influence in the company and also high importance for Armani’s success. Box F stakeholders- government are of high importance to Armani success but have low influence. Box G are stakeholders e.g. government with high influence and these stakeholders actions impact the Armani performance and long-term business sustainability. Box H stakeholders have low influence and importance to the fashion business.
Armani responsibility is to ensure each stakeholders’ needs are met this include for example, improving quality of goods and services, improving working conditions for staff, meeting the financial obligations to finance providers and establishing long-term customer-supplier business relationship.
How Armani tries to fulfil its responsibilities towards the stakeholders is explained below:
- Customers:Customers are the most important stakeholders of Armani. Customers are the main decision maker of Armani because it is the customers who actually decide what has to be produced by the organisation. This is the reason Armani always pays attention to their needs and tries to fulfil these needs by its products and services. Armani has some customers who are well known in the fashion industry such as Hollywood starts and these celebrities create trends in the market which are followed by millions of fans. Hence, Armani has to design the cloths as per their requirements. Armani also satisfy the need of the quality products by providing them luxurious products (Engelen, 2010). Paul Simon, David Bowie and Eric Clapton are some of the famous musician who have enjoyed the luxury of the Armani Fashion Clothe and inspired many others to do the same.
- Employees:Armani has around 5,000 employees who have been working with in the different facilities, departments and across 500 retail stores in 46 countries. Armani always pays good money to the employees as they are the reason of the success of the company. Armani has world’s best designers and always takes care of them as per their performance.
- Owner:Mr. Armani is the sole owner of the company and he is the only shareholder who has the absolute power in the company. He is the person who has gained most from the success of the company
- Government:Armani is a completely private organisation and government does not have any share in the business. In that manner, the government does not have much say in the company decisions, but still the organisation has to follow the policies of the government of the countries where it operates. Armani also pays huge amount in the form of taxes to the governments and contributes in the GDP of the country
- Suppliers:Most of the suppliers of Armani are associated with the company for a long time and they are responsible for providing the raw material to the company. They hold the key to the business because of their power on providing the customised items and that is also on a reasonable price. Indirectly, suppliers affect the price of the products of the company and because of this they are very important for the business.
2.1 What specific benefits and constraints that organisations might face operating in a different economic system (i.e. in free and command economic systems)?
Look at specific political, economic and social aspects such as government interference, population, labour force, market growth, exchange rates, trading partners, consumer tastes and preferences. Given answer can be correlated with the Armani or any other organisation. Benefits and constraints in free-market and commandeconomy system
In a free-market economy, all economic decisions are taken my firms with no government intervention. Firms take their decision about the acquisitions and allocations of all economic resources and economic decisions are influenced by supply, price and demand. In command economy central government make all economic decisions for example, planning, acquisition of factors of production and distribution of resources. Under free-market economy, organisations choose the system of production that suits the operations in order to meet their economic objectives e.g. production efficiency and profit without direct government interference.
Under the command economy, central government chose the system of production however inefficient it is without consideration for profit as primary objective (Fender, 2012). There is no price control imposed on firms by government instead price is determined by forces of supply and demand. The central government can impose price control if it feels the consumer is being exploited.
Consumers, under the free-market economy, have wider choices to make economic and buying decision about their taste and preferences, including purchase of product (s) that meet their needs. The command economy on the other hand central government have some influence, competition is non-existed. There are no foreign exchange restrictions for both local and foreign firms. Organisations are free to transfer part of their profits to overseas subsidiary or parent company. Under command economy, this is tightly control through the financial and legal or regulatory systems (Cuciniello, 2009). Command economy stifle innovations, efficiencies and competitions and this affect free labour force movements, market growth and consumers’ buying behaviour.
Organisations operating these two market systems are constraints in terms of growth, competition, efficiency and proper allocation of economic resources. Consumers are restricted to wide range of goods and services when organisations operate in command economy, like Russia, China and North Korea, for example. The opposite is the case in a free-market economy. Whilst growth is stifle in command economy, growth strive in free-market economy. Another big difference in the free market and command market economy is what will be produced. In the free market economy, although some of the people think that the organisation is in command but this is not the case. In free market economy, it is the customer who decides what will be produced. The Armani started its business with the fashion clothing, but slowly, the processes of the company are affected by the consumer taste. In 2005, Armani started to explore the hospitality industryand made alliance with the EMAAR Hotels and Resorts because the consumers were also demanding the luxury in the hotel industry. On the other hand, the consumer taste has no value in deciding the product of an organisation. It is the government who decide what will be produced without any input from the consumers. This is one of the important reasons of the failure of the command market economy because the government cannot know what the people want unless their input is not taken (Grigoroudis, Tsitsiridi & Zopounidis, 2013).
