Busines Environment - Case Study Example

Business Environment Introduction: The electric power industry in the United Kingdom (UK) has been observed to have three primary stakeholders that include the generators, the distributors and the suppliers. The generators work to supply the electric power to the different homes and required workplaces. The distributors constitute the owners of the networks of the powers who control the operative functions. These are not the direct organizations but the functions are decided and passed on to the respective organizations for the electric power to be transmitted to different businesses and homes. Suppliers refer to the companies that directly sell electric power (About the Electric Industry, 2011). Thus the electric industry in the UK can be understood to perform its functions effectively with the help of these stakeholders and have proved to be efficient over the years. However, with the increasing levels of competition in the industry, it has been found that customers have changed their preferences of suppliers. Also, increasing level of prices have led to the consumers plan for savings and hence cutting down on consumption. Thus in the recent years, the UK energy prices have been found to fall down (About the Electric Industry, 2011). The current study focuses on a PEST analysis of the UK electric power industry and hence determines the recent changes that have occurred. UK Electric Power Industry: Privatization and Deregulation: Earlier the electric power industry in the UK was under the control of the Central Electricity Generating Board (CEGB). When CEGB was in control of the electric power in the UK, there was not much competition in the market. There were 12 boards in the regional areas that were in charge of the electricity distribution. Also the prices during this time were lower for the consumers to afford. The system being dependent on thermal generation was responsible for around 70 percent of the total production of electricity. With the process of privatization the controlling board was considered to be privatized. Private ownerships and competitive pricing became parts of the new privatized industry that was created in the year 1990. In the new structure the independence of the generators were limited and central planning was lacking in the development of capacity. The prices for the power supply also increased although for significant power consumers the prices reduced after inflation (Stevens, 1995, pp.52-59). Although the new system have several advantages like reduced labor costs, better customer services, reduced borrowing from government as well as alteration in the business culture, however there are certain disadvantages as well. Privatization led to the system becoming more complex and effects have been obtained on the employment opportunities as well. The privatized structure has been found to focus on several goals together instead of focusing on the primary goals (Stevens, 1995, pp.59-62). Deregulation in the industry is also observed in association with the privatization. This has been found to have impacts on the innovation and performance of the electric power industry in the nation. This includes changes in the technological advancements and the newly structured plans and deregulation process led to an increase in the distribution of the nuclear power. At the same time, the sustainability of the generation of power has been obtained to be in a doubt (Steil, Victor & Nelson, 2002, p.411). Thus the deregulation and privatization reflected two sides of effects on the electric power industry in the UK. PEST Analysis of the UK Electric Power Industry: (P)olitical Analysis: Earlier while the electricity supply in the UK was under the control of the CEGB, with privatization under the plans of the government the situations have changed since 1990. Under this new Electricity Act of 1989, liberalization policies were agreed upon that included increase in the efficiency of the electric power supply and services, reduction in the prices for the consumers, targeting increase in the revenue and profits for the industry as well increase the level of ownerships and competitiveness. Also, with privatization, it was realized that without the intervention of the government power, the industry would not have to purchase coal at the prevalent high prices, and be able to trade in coal from foreign countries at lower prices (Butler, 2001, p.12). The restructuring and liberalization policies under the new government plans introduced competition in the market. This increasing level of competition soon affected the comprehensive sale of the electric power supply. Changes in the regulation process also were introduced along with the privatization in the electric power supply. The new regulatory authority had the responsibility to make certain that utmost levels of competition were prevailing in the industry as well maintain the interests of the consumers. With the change in the structure, several new companies entered the market. Further amendment of the Act also created separation between the generation and supply of the power. In the recent years, the government of UK also took measures to evaluate the policies followed by the industry as per the recommendations of the Royal Commission for Environmental Pollution (Butler, 2001, pp.12-27). Thus the restructuring of the electric power supply policies in the UK under the governance of the political power in the nation can be understood to present a scenario where although the liberalization policies have been adopted by the government with intentions to improve the supply and mechanism of the entire industry, it seems that the influence has led to greater competition in the market and there is a combined effect on the industrial performance as well as the consumers. (E)conomic Analysis: It can be realized that in order to increase the supply of electric power to the consumers in any country, there occurs the need to raise the level of investment and making plans of expansion of the entire sector. Some of the factors affecting the pricing of the electric supply have been found to include different controlling measures and subsidies that increase the levels of the demand affecting the supply on the other hand. One of the difficulties encountered by power companies is that they are unable to obtain any margin that can finance their plans of investment. Also, they do not have the opportunity to select cheaper plants for their power supply mechanism (Mitchell et al, 2001, p.257). Considering the privatization and regulation policies in the UK, it can be observed that the new mechanism has led to increasing competition. This on the other hand has created several options and choices for the consumers to choose from a number of suppliers. The new policy affected the investment levels of the new electric companies since the process of privatization and liberalization removed the protection that was earlier prevalent over the investment techniques in production of power by the ownerships under the different states. Now the investment in additional power facilities is not protected under the new regime and hence the tendency of investment has been found to have declined (Mitchell et al, 2001, p.257). Thus if the changes in the electric power industry in the UK can be studied, there are economic aspects as well that have been affected. Since investment for expansion plans is one of the most essential factors for the development and success of any country, being affected by newer policies seem to have severe impacts in this respect on the electric power companies in the UK. The removal of protection on the investment plans under the policies of privatization and liberalization bringing the recent changes can thus be understood to be not so favorable in terms of the economic aspects. (S)ocial Analysis: The most significant effect on the society in regard to the changes in the policies and the introduction of the privatization and liberalization in the electric power industry in the UK has been obtained as the possible inequality of the sharing of the pricing of electricity. While the cost of electricity has been found to reduce under the new regime, this decline in the cost has not been applicable to all sections of people equally. Consumers who are associated more with the companies, those who are richer, and those who are the shareholders of the electric companies have been obtained to gain greater advantages in regard to the pricing, in comparison to other consumers (Manibog, Dominguez & Wegner, 2003, p.39). In regard to the effect on the society, it has been observed that the newer reforms or policies in the electric power sector and the intended plans are primarily meant for the richer sections of the people. The other sections are mostly not considered up to the level they need to be considered. Often they seem to get any possible advantages at the end, particularly in cases where the access to different choices of suppliers is applied. Owing to the increased competition, and the modified pricing of the electric power, the additional tariffs that different electric companies might follow intending to make-up their additional costs, it can be realized that it is the poorer sections of the consumers who get affected (Manibog, Dominguez & Wegner, 2003, p.39). Thus considering the social analysis, the recent changes brought about as a result of the privatization and liberalization in the electric power industry in the electric power industry in UK, the effects can be realized in terms of the unequal distribution of pricing strategies developed by the electric companies that have greater advantages for the richer sections of the consumers, as well as regarding the access to the different preferences available for the consumers to choose their electric suppliers. (T)echnological Analysis: The process of privatization can be understood to be intended to increase the level of competition in the industry such that the price levels might decline to greater extents. In regard to the technological effects, it can be considered that the advancements in the use of the technology have a positive impact on the recent changes in the electric power industry in the UK. This is owing to the cheaper plants that have been able to be established as a result of the advanced technologies. Also, with the technological advances associated with the changes, it could be expected that the tariffs could be improved. The earlier problems related to the inefficiency in the operating levels as well as the labor problems could be removed with the privatization depending on the use of technological advancements (Sivanagaraju, 2008, pp.13-14). Thus in regard to the understanding of the technological impacts on the electric power industry in the UK particularly in association with the recent changes, it can be analyzed that the technology being advanced can be used for the benefits of the power industry and in the different electric companies providing the supply of the electric power to their consumers. The technological impacts can be associated with the lowering of the costs for the companies as well as resolve any problems in relation to the labor and work. Conclusion: The study has been focused on the electric power industry in the United Kingdom and a PEST analysis drawn to associates it with the recent changes. It has been learnt that the nation underwent in the year 1990 a change in the process of the electric industry from being under a monopoly control to being transferred to privatization and liberalization under the plans of the government. The political, social, economic and technological analysis reveals that the recent changes brought about by the new Electric Act has both positive as well as negative associations with these four essential factors. While the political impacts reflect how the plan supports increased competition in the market and greater number of ownerships, the economic effects focus on the fact that the changes brought about create lesser opportunities for the companies to make investments for expansions with the increase in the number of preferences for the consumers. The social effects presented the differences that are encountered in regard to the pricing of the electric power between the richer and the poorer sections of consumers, with the richer sections receiving higher advantages than others. The technological advancements however proved to be of great advantage for the companies with respect to the reduction of the costs of the company and as solutions to the problems related to the labor. Thus the PEST analysis presented a combined view of the electric power industry based on the change in the industry to privatization and modifications. References 1) About the Electric Industry (2011), Nationalgrid, available at: http://www.nationalgrid.com/uk/Electricity/AboutElectricity/ (accessed on November 29, 2011) 2) Butler, S. (2001), The nature of UK electricity transmission and distribution networks in an intermittent renewable and embedded electricity generation future, Parliament, available at: http://www.parliament.uk/documents/post/e5.pdf (accessed on November 29, 2011) 3) Manibog, F.R., Dominguez, R. & S. Wegner (2003), Power for development: a review of the World Bank Group’s experience with private participation in the electricity, Washington: World Bank Publications 4) Mitchell, J.V. et al (2001), The new economy of oil: impacts on business, geopolitics and society, Oxford: Earthscan 5) Sivanagaraju, S. (2008), Electric Power Transmission and Distribution, India: Pearson Education India 6) Steil, B., Victor, D.G. & R.R. Nelson (2002), Technological innovation and economic performance, New Jersey: Princeton University Press 7) Stevens, S. (1995), Privatization of the Electric Power Industry of the United Kingdom, Energy Studies Review, Vol.7, Iss.1, pp.52-62, available at: http://digitalcommons.mcmaster.ca/cgi/viewcontent.cgi?article=1289&context=esr&sei-redir=1&referer=http%3A%2F%2Fwww.google.co.in%2Furl%3Fsa%3Dt%26rct%3Dj%26q%3Delectric%2520power%2520industry%2520in%2520the%2520uk%26source%3Dweb%26cd%3D3%26ved%3D0CCkQFjAC%26url%3Dhttp%253A%252F%252Fdigitalcommons.mcmaster.ca%252Fcgi%252Fviewcontent.cgi%253Farticle%253D1289%2526context%253Desr%26ei%3DTXXUTsS6EsTyrQeutYyyDg%26usg%3DAFQjCNE74Svsh1KN560uyKCbDkGIDr5IHA#search=%22electric%20power%20industry%20uk%22 (accessed on November 29, 2011) Read More