Understanding the Behaviour of Organisations in their Market Environment - Essay Example

? Understanding the Behaviour of Organisations in their Market Environment Market Structure An industry is the collection of firms making identical or similar products. Market structure is an important element and depends upon the nature of competition and number of firms competing within the industry. It is often characterised in terms of the strength of buyers and sellers, level of collusion, form of competition, degree of product differentiation, and also the ease of exit and entry into the market. In general, there are four basic types of market structure, namely perfect competition, monopoly, monopolistic competition and oligopoly. Perfect Competition: Perfect competition is a situation when numerous firms are competing in the market (Machovec, 2002). For example, FMCG and FMCD sectors are perfectly competitive ones. The biggest advantage of a perfectly competitive market is that firms produce optimal output levels at a low cost. However, the biggest disadvantage is that companies earn minimal profit and there are no economies of scale. Monopoly: A monopoly is a market situation where only firm is operating and there are no competitors (Lele, 2006). For example, the local water electricity service providers are often considered to be operating in a monopoly market. The advantages of monopoly are no risk of overproduction, efficient use of resources, price leader, focuses on the production of a particular product or service. The labour cost is also low. On the other hand, the disadvantages of a monopoly market are that the company can exploit customers by charging more or offering low quality products. There is huge restriction in choice of customers resulting in a low buyer power. Furthermore, the absence of competition often leads to inefficiency and lower productivity. Monopolistic Competition: A monopolistic competition in an industry is characterised by the presence of several competitors, but their offerings differ (Solow, 1998). The restaurant industry is the best example of monopolistic competition. One of the biggest advantages of monopolistic competition is that it promotes competition which, in turn, greatly helps in enhancing the efficiency and productivity of the industry. From the point of view of consumers, it offers them greater choice and variety. Moreover, customers get quality products and services and turn out to be more knowledgeable about the product features. Technological innovation and research and development are highly visible. The disadvantages of monopolistic competition are that it leads to higher price. Oligopoly: An oligopoly market is characterised by the presence of only a few firms (Tucker, 2008). For example, gas service providers are considered to be operating in the oligopoly market. The biggest advantage is that prices remain fixed and competition is high resulting in a higher efficiency. On the other hand, the disadvantage is that there are less research and development works and less innovation. Figure 1 – Market Structure PESTLE and Cultural Environment The external business environment in which an organisation operates plays a significant role. Before formulating a business plan or formulating a strategy for business, organisations carry out in-depth analysis of the business environment. The external business environment includes the political, legal, social, technological, environmental, demographic, economical and cultural factors. Nowadays, business houses operate in a changing business environment and as a result, they are required to offer products and services that match with the needs of customers. According to Taloo (2007), there are no businesses in the world that can survive without having any interaction with the external business environment. The factors of the external business environment have a strong influence on the business operations and therefore, businesses need to be aware of the external environment. For example, a change in the economic environment of a country can strongly impact the sales of a company. Therefore, organisations are required to take all the environmental factors into account for identifying the opportunities and threats. Apart from the aforementioned external factors, culture also has a strong impact on the business operations. According to Andrews (2009), culture plays a crucial role in the formulation of business strategies. Moreover, a number of authors shave also indicated that culture has a strong influence on the purchasing behaviour of consumers. For example, according to Marco (2004), the rapidity of growing significance of the international marketing has compelled marketers to seek in-depth understating of how markets and consumers differ around the world. One of the major elements pointed out by the author regarding this change is the impact of culture. Culture greatly persuades the purchasing behaviour of consumers and as a result, a product or service which is doing well in a country is not expected to do the same in another country. Thus, marketers always need to remain aware of the culture of the target country before launching any offerings. In order to further elucidate the importance of examining the external business environment and how it shapes the business, an example of PESTLE analysis can be demonstrated. The company chosen for this analysis is Vodafone. Vodafone is a UK-based telecommunication company and is currently headquartered at London, United Kingdom. Although the company has presence in almost every part of the world, this study will only consider their UK operations. Hence, an in-depth PESTLE analysis to show how the