The interference in the command market economy affects the operations of the organisations and they cannot take the business decisions without the permission of the government. All the processes in the command market economy are always audited by the government officials. The government also interfere with the internal functions of the organisations along with the price setting of the products or services. While the organisations feel themselves restricted in the decision making process in command market economy, in free market economy, only the stakes of the government in an organisation decides how much the government can interfere in the company business. Only the labour in the command market economy could be said that it is not in the control of the government and has its own decision making process, but indirectly the governments also tries to control the labour also through many rules and regulations. In the free market economy, the labour gets the support of the government, but the organisation is the main decision making authority here.
2.2 Assess the impact of fiscal and monetary policy on business organisations and their activities. Using the concept of Aggregate Money Demand (AMD = C+I+G+X-M)
or otherwise, explain with reasons, what might happen to business activity in general and to Armani specifically, if the following happened:
i. A general fall in the level of income tax?
Due to unexpected behaviours a fall in level of tax can have a very little multiplier effect, and overestimated by the government when the reform is imposed. When consumer confidence is low a fall in tax will not stimulate any increase in consumption because they are feeling pessimistic about future economic prospects, this could be due to a lack of job security. Therefore the demand for firm products will not increase.
ii. A rise in the value of the pound
A rise in the value of the pound may not harm a firm’s export. This may be due to two reasons, the first is if the quality of the goods is high relative to its competitors and the second being if the goods are price-inelastic. The latter is very helpful as it allows firms to not cut its prices when selling abroad to hold on to its current consumers, but rather increase it in line with the rise in value of the pound making them more expensive for foreign residents. Subsequently, because the foreign consumers are not responsive to any increase in price they will not cut back on demanding the firms’ product, in return raising firms revenue. Increased revenue will increase the amount the business has to spend on capital goods.
iii. Fall in rate of interest
There is often a time lag between when the government reduces the interest rate and when it is reflexes in the four components of AD. This is because most form of savings is done on fixed interest rates and it takes time for commercial banks to change these. So consumption is delayed, causing investment to also be delayed (GaliÌ and Gertler, 2009)
iv. Increasing unemployment
When there is an increasing number of unemployed people in the labour force it allows firms to have a wider range of job applicants. Leading to an increased level of productivity because firms are able to select the most suitable candidate for the job, in most cases it's the job a applicant will feel most satisfied doing. Therefore increased worker morale will also improve the quality of the products which will enhance the company’s international competitiveness
v. A large increase in the level of Government expenditure -
A large increase in the level of Government expenditure can be very harmful if there is information failure. When the government is informed of there being a possibility the economy may be going into a recession, they will boost their spending dramatically. If in fact the economy is heading for a boom then the increased spending will reinforce this cycle rather than stabilising it. This will result in high levels of demand-pull inflation as the economy is already producing at full capacity and the increased consumer expenditure, investment (because of the multiplier effect) and government expenditure will shift AD to the right.
2.3 Evaluate the impact of government-related regulations including competition policy based on Armani.
Government regulation and competition policy are aimed at ensuring organisations business practices and operations are within the law. Regulations ensure also there is fair business practices that not detrimental to individuals consumers and firms or threat to the national economy. The competition policy ensures there is fair trading practices that promote competition among firms. Competition policies ensure equity distribution of resources and avoid the exploitation of consumer, and company is allowed monopolistic power to control all the factors of production (ItoÌ and Rose, 2007).
The Companies Acts 2006 for example, laid down the legal framework for companies in the UK comply with when preparing and filling the annual accounts to the HMRC and Companies House. The Health and Safety law also made it compulsory for companies to provide health and safety working conditions for workers and those have direct contact with the organisations. The Equal Opportunity Acts made is illegal for organisations to discriminate against any particular employee irrespective of gender, religious beliefs, ethnicity or disability.
The defunct UK Competition Commission and the Office of Fair Trading (no replaced by the Competition and Market Authority and Financial Conduct Authority ensure there is fair competition among firms so that no single firms control more than 75 % of the distribution channels. Armani, though a foreign company must comply with all the UK laws and competition policies. In carrying out of its businesses for example, Armani must be aware of the impact of not obeying the law will have on it profit. And in additions, the impact would be felt on its brands and reputation, company image, legal and financial implications for the company. The ability for Armani to execute long-term strategy will be dented; recruitment of talented designers, marketers, top management will also have an impact on the business. There is no known information about government-related regulations including competition policy which directly affect Armani in its UK operations.
