Business Environment - Essay Example

3 1 Market Structures Market structures categorize that how the markets are invented. This categorization is based on: the number of organizations in the industry degree of influencing the price and profit level degree of entry barrier the nature of produced product effect on competence, and The level of each firm’s monopoly power. Types of market structures are perfect competition, monopoly, monopsony, oligopoly, duopoly, and monopolistic that are being described below: Perfect Competition: Perfect competition is the one stream from the range of market structures. Perfect competition includes greater numbers of organizations and purchasers, manufactures, homogenous products, freedom of entrance and exit from the industry, producer, and consumer both have great knowledge about market. Due to the larger numbers or seller, manufacturers do not have control over the price; they are the price taker. Some examples of such sort of market structure are car market, musical instrument market, and beverage market (Wilkinson, 2005). The following graph shows the example of perfect competition Monopoly: Monopoly is totally opposite to perfect competition. In perfect monopoly, only one manufacturer or supplier exists but in reality, such sort of market hardly exists because in such an advanced arena there must be a substitute of each product. There is a dominance of one firm on overall market, such firm can influence prices, lack of substitute, very high barriers to entry (Wilkinson, 2005). Example of such market structure can be a cable company in India, electricity supplier in many countries including Pakistan, and British Telecom. The following graph represents the monopoly market: Monopsony: In monopsony, firmshavethe power to employee factors of production and each firm employee a miniature amount of employees in order to influence the rate of wages. In such market, only one buyer of a particular sort of laborexists. Firms are wage makers because labor has fewer options (McConnell, 2012). Due to the highest bargaining power, firms have lower manufacturing cost and, therefore, largest profit margin.Example of such firms is the electricity generator because it can negotiate a lower price of gas and coal supply contract. Low cost airline gets favorable price for new fleet, food retailers use their bargaining power when purchase items from milk producer, farmer, and other dealers. The following graph shows the example of monopsony market. Oligopoly: In oligopoly, competition exists between few firms. May the industry have the largest number of firms however;few larger firms dominate the overall industry. Firms are liable to manufacture or supply differentiated or standardized products, such firms have to face high entry barriers, have medium power to affect the market price (Wilkinson, 2005). Example of oligopolistic market is the sports apparel industry. Multiple manufacturers exist in sports apparel industry, but some majors like Adidas, Puma, and Nike are dominating the overall market. The example is also presented in the below graph: Duopoly: Is a particular case of oligopoly in which two producers dominate the overall market. There is no difference in oligopoly and duopoly, but only the number of producers differs (Geeta, Gosh & Choudhury 2008). Examples of Duopoly are coke and Pepsi, UPS and FedEx, Airbus and Boeing. The following graph explains the concept Monopolistic Or Imperfect Competition: In monopolistic competition, number of sellers exists in the market and makessimilar differentiated products. In such market, structure firms have low entry barriers and have lower power to affect the price(Wilkinson, 2005). Users and producers both do not have perfect knowledge of market and examples of monopolistic market structure are restaurant, movies’ makers, music producers and books’ writers or suppliers. All restaurants provide food to their consumers but differentiate by taste and menu (similar but differentiated). Monopolistic competition is explained in the graph below: 3.1.2 Determining Price and Output Firms’ pricing and output decisions depend upon the firm’s competitive environment. Suppliers operating in perfectly competitive market do not have the capability to influence price because if they raise price consumer will switch to another product and output decisions of such firms are based on marginal cost and revenue conditions. For example, if the marginal cost goes up as the outcome increases, that will enhance the expectations of increasing per unit cost that will exceed the selling price of the item.In such condition, company cannot make profit. Monopolistic firms continue to increase their output until their ruling market price does exceed their marginal cost. Monopoly firm has the ability to change the price because it has a market power due to being a sole provider of product. However, if even a monopolist organization increases the price output will decrease due to the decreased revenue that will occur in the result of decreased demand. The pricing decisions depends upon that how much the buyer is willing to buy or pay. For example, if electricity firm charge too high price – buyer will pay the price because of the absence of substitute - the firm marginal revenue will be greater than marginal cost and firm’s ability to produce will increase (Keat, Young & Banerjee 2011). Pricing and output decisions in a monopolistic market are similar as monopolist. Firms that operate in monopolistic competition have a downward slope in demand curve, and decision of pricing and output are similar in long and short-run. However, firm can only increase its revenue by selling its products at lower cost. Output decision depends upon manufacturing cost. Firms that operate in oligopoly have a larger number of suppliers therefore they set optimal ongoing price, and their output decision depends upon the consumer’s demand. As it has been mentioned that duopoly is a special case of oligopoly therefore, it is similar to oligopoly. However according to the Stackelberg model in duopoly, decisions are sequential the output and pricing decision depends upon the decisions of leader firm (Piros& Pinto, 2013). 