Understanding business environments - Essay Example

?Business Environment s Table of content Introduction………………………………………………………………………… 3 How economic systems attempt to effectively Distribute resources……………………………………………………………….. 4 Impacts of high taxes and high interest rates for employees And borrowing of businesses……………………………………………………… 5 Impact of competition policy and other regulatory mechanism……………………..6 How prices and output are determined in perfect competition………………………7 How market forces shape organizational response………………………………….8 How cultural environment shape behavior of organizations………………………...8 The significance of international trade to UK organizations…………………………8 The impact of global factors to UK organizations……………………………………9 The impacts of EU policies to UK organizations…………………………………….9 Conclusion……………………………………………………………………….......9 References……………………………………………………………………………10 Business Environment Introduction Business environment can be defined as the surroundings or the area around which a business operates. It also includes the different factors that affect the operations of the business. Business environment can be divided into two; External business environment and Internal business environment. It is hence the combination of both the elements of external and internal business environments that influence the operations of the business. The external business environment consists of the factors that affect the operations of the business, but they exist outside the business. These elements include; competitors, customers, suppliers, marketing intermediaries, the general public, the economy, distributors, regulations, social and cultural factors, government activities and demographics (Lucas 2011, p.24). The internal business environment consists of the factors that are present within the business and affect the operations of the business. The elements of the internal business environment are; management, employees, production capacity of the business, the business policies, structural organization of the business, objectives of the business, the composition of its board of directors and features of the human resource department. Although the elements of the internal business environment affect how the business runs, they are not fully included as elements of the environment. P4 An economic system refers to the organization of the economy is. In a nation’s point of view, an economic system can be defined as the limited supply of elements of production such as; land, labor, capital and natural resources influence or affect the production of goods and services in the country. Because of the scarcity of these factors of production the government of that country has to make the decision of how it will allocate these resources to competing claims. To make this decision, the government would need to evaluate the opportunity cost of production of different products. After comparing the opportunity costs of producing that product, the government then makes the decision to allocate resources for production. In a command economic system the allocation and distribution of resources to certain sectors of the economy is controlled by central organizing body, usually it is the government. The government in this economic system also controls the distribution of the produced goods and services. In this economic system, the government main agenda is to try to reduce or eliminate the pursuit of profits by the producers, and ensure that basic goods and services are produced on the basis of the consumer’s needs and wants. The resources here would be allocated efficiently on the basis of social goals. This means that they allocated in such a way that the goods and services produced would meet the needs of the society but not to exploit them (Lucas 2011, p.13). In free enterprise/ market economic systems, the influence from the government is minimized. Here, decision making is influenced by demand, supply and the capabilities of paying for goods and services. Since the government does not have influence in this economy, efficient distribution and allocation of the resource is determined by the interactions between producers and their customers in the marketplace setting. It is the individual decision of how and where to invest and which goods and services that will be produced. A mixed economic system is where the economy is controlled by both the government and private enterprises. In this system, the means of production are privately owned, but the government has certain influences in the running of the economy. This is done through fiscal and monetary policies. This degree of government interference is allowed with the aim of efficiently allocate the limited recourses to various sectors of the economy. P5 High taxes have a negative impact on employees. One of the impacts is loss of jobs. When taxes are increased, the cost of employing also goes u Employers also would seek to reduce the number of employees on their payrolls leading to unemployment. Direct impacts on the employees include their incomes becoming inadequate and low wages. Huge income taxes on salaries increase their prices, meaning that the employees’ purchasing power is reduced. High taxes cause consumer products to inadequate and shoddy. High production taxes reduce the money available for the use of producing high quality goods and services. Produce opts to produce low quality products in order to at least make some profits because a lot of the resources are channeled to paying taxes. Also, it becomes increasingly difficult for business to stock fully due to the property taxes. High taxes can also cause evictions and homelessness. High