Doing business in UK - Research Paper Example

?Doing business in UK Table of Contents Introduction 3 PESTEL Analysis 4 1.Political Factors 4 2.Economic Factors 5 3.Social Factors 6 4.Technological Factors 7 1.5.Legal Factor 7 1.6.Environmental Factors 8 2.Process for Starting a Venture in UK 9 2.1.Prevailing Scenarios for Starting a new venture 9 2.2.Identification of Underlying Opportunities in UK 12 2.3.Choice of Enterprise for UK 13 2.4.Resource and Financial Based Considerations 14 2.5.Ideal Organizational Structure and Business Model for Business UK 15 2.6.Legal Consideration in UK 16 2.7.Business Strategies for UK 17 2.8.Ethical and Social Consideration 18 3.Conclusion 18 Reference 20 1. Introduction The four countries constituting the United Kingdom (UK) are England, Scotland, Wales and Ireland. It is true that they can be distinguished geographically, however, their strong sense of nationality and identity cannot be ignored. Originally known for having a very homogeneous society, since the Second World War, Britain has acquired extreme diversity in all spheres due to the large number of immigrants accommodated into its population. The high mix of ethnic cultures and groups makes it difficult to define the British culture as having a particular look or acting in a particular fashion. The British are considered to be more formal as compared to other nations. It is found that numerous people belonging to the older generation prefer to work with organizations and people who are known to them or their associates. The young businessmen do not require long and standing personal relationships before entering into businesses with people. Nor do they depend on intermediaries for making introductions for conducting businesses. In other words the key to successful businesses lie in effective relationships and maintenance of long term relationships. The British are seen to immense respect for ranks as they prefer to deal with people belonging to their levels or higher levels. Businessmen prefer including an elderly statesman into their group as a representative of authority which is considered as being essential for having positive and health business relationships1. The project seeks to present the pros and cons of conducting business in UK. This is done using the study of the region’s macro environment that affects the decisions of businessmen and entrepreneurs of organizations. Considerations are taken with regards to changes in tax structures, changes in legislations, demographic changes and changes in the government policies. To summaries it the entire project makes a thorough macro analysis of the United Kingdom which would impact the entry, establishment and growth of businesses in the same2. 1. PESTEL Analysis There are a number of factors in the external environment of firms which affect the decision making of managers and entrepreneurs. These factors are political, economic, social, technological, environmental and legal factors which require consideration while setting up business in locations. 1.1. Political Factors The recent past political conditions in the United Kingdom were not very impressive for conducting business operations. However, the conditions have now changed. The government has been trying to schedule its activities as per its priorities for investing money. Blair has highlighted an Organization for Economic Co-operation and Development report in which he tried to show that Britain’s taxes were much lower as compared to the other industrialized nations across the world, Japan and USA being the only two exceptions3. Recently the government has been stressing on cutting duty on fuel which would be compensated by cutting costs in the form of pension reductions. The food prices had reached record levels and the prices of stables like food grains, had reached high levels however, the price rise has been curtailed. The aim of the government has been to build a solid foundation for a healthy economy and attempt to achieve full employment, lower inflation rates and maximize welfare of the economy (see 3). 1.2. Economic Factors UK is one of the leading financial centers and trading powers of the world accounting for the third largest economies only after Germany and France. In the last two decades, the government has reduced ownership by the public considerably and continued the rise of social welfare programs. Agriculture in the kingdom is uses intensive techniques and is greatly mechanized, and efficient as per the European standards. It successfully produces 60% of the food required using as few as only 2% of the work force. This efficiency of labor also reflects a condition conducive for conducting business in the region. Moreover businesses were also not likely to face dearth of resources with its massive coal, natural gas and oil reserves. The services sector particularly has been flourishing in the region. Services like particularly insurance and banking, and business services, constitute a large portion of the GDP; however the industries have continued showing a decline or falling in importance. After recovering from the ill effects of recession in 1992, it has demonstrated the longest phase of expansion during which time its growth was faster that many nations in Western Europe. However, the year 2008 the