3.2.1 Ways in Which Market Forces Shapes Organizational Responses Organizational responses have immense impact of organizational forces and these forces include supply, elasticity of supply, demand, elasticity of demand, consumer action, perception technology, and economics of scale. Organizational response is a reaction of a business that the organization gives to different business situations. In the case of change in demand, organization will acquire the cost leadership strategy or differentiation strategy. For example, if the demand of product decreases organization will respond to this change by applying cost leadership strategy or will acquire differentiation strategy. According to these strategies, organizations try their level best to minimize the cost of production and differentiate their products from their rivals in order to attract customers. In such way, they are able to offer the products at lower cost that provide organizations a competitive advantage. IKEA is the best example of cost leadership and differentiation strategy. IKEA is a furniture supplier; company revolutionized the furniture world by offering stylish but lower cost furniture. Assembling and delivery is not the responsibility of IKEA, customers have to collect and assemble the furniture by themselves. In such way the company get able to reduce its manufacturing and operating cost that allow company to offer prices that can attract customers (Kim & Mauborgne, 2005). Elasticity of demand is a degree in which a little change in price cause to have higher change in quantity demanded and such sort of firm, which produce products that have a higher impact of price change on the demand of the quantity, must have greater market research. Through market research, companies get to knowthat what prices are being offered by competitors. Companies try to have continuous innovation and development in their products in order to have greater profit and example of such firms is suppliers of mobile. If mobile manufacturers charge higher price of their phone as compare to its competitor, the demand of their product will decrease drastically because customers will switch to another brand. Therefore, to maintain demand company has to innovate and develop its products through market research.In order to have balanced Supply and demand, Company must have good market research that helps to ensure that company can supply the amount of products that can meet the customers’ demand. Good market research keeps customers happy, and if there is any misconception then customers can be unhappy or can be empty-handed some time and this situation is hazardous for company’s image and profit. Organizations that produce a larger amount of products have the benefit of economic of scale due to which companies have a heavy amount of finances, and they get theopportunity to invest in product development and innovation. Companies that have greater economies of scale expand their product line and make innovations in order to differentiate products such as Unilever.Companies can expand their operations by acquisitions and mergers. Price elasticity of supply involves that little increase in price cause to have a huge increase in supply, which means if the price of a product increases the supply will too because supplier will supply more to have maximum profit.The best example of this case is Coca-Cola when price of Coca-Cola increases little company starts supplying larger amount of beverage. Change in technology cause to respond organizations in an innovative way. For example, if there is a technological change in market, organization must consider it resources in order to meet that change. Change in consumer perception force organizations to have competitive marketing strategy. This response of competitive marketing strategy allows organizations to change customer’s perception through appropriate application of strategies and market research. 3.3Businesses and Cultural Environment and Organizational Behavior Unilever, an international organization, has been chosen toobserve the impact of business and cultural environment on the behavior of the organization. In order to scan the business environment, PESTEL analysis has been conducted, that will be helpful to judge the Unilever’s behavior. PESTEL Analysis Legal Environment: Unilever is an international organization that is subject to global, regional, and local rules, regulations, and law. Many areas such as product safety its claim, product patent, copyrights, trademarks, cooperate governance, environment of health and safety, taxes, foreign investment regulations, environmental regulations, intellectual property and emplacement all come under these rules and regulations. Regulatory bodies that work for businesses are US food and drug administration, USA federal trade commission, and European Union. Moreover, failure in the fulfillment of these laws and regulations can damage the company image and financial sustainability. Government of some regions have heavy raw material and import duties but Unilever maintains its operations in such way that the company successfully meets all requirements. Political Environment: Unilever’s strategy developing and emerging in markets such as South Africa, Brazil, India, Pakistan, Mexico, Turkey, and Russia.Political changes for example change in taxation, tariff and quotas, and foreign direct investment policies can have a significant impact on the operations of Unilever that are present in 180 countries (Confino, 2011). The corporate taxes around the globe are high after economic crisis.Non-stable political conditions cause to increase the uncertainty, political interference is another factor due to which many businesses postponed their businesses in China because the country has controlled policies, and government has greater control over companies operations and processes. Economic Environment: Economic environment includes factors that have an impact on buying power of consumers such as currency exchange rate, policies using homemade products rather using foreign goods, diverse taxes policies, and inflation. Unilever has to face difficulties in Vietnam and China because, in both countries, economic decisions are planned and controlled by government and company does not have freedom. Economic environment for Unilever is highly competitive and it is becoming tougher due to free trade policiesThese free trade policies have a negative impact on organization’s profitability. Consumers have a great impact of 2008 recessionary period on their spending powers that directly affected the sales (Robbins and Coulter).In