taxes on the employees’ incomes may lead to them to be able to keep up with mortgage and rent payments leading to their possible eviction. The reduction of the incomes complete loss of their incomes due to unemployment may lead employees to turn to crime and illegal activities in order to survive. The interest rate can be defined as the cost of borrowing funds. It is the rate at which interest on money borrowed is paid. Increase of interest rate is a monetary policy by the government to control the rate and level of inflation. The impact high interest rate of borrowing is that it increases the cost that borrowers will incur when they borrow money. To businesses and companies increased interest rates on borrowed money would lead to reduction of profits. As a result of reduced profitability, the share prices of these companies also go down. Also, high interest rates would lead to a reduction of the value corporate bonds. This is because the bonds tend to become much less attractive as the rate of interest on them keeps on increasing. P6 The impact of competition policies on organizations is that it increases their completion intensity. This would lead them to have quicker growth. This is because the aim of completion policies is to make markets more complete and efficient. This would lead to companies improving the quality of their products and services given to consumers. The companies also expand their activities to make them more versatile hence improving their competitive nature in the market. In the case of Cudbary Schweppes, the company responded to the competitive policies by buying other companies and making them established brands, and also developing its existing and new product range to make it more competitive in the market. Also, the company has taken into consideration what the customers want to consume. Through this, this the company not only meets the demands of its customers but also it remains a competitive force in the market by maintaining the loyalty of its customers. The company has also taken other steps to ensure that they remain competitive. These are; it motivates its employees by supporting causes they care about, by being socially responsible they build loyalty of their employees, the company adopted projects and schemes that improve the skills and experience of its workers, it has also created an environment where there is a better understanding among its employees, it has insisted on team work, and it has adopted means of boosting the morale and feel good factor among its workers. These steps are aimed to improve and maintain a high productivity level of the company. P7 A perfect competition market is characterized by, the companies being the price takers and the industry being the price marker. It has a high number of sellers and buyers. Therefore, this means that what a company produce is just a small percentage of the overall good and service produced by all the companies. It also means that what one buyer purchases, is just a small part of what is purchased by the other buyers combined. This has the effect of not having one organization controlling the market. Similarly, one consumer cannot have control over the market; hence neither the suppliers nor the consumers can set and control the prices of goods and service. The homogeneity of the goods produced by the companies in a perfect competition market structure means that the good of different producers are perfect substitutes for each other. Therefore, buyers are spoilt for choice from which producer they would purchase products from. There is free entry and exit in the perfect competition. There is no restriction on the entry and exit from the market by firms. This means that the firms could record normal profits only. Other characteristics of the perfect competition market structure are; the consumers have perfect knowledge about goods and services that are available to the in the market and mobility of resources is free, which is crucial for firms as they have to adjust their supply of the goods and services according to the demand for them by consumers. Because of these characteristics of the perfect competition market structure, the price of goods and services is left to be decided by the forces of supply and demand. In this market structure, the quantity that is demanded usually varies with the quantity that is supplied. Changes in demand for goods and services would have an effect on their prices. The equilibrium price will be reached when the quantity demanded is equal to the quantity supplied. An increase in demand would lead to an increase in prices and a decrease in demand will cause a decrease in prices. This is because when the demand for certain goods is high the sellers would hike the prices of that product in a bid to take advantage of its high demand. When the demand is low, the seller would lower their prices in order to attract more customers for their goods and services. The output produced in this market structure is determined by the forces of demand and supply. When the demand for a certain food is high prices of the commodity goes up. Because the objective of all business firms is to make profits, the increased prices of the commodities would lead them to produce more of the products. In the long run, the increased output would lead to the supply of the commodity being higher than the demand for it. This would lead to the falling of the prices. At this point, the producers will reduce their output because high further production of the commodity would lead to losses due to its low demand. P8 There is a relationship between the market forces and organizational response to