external business environment is impacting and shaping the business of Vodafone will be presented. The elements are discussed below. PESTLE Analysis PESTLE is a strategic tool by which companies analyse the external business environment in which they are currently operating or are intending to operate in the near future. The factors that are analysed through PESTLE are political, legal, social, technological, environmental and economical ones. The report will now analyse these factors in the context of Vodafone UK. Political Factor: The political factor of a country includes the type of government and its stability. In addition, it also puts emphasis on the tax policies, the intensity of changes in the political scenario, corruption and the trends pertaining to regulation and deregulation. The government of UK is a commonwealth realm and constitutional monarchy. The country has been very much stable politically for the last 3–4 decades. Another encouraging factor for the country is that the government of UK greatly encourages the domestic players. However, since the products of Vodafone are telecom-based, it remains under the stringent control of government. The licenses pertaining to mobile phones are tightly controlled by the government and the access to the spectrum is also limited. There are also political risks for Vodafone in UK. For example, if the government of UK persuades and pressurises children over the usage of mobile phones or possibly banning the use, it may adversely affect the revenues of Vodafone in UK. In addition, the government may also create awareness of the ill effects of using mobiles, which again may affect the sales of Vodafone. The telecom products require strong infrastructural support to function properly, but the development of infrastructure requires permission from the government. Furthermore, the government can also control the pricing of the company or they can create a framework in which the prices need to be kept. Such controls can tremendously affect the profitability of the company. Therefore, the above points clearly divulge how the political factors shape the business operation of an organisation. Legal factor: The legal factor mainly comprises legal frameworks that a company has to abide by in order to operate efficiently and unperturbedly. Vodafone is a telecommunication company and hence it has to follow a number of legal guidelines. One of the laws that Vodafone needs to abide by is the Sales of Goods Act 1974, which states that products must be fit for the purpose they are intended. Hence, the telecom service provided by the company should fulfil the actual purpose of endorsing wireless communication. The legal restrictions for the company are that the products should not degrade the society or environment, or even if it degrades, it needs to remain within a certain limit. In addition, manufacturing recyclable SIM cards and less use of wire are another legal obligation for the companies belonging to the telecommunication industry of UK. However, there are some legal restrictions for the users as well, such as ban on using mobile during driving. Therefore, the above arguments undoubtedly divulge how the legal factors impact the business operation of Vodafone. Social factor: The social factor of a country is possibly the most important one for a business. It includes the population size, the growth rate of population, health, education and social mobility, lifestyle and attitude of people. Together, these factors are crucial in unearthing the purchase behaviour of the consumers. The total population of the country is 63,395,574 and among them 12.8% of the population belongs to the age group of 15–24 years and 41.1 % belongs to the age group of 25–54 years (CIA, 2013). Hence, around 54% of the population of the country are the potential customers for the company and are a great sign for Vodafone. However, it does not mean the remaining figures are not the customers; rather, they are the secondary targets for the company. Another positive factor for Vodafone in UK is that around 80% of the total population is urbanised, and that provides the company with an opportunity to offer high end products and services. The urbanisation rate is 0.7% per annum and 30 years down the line, the country is expected to be largely urbanised (CIA, 2013). Vodafone sells both mobile phones and provides telecom services (both data and voice), and proper usage of these products requires the user to have certain technical knowledge. Hence the telecommunication industry is strongly impacted by the education levels of the country. UK in this context has a literacy rate of 99% reflecting great opportunities for Vodafone to experiment with new and innovative products. However, there are some risks as well. The telecom product is mainly driven by the need of people to communicate and the market trends. Therefore, a shift in the trends or people finding an alternate to this made can sternly impact the business of Vodafone. The above points make it evident how some of the social factors shape the business operation of Vodafone. Technological factor: This element mainly analyses the research and development infrastructure and activity of the country, the impact of technology transfer and also the networking and logistics infrastructure of the country. The networking and logistics infrastructure of a country is vital for the service delivery. The importance of technological infrastructure is more when it comes to a telecommunication company. UK is characterised by strong technical infrastructure. According to reports, the country spends large sums of money in developing their infrastructure. Till 2011, UK had