certain countries like India and China the disposable income is raising that is good for Unilever. Socio-Cultural Environment: It has been observed that in past few year consumers has become environmental and health conscious specifically in developed countries. Therefore, the importance of organic products has increased. However, these preferences differ drastically with countries. Same as with personal care products increased awareness of fashion and beauty hasa huge positive effect on sale of personal care products. In different countries, there is an increasing culture to become more concern about the personal health and skin, and thus the demand of personal care products have increased. The use of such products varies with countries. For example, the use of deodorant is higher in developed countries as compared to developing countries (Wolf, 2013). Technological Environment: Unilever maintained good technological environment that pushed the affirmative image of company’s products. Technology helped company to improve quality and image of the brand. Unilever always prefers to have technological advancements that increased the design and safetyof the product, and company delivered the trusted products always.The environmental concern is increasing, such as water reduction and waste management and reduction in gas emission; this is a challenge for Unilever and to cope up with this challenge company is acquiring modern technologies (www.Unilever.com). Environmental Analysis: Unilever created an environment that is based on the respect for consumer safety and health. The company is cognizant of increasing environmental concerns. The company designed such policy through which it is ensured that all operators are having a formal management system of environment. The company has a greater focus on waste management policies. Company created such standard environment in which they utilized the practices that reduce the water consumption, gas emission. Environment friendly products show the commitment of Unilever towards environmental health andsafety (Wolf, 2013). Cultural Environment: Unilever faces cultural environment challenges at international level. Differences in perceptions and believes can lead an organization towards downfall if not recognized properly therefore it must be managed and known carefully. Understanding of cultural differences is necessary to avoid time and cost waste, and Unileveris best in understanding these differences and communicates accordingly. For example, Americans believe in charity gives organization a way to communicate in away that is more specific. Such as in Islamic countries pig made products (Peperami1) are not used and are strictly prohibited while in non-Islamic countries it is allowed (www.Unilever.co.u). Unilever is an international organization, and its products are used worldwide therefore company has to consider the different cultures (Wolf, 2013). Unilever always understands and responds to the consumers’ needs at global level, and it has a goal of putting quality and value to its products for the satisfactions of its customers. After having PESTEL analysis, Unilever will avoid the potential threats; encourage the technological advancement for cost reduction, financial, andenvironmental sustainability. Unilever can shape its new projects through the evaluation of political, legal, cultural, and environmental analysis. Understanding the culture of the country is critical for any company including Unilever to make its product successful. Company has wider understanding of its business so it will avoid un-necessary things, will recognize the opportunities, and exploit them. 4.1 International Trade and Its Importance International trade is an exchange of goods and services at global level in several economies such trading activities represent an important share of GDP. Through international trade, availability of almost all products in every country is made possible. Products that are sold to multiple countries known as exports and that are purchased called imports (Pandey, 2012).International trade plays a role of backbone and expands the selling of products at global level. Developed countries achieve the benefit of lower production cost by placing their business operations in developing countries.International trade plays an important role in economic growth and increases human welfare (Berg&Lewer2007). International trade just not has importance for United Kingdom, but it is equally important to all countries because without having international countries organizations cannot sell their products and share their talents to the world. In such modern world for a greater success, UK has to go global. UK’s economy is dependent upon international trade and believes on unrestricted and free trade. UK is master in international trade, and the main trading partner is EU. The strength of UK’S currency is cause to attract investors, and it is considered the second largest place for investments. Demand of UK products pushes the exports level but in recent years, UK faced the major trade deficit with China, Netherlands, Hong Kong, Germany, and Norway.The value of UK exports in 2012 was $4841 billion, and imports were equal to $ 648 billion. These deficits occur due to increased demand and lower manufacturing activities. United Kingdom continues to support exports of goods and services(Economy Watch, 2013; AIG, 2013). In 2013, country saw £1 million turnover in exports that was a significant growth compared to 2012 years (Economy Watch, 2013; AIG, 2013).UK believes on free trading policies and has the benefit of economic of scale from international trade. 