these forces. Market forces have been how demand and supply interact in the market while the organizational response is how organizations react to the changes of these forces. How organizations respond to these forces, is crucial in building its reputation in the market and has an impact on the organization’s profits (Webster and Hamilton 2012, p.76). Take an example of the housing sector. The demand for housing increases due to increase in population. The companies and organizations that are involved in the housing industry responds by building more houses to meet the current increasing demand for them. The graph below illustrates this fact. The graph above shows as market forces represented by increased demand for houses shown by shift from D1 to D2 leads to increased supply of houses represented by movement from Q1 to Q2. This shows market forces affect the organizational response to these forces. Also, when the demand for housing increases it leads to the increase of the prices of houses as shown in the graph. The graph shows as demand for houses increase, which is indicated, by the shift from Demand 1 to Demand 2 causes an increase in prices of housing from P1 to P2. This then causes the increase in the quantity of houses represented by movement from Q1 to Q2. This shows that as population increases, the demand for houses increases. P9 Culture is part of the external business environment that affects the operations of a business. The culture of the community that is around a business and that of the targeted clients of a certain business have an impact on its operations. Take for an example of a fast food shop in Turkey. For this business to be successful, it has to adhere to the cultural requirements of the Turkish cuisine. Learning the culture of the Turkish people is very important for the business to understand the consumer behavior of its targeted clients. This is because culture affects the consumer behavior (Morris and Jean 2002, p.258). P10 International trade is important for the economy of a country. For the UK economy to grow and become competitive in the global market which is getting very competitive, it is vital to engage in trading activities with other countries. International trade is crucial for the economy because it provides the country with goods and services that are not locally produced. Also, it provides markets for exports from the United Kingdom. Through the selling of goods to other countries, the country earns money that is channeled back to the economy (Knil 2001, p.100). P11 International trade has an impact on the operations of organizations in the United Kingdom because; due to globalization the economies of different countries in the world have become closely interconnected with each other. Globalization has made the world a global village. This means that organizations and governments of different countries cooperate unique ways. This means that global shifts in the prices of goods and services can affect the prices of those goods and services in the country. Take an example of the increase in oil prices in the world. Because UK imports oil, an increase in oil price leads to an increase in fuel prices in the UK. This leads to an increase in prices of other related goods and services in the country. P12 The employment directive by the European Union has affected the contractual rights of employed people in the United Kingdom. Britain being a member of the EU had to adhere to the directives that were given by the EU. This was made by the amendment of the employee’s employment rights in 1999 and later in 2003(Knil 2001, p.60). These amendments gave employees several contractual rights which include; right to an itemized payment system, write to the National Minimum Wage, right to be protected from dismissal from employment in an unfair manner and the terms and conditions of employment must be written. The EU’s policy of free movement of labor meant that works from the European Union member states had the freedom to migrate to any country in Europe to seek employment. The police removed any restrictions that made it difficult for people to be employed in other countries. The impact of this policy on the United Kingdom’s labor market is that; many peopled with specialized skills moved to other countries to seek jobs that would give them a better pay than in the UK. This has caused a major brain drain in UK organizational labor force. Conclusion Both internal and external business environments have huge impacts on how organizations and businesses operate in the UK and worldwide. Also, it is important to note that due to globalization, the international environment can also affect the functioning of the domestic organizations. References Lucas, M.2011. understanding business environments, Routlege, London. Webster, P. and Hamilton, L. 2012. The International Business Enviroment, Oxford Universty Press, New York. Parhizgar, K. D. 2009. Multicultural Behavior and Global Business Enviroment. Routledge, London. Francesco, F. D. 2012. Transitional Policy Inovation. Blake & Wyndham, London. Kuyper, L. and Darmar, M. 2000. Industry and The European Union. Edward Elger Publishing, Massachusetts. Frank, L. and Solon, A. 2008. Assessing the Cost and Impacts of Migration Policy . IOM, Geneva. Knil, C.2001. The Europeanisation of National Administration. UK University Press, Cambridge. Morris, G. and Jean, M. G. 2002. Organisational Behavior. Cengage Learning. Texas. Thomas, M. A. 2005. Organizasitional Culture, Rule-Governed Behaviorand Organizational Behavior Management. Haworth Press, Inc. London. Patricia, M. 2007. Market from Culture. Harcourt, New York. Read More