3.1 Explain how market structures determine the pricing and output decisions in various organisations.
Market structure in economics represents the number of organisation producing identical or similar products which are the same.
- The costs structure- The cost structure determine pricing and output decision of the firm. The higher the costs the higher the price as firm tries to maximise their profit. And the higher the costs, firms would need more financial resources to increase production capacity (Kenny, 2012). However, consumers must be willing to pay the price they can afford and this leads to demand and supply mechanism.
- Availability of substitute products - will also determine pricing and output decisions. The more substitute products or services are in the market, the more consumers have a choice to buy the substitute product they can afford to buy.
- The level and intensity of competition in the market has influence and determine pricing and output decision by the firm. As consumers have wide range of choice, it forces the prices down and ultimately, output.
- The market share of the largest firms – The more dominant the largest firms dominate the market, the more pressure on prices and output, however, the small firms can still under-cut the market share of the large firm through lower cost-base thus offering product at a cheaper price. An example is Tesco, Sainsbury and Asda supermarket vs. discount supermarket chains like Lidl, Iceland or Aldi.
- The structure of buyers in the industry- Consumers buying behaviour, brand loyalty and taste influence how much to spend of a product or service also influence pricing and output decision of firms. Organisations may use for example advertising campaign to change these perceptions.
3.2 Illustrate the ways in which market forces shape organisational using a range of examples from Armani or other organisations.
Market forces are economic factors, price, demand, supply that affect the availability of goods and services. Price plays an important part in shaping the demand for and supply of goods and services. The higher the price, the less goods the consumers are willing to pay. And the higher the price, producers would be willing go flood the market because of profit motive to sell more of the product (s). Armani products designed to meet higher end of the market as well as targeting lower income. Tesco’s higher prices for its products are forcing even loyal customer switching to other competitors for example, Asda, Sainsbury, etc. The pricing level will also be determined by the cost of production. The higher the cost of production, the higher the price the firm will be willing to charge, and vice versa. This market force will affect Armani product as well.
The level of competition in the market place will also affect the price, supply and demand of goods and services this will determine profit objective of companies (Koetter, 2008). Armani or other firms can change these market forces by undertaking intensity of advertising and promotion campaign influences demand for its product. Armani, Apple, Samsung, etc use this market force to enjoy high demand for its products as a result of continue improving or product quality as well as intensive advertising campaign. The Porter’s 5 Forces could be used to describe the market forces which affect the Armani.
- The Bargaining power of Customer: When Armani started its business, there were not many organisations in the field of fashion clothing and when Armani came up with the luxurious products, the wealthy people could not restrain themselves from buying those products. At that time, Armani had the monopoly in the fashion industry, but now there are many other options available in the industry who provide the same luxurious products with matching quality. Hence, now the customer has got the bargaining power which would affect the pricing of Armani products.
- The Bargaining power of the Suppliers: As the organisations in the fashion industry increasing, the suppliers have now got many customers in the form of these organisations and now they can bargain with Armani on the rates of the raw material.
- Threat of New Entrants: Initially new organisation never invested a lot in the business but nowadays, most of the start-up organisations are backed up by the investors and big business housee. Because of this, the new organisations are able to invest on the quality and also on the marketing of the products. This kind of new entrants would be a threat to Armani.
- Threat of Substitute: Nowadays, the products of the Armani are not remained exclusive and many other organisations are able to match the design and quality of the products of the Armani. This provides the alternatives to the customers and they could go for a substitute product instead of Armani’s.
- Competition Rivalry: Since, Armani is operating in the free market economy; the competition is tough in the market. Every day a new organisation is coming in the industry and testing the quality and prices of the Armani products. The innovation in the industry has also become one of the leading factors in the competition and if Armani leaves even a tiny opportunity for other organisations, they would not take time to grab that and create problem for Armani.
The level of demand for Armani products are determined by a numbers of factors, including the quality, brand or labels and availability of substitute brands. Since there is the threat of substitute in the market, the law of demand which states that if the prices of a product is high when the substitute is available in the market, the demand will be decreased, and Armani would have to lower the prices of its products.
The supply of goods and services is another market force that shape organisation’s pricing, productions and market strategy. The higher the price consumers are willing to pay, the higher the quantity that firms are willing to produce and supply on to the market. Armani or any firm will not be willing to produce of the price to be paid is lower than the cost of production or company’s expected return on capital or investment. The Law of Supply suits the Armani group which states that of the price of a particular product in the market is high, it means that the supply of the product would also be high in the market. The luxurious products of Armani which are very costly have high supply by the company.