economy was largely hit by the global economic downturn whose impact was significantly felt because of the huge dependence of the economy on the financial sector4. UK ranks fourth among 183 economies in the ease of doing business. Figure 1: United Kingdom - Compared to global good practice economy5 1.3. Social Factors Analysis of the recent social trends in the United Kingdom demonstrates emphasis on education, rise of entertainment, shrinking of the size of the common households etc. People are now living for more numbers of years with less number of people getting which has been one of the reasons for shrinking of the family size of households. There are more number of people who owns cars and women deliver babies at a later stage and a greater amount of the household spending of people are gone into water, fuel and housing. Between 1970 and 2008, consumption of domestic energy had increased by 24%. In 1970, 39% of this energy had come from coal and 24% from gas, but in 2008 coal supply constituted for 1% with 68% coming from gas. The year 2007 saw 16% of the electricity generated from reviewable sources. The general wellbeing of the households has seen improved which has improved standard living conditions in the region. A person’s spending on regular consumption and even entertainment has also gone up which makes in conducive for making investments in the region. This it can be seen that the social picture looks favorable for conducting business operations. It is likely that an enterprise making investments in the region would yield immense profits from the same6. 1.4. Technological Factors UK is one of the developed countries of the world. It is a technologically advanced country. The technological factor is considered to know the extent of technology usage in the target market; technology in terms of new inventions, internet usage in doing business etc. UK had a history of discovery and inventions. UK witnessed the industrial r evolution with the invention of electrical motor. Many discoveries and invention were made in UK. Hydrogen was first discovered in UK. Moreover locomotive engines, television, worldwide web (WWW), electrical telegraph were also invented in UK. In UK almost sixty percent of total sales are done online that through internet. The online access to the household has also increased in the recent years7. More and more people prefer to use internet for doing shopping. UK is also the global leader in technology. 1.5. Legal Factor UK is governed by a number of laws like alien business law, antitrust law, environmental regulations etc. there are strict environmental regulation regarding air pollution, noise pollution, water pollution and air pollution. There is also legislation regarding management of waste, hazardous substance, soil pollution. There are two environmental regulatory body, Environment Agency and Scottish Environment protection agency. For dealing in the matter of radioactive substances there is a separate act named Radioactive Substance Act 1993 which gives the guidelines and the framework regarding radioactive substances. Separate legislations are there for intellectual properties like trade mark, copyright, patents, designs rights etc. The procedures and matters of patents are done according to the Patent Act 2004. The matters of trademark, copyright and design rights are dealt according to the Trade Mark Act 1994, Copyright Designs and Patent Act 1988 respectively. There is also an antitrust law known as Competition Law in UK which prohibits any company, firm or person who wants to prevent, restrict or distort competition in UK.8 1.6. Environmental Factors The environment of UK is mild and the temperature is more or less stable. The weather changes but the changes are not very drastic. About 10% of land is used as woodland and forest and about 46% of land is used as meadow and pasture.9 The people of UK are becoming concerned about protecting the environment day by day. In the previous section the various laws regarding the environmental pollution has been discussed. Moreover the government is especially concerned about the use of the hazardous substance and usage of radioactive substances. Therefore the UK government has laid down various laws regarding the usage and the disposal of radioactive substances. After doing the PESTAL analysis it can be said that UK has high potential as a place for conducting new venture. Previously the political factors were not very good for conducting a new venture but now the UK government is taking steps to promote industry and investments. The government is also taking action to control the inflation. Government also gives tax subsidies to small enterprises. The literacy rate of UK is very high and the standard of living is also quite high. UK is one of the largest economies in the world. It has high trading powers. UK has quite rigid legal structure. There are many laws regarding environmental protection. The UK government is also concerned about the usage of hazardous substance. Therefore there are various laws regarding their usage and disposal of radioactive substances and hazardous elements. Any person who wants to do business in UK must make sure that his business does not affect the environment. 