managed to reach 33.23 million telephone users and 81.612 million mobile subscribers (till 2012). Moreover, the country had 51.444 million Internet users (as of 2009). Therefore, the above points out how the technological factors shape the business operation of an organisation. The figures above clearly demonstrate the strong communication infrastructure of a company. However, the most encouraging fact for Vodafone is that the users of telecom are increasing at a rapid pace. In order to meet the growing demand, the company also depends on technology to improve their production. Moreover, with 462 airports and 16,454 km of railways, the logistics infrastructure is also superlative (CIA, 2013). The strong research and development facility along with the support of government to invent and innovate, Vodafone is sure to set examples for the competitors. However, there are several risks as well, for example Bluetooth may be used to send unwanted text or other contents (known as blue-jacking). In addition, the 3G technology may not be supported in some areas of the country due to lack of infrastructural support. Environmental factor: Most of the products of Vodafone are telecom-based and to make these products function properly, there is a requirement of using network services. However, network services have a strong impact on the natural environment. The propagation of radio waves sometimes adversely affects the flora and fauna of the earth and the analyses of these factors help companies to comply with the environmental rules and regulations. In order to fulfil environmental regulations, Vodafone has recently launched a handset recycling programme for fostering customers to dispose handsets, SIM cards, and other accessories of mobile in a responsible and safe way. In addition, customer incentives are also provided for returning unusable products at the recycling points of the company. Therefore, the aforementioned points reveal how the environmental factor has forced Vodafone to launch recycling programmes and thus resulted in shaping the business. Economic factor: The economic factor of a country mainly comprises GDP (gross domestic product), per capita income, purchasing power parity and also tax structures. The analysis of these factors helps companies to determine the purchasing power of the suppliers and also the way they should price their products so as to remain profitable even after paying the corporate taxes. In addition, the analysis of the economic environment also allows companies to discover the labour cost, the impact on the business due to globalisation, and the business cycle stages. UK is considered to be one of the largest economic powerhouses of the world. The total GDP of the country is $2.44 trillion and per capita income is $36,700 (The World Bank, 2011). However, the growth rate is around 1% only. The low growth rate can reduce the purchasing power and can directly affect the sales of the company. 14% of people live below the poverty line and 7.8% are unemployed, which is again a negative sign for the company. However, with only the 2.8% inflation rate the purchasing power has been strong (CIA, 2013). In order to deal with the challenges of the economic scenario of the country and to satisfy needs of every genre, the company offers a wide range of products and services. For example, there are different data and voice plans being offered by the company, which ensures every category of consumers can use it with ease. Therefore, the above points clearly shed light on how the economic condition of UK, shaping the business operation of Vodafone. Cultural Environment Analysis Figure 2 (Source: Geert-Hofstede, 2013) According to the Hofstede model of culture analysis, UK people believe that inequalities among people should be minimised and to support this view, Vodafone often comes with standardised products and price for the mass. However, one of the negative aspects of culture of UK for Vodafone is that they are less social and like to remain private, and this may have a negative impact on a telecom company. However, the business culture of the country is dramatically different as the business people depend heavily on the modern forms of communication. This provides Vodafone with a great opportunity to launch commercial telecom products or offer plans supporting the corporate. Therefore, from an overall point of view, it can be concluded that all the elements of the external business environment along with culture have a strong impact on the business operation and strategy of Vodafone. References Andrews, S., 2009. Human resource management: TB for hospitality. New Delhi: Tata McGraw-Hill Education. CIA, 2013. Europe: United Kingdom. [online] Available at: [Accessed 10 June 2013]. Geert-Hofstede, 2013. What about the UK? [online] Available at: [Accessed 10 June 2013]. Lele, M. M., 2006. Monopoly rules: how to find, capture and control the world's most lucrative markets in any business. London: Kogan Page Publishers. Machovec, F., 2002. Perfect competition and the transformation of economics. London: Routledge. Marco, T., 2004. The influence of culture on consumers: exploratory and risk taking behaviour. [pdf] Available at: < http://repositorium.sdum.uminho.pt/bitstream/1822/4839/1/Tese_Mar%C3%A7o.pdf> [Accessed 10 June 2013]. Solow, R. M., 1998. Monopolistic competition and macroeconomic theory. 2nd ed. Cambridge: Cambridge University Press. Taloo, T. J., 2007. Business organisation and management. New Delhi: Tata McGraw-Hill Education. The World Bank, 2011. GDP (current US$). [online] Available at: [Accessed 10 June 2013]. Tucker, I. B., 2008. Survey of economics. 6th ed. Connecticut: Cengage Learning. Read More