4.2 Factors Influencing UK Companies There are numerous factors that have an immense impact on United Kingdom’s trade, which include legal, political, environmental, economic, social, and technological factors. Moreover, these factors can be analyzed by using PESTEL analysis (Dudovskiy, 2013). PESTLE Analysis on UK market Political Factors: Countries have policies according to which they have great command over organizations’’ operations and procedures leave fewer opportunities to earn. Countries having unstable political situations and threat of terrorism are not encouraging places for investors and companies try not to place their operations in such countries. Unstable political conditions have a negative impact on businesses and stable conditions responds positively. Economic Factors: Economic factors involve economic crisis, inflation, interest rates, wage increase. In countries where inflation is, high people prefer to buy lower cost products. Countries having standard living has demand of quality products that allow companies to earn greater profit. For example, sound economies must have increased demand and, therefore, increased price. In contrast, companies in operating poor economies have less demand that leads to lower price hence lower profit. Same as lower interest rates encourage companies to expand business and take risks. Socio-cultural Factors: These factors have great influence on buying pattern of consumers. Consumers’ buying patterns change is due to the structure of the population, age, gender, lifestyle, etc. Change in the family pattern also have an important impact on buying pattern, for example, American families are small and believe in individualism, therefore, sale of small cars is higher in America than other countries.Countries having greater concern for minorities mostly buy products of such companies that have a charity program, scholarships, or other programs for minorities. If organizations do not have clear understanding of social factors they will be in huge lose. Technological Factors: Technological factors have a grand impact on business activities, technological advancement allow business to adopt new technologies. Technologies facilitate organizations, and they are able to reduce the cost and manufacture innovative and developed products. Technological advancement increases the competitiveness of organizations and global presence through different modes. If companies have advanced technology, it will have a positive impact on business operations and vice versa. Legal Factors: These factors include trade free policies, tariff, and quota policies. Increased taxes enhance the cost of the product and cause to decrease the profit. For example safety laws in U.S. are much strict than other countries, therefore, things related transports must have the capability to meet those laws. Packaging and labeling policies are the part of these laws and have a significant impact on companies’ sales. Environmental Factors: Different factors including wastages, water consumption, emission of gases and chemicals can significantly affect the environment. In addition to this, consumers want to purchase products from businesses that are positively caring about the environment; therefore, it is important for the company in UK to make sure that it does not hurt the environment. International Agreements and trade barriers in UK International agreements along with trade barriers can significantly affect the business. It has already been discussed that international trade is very important for every country and not just United Kingdom. However, there are factors that could influence the international trade and some of these factors include; relations with the other country, trade barriers, foreign policy of the country, exchange rate, political factors etc. These factors could affect the business environment and how the international trade works and trade between the country works. The other important factor that could influence the international trade is the trade barrier. Therefore, the commodity or the product being traded is an important factor in defining how the market would behave. For instance, if there is only one supplier, then the supplier would take advantage of monopoly and could charge higher price. On the other hand, if there are many suppliers then the consumer can enjoy some bargaining power and thus, there would be less trade barrier. 4.2 EU Policies and Their Impact on UK Business United Kingdom relies on the policies of EU. European union has many policies regarding competition, working conditions, welfare, agriculture, technology, climate change, region, science, employment, and education. All these policies have an impact, but two policies are being discussed that have a significant impact on UK business. 1. Agricultural Policy: The agricultural policy of EU is an elaboration of a set of law, and these laws are regarding imports of agricultural product from foreign countries and domestic culture. The purpose of these policies is to increase the output of agricultural products in the domestic market. EU designed these policies to maintain price stability and product quality. Out comes include employment, use of land, and selection of product. The major objectives of such policies are to stabilize the agricultural market, ensure and secure the stability of product supplier, ensure that agricultural community has standard living, enhance the productivity of agricultural products, and reasonable provision of food to consumers.European policies place higher environmental standards for agricultural production. Great increase has been encountered in UK business, and these policies encouraged the UK business to have developed culture and encourage tendency of UK economy. These policies are cost effective and great support for small businesses that are operating in the agricultural sector. Through the policies, the environment has been made more competitive and sustainable; therefore, working in EU is a challenge, for UK organizations (Patton, Feng & David 2013). 2. Fisheries Policy: Fisheries policy is also an important policy and has impact on UK businesses that are involved in fisheries products.This policy was introduced in 1983. Fishery policy is used as an instrument for agricultural and fisheries management. Through thesepolicies, equal access member States’ water was provided to fishermen. Fisheries policy also ensures that fishing activities have sustainable development from social, economic, and environmental point of view. The purpose of structural policies is to support the boat modernization. The purpose of such policies is to protect fishermen from the unexpected change of market, set a minimum fish price so consumer can buy at optimal cost, setting rules with non- European union countries, and setting the regulations regarding labeling, packaging, production, quality and grading.Through these policies, UK got adequate opportunities of fishing in the North Sea (Politics.co.uk., 2014) References: AIG. (2013). 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(2013).Unilever Case Study. GRIN Verlag: Norderstedt Germany Read More