2. Process for Starting a Venture in UK 2.1. Prevailing Scenarios for Starting a new venture The previous sections has attempted to examine the feasibility of starting a new venture in UK and as per the above analyze, it is quite clear that macro-economic conditions like demographic, economic, political etc are quite viable for starting new business in UK. However starting up new business is a challenging task and requires necessary consideration for assuring its sustainability. In this respect, it becomes indispensible to take a number of considerations into account in accordance to host country. This paper mainly deals with doing business in UK, and therefore, the new business must comply with prevailing requirements in UK. According to report by BERR, during 2008, the number of registered companies was growing due to better business feasibility. The following tables depict the statistics by population, by sectors and by region. Table 1: VAT registrations, de-registrations and stock10 Table 2: Numbers of enterprises registering and de-registering for VAT by industry, UK, 200711 Table 3: Numbers of enterprises registering and de-registering for VAT by country and region, 200712 Moreover, the business environment is mainly dominated by the male as there are higher numbers of male entrepreneurs in UK. The following table represents this. Table 4: Number of Start-ups per 100 People by Gender13 In order to offer a better feasibility for startups in UK, The World Bank in collaboration with International Finance Corporation has disclosed a latest report. The following table lists topic wise UK’s ranking for starting up a business. Table 5: Ease of Doing Business in United Kingdom14 2.2. Identification of Underlying Opportunities in UK UK offers a variety of business opportunities to a new entrepreneur. The business opportunities vary from reselling to franchising. The opportunities available include both business to business and business to consumer options. Business opportunities include advertising, automotive, cleaning, coaching, consulting, distribution, education, finance, fitness, food, health, investment, kitchen business etc. Opportunities are also there in maintenance business, travelling etc. more and more new entrants in UK market are using franchising as a strategy to penetrate in the market. There is a need of eco friendly products. UK is also offers a good opportunity of pharmaceutical business. In fact UK is one of the world leaders in pharmaceuticals. It also has a good potential in digital products and care sector. There has been a considerable growth in tourism and hospitality sector. The contribution of this sector is more than 8% of GDP15. 2.3. Choice of Enterprise for UK For doing business in UK the entrepreneur can adopt any form of enterprise. The different forms of enterprises are joint venture, partnership, company limited by shares, company limited by guarantee, unlimited companies, sole proprietorship etc. Before choosing the type of enterprise and forming the organizational structure the entrepreneur should analyze the organizational culture of the UK. After considering the sector in which one wants to do business, the form of enterprise has to be chose keeping in mind the financial consideration and the objective of the business. As per UK law the limited liability partnership are considered as body corporate. Apart from the form of organization discussed in this section an entrepreneur can also conduct a new business in form of agency, franchising and subsidiaries. The agency types of enterprises are governed by the European Law. The franchising agreements are subject to competition law of UK. The regulatory bodies have laid down various procedures and rules regarding the registration, fees, financing and other activities required for the business16. 2.4. Resource and Financial Based Considerations For starting a new venture, availability of resources and necessary financial are indispensible. While preparing for new venture, entrepreneurs must assess these two criterions. In case of availability of resources, UK is not highly enriched with minerals but the country has better technologies, infrastructures and large amount of skilled and unskilled human resources. UK government strives to bring economic development by encouraging trade and business. UK Government has set a number of policies to offer financial grant to new and existing business. UK Department of Trade and Industry has developed multiple grant schemes to support national and regional business. There are different schemes for diffident typos of venture including startups, seed stage, national business, medium and small scale business etc. Besides, UK Government is also committed to offer other types of financial assistance like for R&D, insurance, export credit, business premises etc. Table 6: Indicative guide to Solutions for Business by company size and stage17 2.5. Ideal Organizational Structure and Business Model for Business UK Development of viable organizational structure and business model in accordance of business region is also major criterion. Therefore, entrepreneurs must identify the prevailing UK corporate culture and must frame organizational structure complying with UK. The development of organizational structure determines the leadership quality, relationship among employees