3.3 Judge how business and cultural environments shape the behaviour of Armani.
Organisational culture is defined ‘as the shared values and assumptions within an organisation. The culture of an organisation also emphasizes what the company values as important and can shape the behaviours and personalities of individuals in the firm’ (Kumar, 2014). The understanding of culture environment and organisational behaviour is critical for company and everyone within the organisation and can contribute to the success of a company. The share values, perceptions, beliefs, attitudes are parts of the key drivers of organisational performance. For example, organisations that embraces and value fun, place importance on customer-focus and entrepreneurial spirits among its workforce tend to do well. Armani, for example, pride its success to employee’s commitment to the organisation’s long-term value of customer service and to provide prestigious and high quality products style and pleasure to customers' lives. An organisational culture, in addition, can be shared values and assumptions and also seen through for example:
- Physical structures: The physical structure of Armani is hierarchical and there are many levels in the organisation which are expanded from the owner of the company, top management, managers and lower level employees. Armani is known for taking care of its employees and the employees of the company have the freedom of speech and say in the decision making process which makes them loyal to the company. Along with the hierarchical structure in the organisation, Armani did the renovations of its 16 stores and also opened 30 new stores in 2002. Now the company is focusing on the e-commerce and trying to make the sales by its online portals in the different countries.
- Rituals and ceremonies: Armani is a 40 years old organisation and the organisation has its own rituals and ceremonies which are not much changed since its birth. Armani has always respected the art and creativity and this one aspect of the company makes all the difference in the market.
- Stories and legends: Mr. Armani is a legend and not only the employees of the Armani Group but also his competitors respect him for what he has done for the industry and still doing. He is a self made man and never compromised for the exponential growth of the business. This is what makes him inspirational for the employees and motivate them.
- Language: Armani is a multinational organisation and has it business in around 46 countries. There are employees from different origins and backgrounds with different languages, but it has never hindered their work as most of them know how to communicate professionally.
A strong organisational culture can developed into a strong workforce-organisational identity that brings the best out of people. This relationship can develop into a strong performance culture towards achieving organisational goals, and a strong culture can enable an organisation to be more effective. Armani’s success as a global fashion icon is attributed to this strong this organisational-culture identity because, it aligned its culture to the environment. The values of Armani and indeed, other successful companies like Coca Cola, Facebook, Google for example, is in tune with the market place, competition, technology and social environments. Armani’s cultural environment and behaviour foster good working relationship excellent customer service with its stakeholders, for example, suppliers, customers, product designers, global partners.
4.1 Discuss the importance of international trade, and globalisation to Tesco or other organisations. Use the varieties of examples to support your answer.
International trade occurs when there is exchange of goods and services across national boundary. It allows flows of economic resources – capital, labour, technology, and production to countries, as well as sharing knowledge and cultural values for the benefits of mankind and national and international marketing development. Tesco PLC is the UK’s largest retailer and has its presence in 12 countries all around the world. If the revenue and market share of Tesco is considered, it is the 3rd largest retailer in the world. In UK, Tesco has captured around 29% retail market and now it is expanding to overseas countries to exploit the benefits of the international trade.
- Importance of international trade and globalisation:As new markets are opened, resources are deployed though investments. Companies can take advantage of relocating its operations or selling and distribution of its products and services thus creating revenue potential and profit for companies taken advantage of these opportunities. Tesco has its different operations in India, China, Japan, Malaysia and many other Asian countries and the company is getting benefitted a lot by its facilities in India and China because in these countries, there is no big brand in the retail market and Tesco has easily acquired lots of market share in the retail industry in India and China (Oestreich, 2004). These new international markets have helped Tesco to maintain a sustainable growth even if it is facing tough competition in its home market UK.
- It creates organisations competitions:International trade creates intense competition among companies. For example, when Tesco started its operations in India, some other organisations in India has started to invest in the retail grocery market and a new competition has been started in this industry which is helping the customers in getting the quality products on the cheaper price.
- It makes it easier for the movements cheap financial capital those really need its:Movements of financial capital make it easier for firms to access funds at cheaper cost of capital for investment. And companies’ reaches saturation or decline market, they can look for investment to emerging markets because there are cheaper sources of across the globe which can be accessed. The easy transfers of profits or dividends also make it for company willingness to relocate its overseas operations where cheap capital can be found.
- Easier movement of skilled labour to where the demand is low:Easier movements of skilled labour where their needed. Workers feel free to move to a country where their skilled are needed as a result there is no shortage in the market and labour cost is cheaper forms thus achieve labour cost competitiveness among firms. It is a well known fact that India, China and many other Asian countries have huge man power which comes on a far too less pay as compared to the UK labour. This is the reason; Tesco is now planning to open its full fledged production facilities in India and China.