and management etc. In this regard, Geert Hofstede’s 5 dimensional models can be very useful. The following, figure represents the model for UK. Figure 2: Geert Hofstede™ Cultural Dimensions UK18 The 5 cultural dimensions are Individualism (IDV), Power Distance Index (PDI), Uncertainty Avoidance Index (UAI), Masculinity (MAS), and Long-Term Orientation (LTO)19. The above figure implies that there is a closer relationship between management and employees, and due to capitalistic social structure, individualism is very high. Moreover, male values are greater and there is little influence of traditional factors on society. Besides, other considerations like HR policies including compensations etc must be framed considering social needs, and autocracy must be avoided in UK. 2.6. Legal Consideration in UK The legislation framework in UK has already been described which is quite stable and aim to protect the ownership right and offer other kind of protections like data protection, intellectual property rights etc. The legal protection can be availed through UK government, but is necessary to meet all the regulations acts and other licensing procedures. In order to offer better service and better protection, UK Government has established multiple provisions related to business premises, environmental protections, money laundering, necessary registrations and licensing, safety measures, advertising activities etc20. Besides, UK Government has also enforced a comprehensive set of business law that addresses necessary areas for ethical business practices. The Department for Business, Innovation and Skills (BIS) is responsible to maintain a healthy and competitive market. The business law includes provisions for company and partnership law, corporate governance, audit, accounting and reporting, and tax policies. In case of a listed company, it is necessary to comply with all these provision and they are bound to follow International Financial Accounting System (IFRS) as accounting standard21. 2.7. Business Strategies for UK Legal requirements are necessary to validity of business units and its existence. On the other hand, for sustainability proper business strategies are highly recommended. Generally, due to specific nature of different market region, marketing practices vary. The primary aim of the marketing strategy is to generate higher level of sales revenue by attracting the target consumers. Therefore, target market is the prime concern in marketing activities and hence, entire marketing plan must be framed as per the prevailing demographic features. For example, in UK nearly 99% of people are literate and nearly 51.444 million people can use internet. This signifies that internet market in UK is viable and effective. Besides, it is also essential to identify the changing consumer behavior for planning and executing effective strategies. There are certain factors like economic condition, culture etc that influences consumers buying behaviors. For example, the purchasing power of UK is higher and hence, consumers spending are higher in UK22. 2.8. Ethical and Social Consideration Ethical and social consideration should be one of major priorities of any business. UK government has been constantly trying to encourage business organization to contribute towards social welfare and to follow the best business practices. A business must incorporate certain goals and aims to create values for people, society and for environment. UK government have enforced laws for environmental protections that guides business organizations for practicing fair operational process that will have least impact of environment23. The government has also directed the business organization to consider specific responsibilities to the respective stakeholders. In this regard, UK government has identified corporate social responsibilities for six major areas including “CSR & poverty reduction”, “Community investment”, “Competitiveness”, “Environment”, “Governance” and “Workplace”24. 3. Conclusion The importance of trade and business has always been greater for bringing economic stability. Most of the first world economies are mainly driven by their trade, commerce and industry. Therefore, every economy is trying to boost their trade and business activities for achieving higher economic growth rate with stable market. On the other hand, starting new business venture is a challenging task due to higher risk exposure. The degree of external risks is mainly driven by country in which business is supposed to be operated. This paper has discussed the feasibility and necessary considerations of doing business in UK. The overall macro-economic conditions of UK have remained quite stable and supportive for starting a new venture. The country is economically and politically stable with better market opportunities. Besides, UK Government has enforced regulations and laws for starting up new business. These laws are quite necessary to availing better services from the government. Moreover, for sustainability, it is very necessary to developed organizational structure, business model, marketing strategies etc in accordance to prevailing business practices in UK. Reference BBC News. (2000). Fuel cuts 'would threaten stability'. 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