- International trade improve standard of living among international trading partners:The international trade has also affected the life of the people and now because of the globalisation, the people of the developing countries are also able to get the quality products from the multinational organisations. The UK organisations like Tesco are now expanding in the developing countries and making the lives of the people easier and comfortable.
4.2 Analyse in what ways the role of WTO, emerging markets (BRIC) and protectionist tendencies of national government may impact the UK organisations in the coming 10 years.
The World Trade Organisation (WTO) is global international organization dealing with the rules of trade between nations. The goal is to help producers of goods and services, exporters, and importers conduct their business. WTO ensures that there are fair trading practices among partner countries across the globe and its work can be summarised as: ‘To stimulate economic growth and employment, cut the cost of doing business, internationally encourage good governance help countries develop, give the weak a stronger voice and support the environment and health’
Its functions are for example to:
- Administering WTO trade agreements
- Forum for trade negotiations
- Handling trade disputes
- Monitoring national trade policies
- Technical assistance and training for developing countries
- Cooperation with other international organizations
As mentioned in the previous section, the emerging markets like India and China are now become the focus on Tesco and company is concentrated a lot in these markets because these markets have huge potential for growth. Although there are some protectionist policies of the overseas countries which tries to make sure that their local organisations also stay in the competition and no organisation from other country like Tesco dominate the home market. That is why there are FDI (Foreign Direct Investment) policies are being developed by the government of these countries which make sure that Tesco do not have the controlling share in a local organisation especially in the public sector.
The barriers to international trade through protectionism is being dismantle giving way to global trade, which benefits companies leading to world economic growth, better standard of living among nations. The international competitiveness among nations and multi-national companies in particular has created market opportunities, movements in technology and technical skills across national boundaries (Dolia, 2012). The Common Agriculture Policy (CAP) is the policy initiated by European Union to implements agricultural subsidies to farmers and landowners of the member countries. This policy impacted on UK agriculture and of recent this policy is criticised for preventing fair trading and competition among some member countries.
The EU policies which are related to the fair competition in the market have been incorporated by the UK government and the EU commission is making sure that the free market economy could be established 100%. The EU Competition policy has given the opportunity to the new small organisations to grow and find new methods in the business processes for the increased efficiency (Lee, 2006). Because of this, the innovation has become one tool which is now setting up the stage of exponential growth of the UK market and in the coming 10 years, the UK market would set an example for the rest of the world. Tesco is aware of this trend and that is why Tesco has already started its online e-commerce stores in many countries where people could order from the e-commerce websites and mobile application and receive the delivery of the products at their door step.
4.3 Evaluate the impact of policies of the European Union on UK business organisations by using Armani or other organisations.
European Union competition policy regulation of competitiveness want to ensure that organisations do not create trade barriers through cartels and monopolies that would damage the economic interests of society (Moreno-Dodson, 2013).
Through the following activities, for example:
- Mergers, control of proposed mergers, acquisitions and joint ventures involving companies that have a certain, defined amount of turnover in the EU, according to the Merger Regulation
- Cartels, or control of collusion and other anti-competitive practices, under article 101 of the Treaty on the Functioning of the European Union (TFEU).
- Market Dominance, or preventing the abuse of firms' dominant market positions under article 102 TFEU.
Some other policies of EU which have great impacts on the Tesco are:
- EUETS:The EUETS policy of the EU is mainly concerned with the emission of carbon by the production facilities of the organisations in the EU countries and EU has implemented this policy very strictly to make sure that the environment in the EU countries remains healthy for the people. EU is very strict about the emission of carbon and other harmful chemicals from the Tesco Production facilities and asked the company to use the proper hardware and processes to make sure that the waste from the production facilities does not pollute the environment.
- Free Movement of Labour: This is one policy which has given relief of many UK organisations when it comes to get the cheap and skilled labour in the local area. Most of the production facilities face issues of non availability of the cheap labour in the nearby locations and now EU has made it free for the employees to cross the borders of the EU countries so that they could migrate to the area where work is available (Morrison and Wilhelm, 2007). This has resolved the issues of unemployment and scarcity of the human resources.
Tesco has established its facilities in the EU countries where the cost of land and taxes are less and now company is exporting the labour from the other countries where labour is cheaper. The free movement of labour across the EU countries has made it easy for Tesco to reduce the production cost and improve the revenue and Customs Taxation of the organisation. It is also benefitting Tesco in providing the cheaper products with good quality to the people. France, Hungry and Poland are some examples where Tesco started its operations only because of the liberated EU policies and now company is making lots of profit from these markets.
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