The Business Markets and the Economy - Coursework Example

Unit 41: The Business Markets and the Economy P1. Investigate the types of Business Organisation A business organization is an individual or group ofpeople that collaborate to achieve certain commercial goals. Some business organizations are formed to earn profit for the owners. But some business organizations are called nonprofit, and they are formed for public purposes which often provide certain services to support public programs. Sole Trader A Sole Trader is a type of business entity which is owned and run by one individual and where there is no legal distinction between the owner and the business. It has unlimited liability, which means if the company is in debt or obligation it will extend beyond the investment of the business’s owner to their personal asset. Partnership Partnership is a type of business entity which is owned and run by two or more individuals, with their personal skills, resources, and money. Also, they share the profit and loss in accordance with stated terms of the partnership agreement. It has limited liability, therefore means if the accompany is in debt or obligation, the shareholders will not be liable for any debts of the company, other than for the value of their investment in that company. Private Limited Company A Private Limited Company, also known as the LTD is a type of business entity which offers limited liability for its shareholders. Therefore if the company is in debt, it will only cost it’s investment to pay off the debt and the shareholders will not be liable for any obligation. Public Limited Company A Public Limited Company, also known as the PLC is a type of business entity which offers their stock to be able to buy and sell by anyone on a stock exchange. It has unlimited liability, therefore means if the company is in debt or obligation, the shareholders will be liable for the debt and it will extend beyond the investment of the business’s owner to their personal asset. Example of a Public sector Company (Apple Inc.) Apple Inc. is an American multinational cooperation that designs, develop, and sells consumers electronics. It belongs to the public sector and is driven by profit from the electronic items that they sell to the public. Apple also consists of a large number of shareholders worldwide, who invest a large amount of money from which they expect a profit. The main attraction to Apple and the way it leads to its success is that they are able to allocate the trend of people’s needs in this modern world, and being able to refurbish existing items such as an ordinary mobile phone into a brand new smart phone with niche function (IPhone). Throughout their development on their products, they have successfully created a niche market of their own and outrun their existing opponents. But on the other hand, some business entity is state owned and is not aiming for profit, but instead providing services for social needs such as the National Health Service (NHS). P2: Explain how organizations meet their objectives Meeting the objectives is one vital function of any business organization, be it a profitable venture or a non-profitable venture. Every business organization has goals and objectives that are constantly changing with the economic conditions, government policies and market trends. For a business organization, objectives are the set goals that need to be achieved over a specific period of time. The existence of objectives is imperative for every company since it motivates the employees and the management to work efficiently to fulfill the set goals and objectives in the given period of time. Although objectives can vary with different organizations, there are however four basic goals that an organization focuses on like survival in the growing competitive market, enhancing profits through increased sales and reduced production costs, growth and expansion, and capturing increasing share of the national and international markets. Since most organizations essentially seek profits therefore making maximum profit becomes the most important objective of the owners. However, there are some organizations like the charitable organizations whose principle purpose is to provide service to people. In the beginning of any business, an organization has no goodwill in the market nor does it have loyal customers. Therefore, in the initial stage the key objective remains survival which can be achieved through good marketing and promotional strategies. With the growth of the business, profit making becomes the most important objective. In most organizations, it is the owners who decide what the objectives should be for a given period; however there are other stakeholders who can also give their views and opinions. Stakeholders are any group of people who have interest in the activities of the business organization which can be managers, employees, suppliers and customers. When a stakeholder’s interest is considered then it is known as stakeholder consideration like owners giving up part of their profits to pay bonus to the employees in order to motivate them to focus harder towards fulfilling the objectives of the concerned organization (BBC, 2014). The objectives of a business organization are subjected to change for both internal reasons, like business expansion, and external reasons, such as economic depression. When a profitable business gets negatively affected by economic depression like decreasing sales, it may change its goal from profit maximization goal to survival as it may become difficult to maintain the same level of output. Organizational objectives and missions are some of the vital aspects of managerial issues today. With concrete and well-defined goals, managers can rightfully execute business activities in a purposeful manner. Basically, objectives of an organization act as target for managers based on which they acquire and utilize resources to reach a desired level of output. Fulfillment of organizational objectives is a key step towards accomplishment of the missions of the organization. In any organization, irrespective of whether it is a profitable venture or not, there should be a proper structure and effective strategies. Within a proper structure, the daily activities of an organization can be smoothly executed. It is how an organization efficiently coordinates human resources and technology. An efficient organizational structure indicates good strategies, effective communication channels, sound policies and other factors. If all these elements are not properly coordinated then there will be lack of coordination and motivation among the staff resulting in non-accomplishment of the organization’s goals and objectives. Such failures indicate that the management body of the organization is not a strong one. The main objective of Apple is to develop communication and media devices so as to cater customers across the globe and thus maximize profit. Its immense success in the world of communication and media technology can be attributed to its commitment to customer satisfaction as well as unique quality of its products. There is proper coordination between the managerial body and the employees and there is always eagerness to recognize new ideas and implement them as efficiently as possible. The NHS has three key objectives – providing free highest quality healthcare services, fulfilling the needs of all people, and providing services based on health requirements than on the capacity to pay (“Principles and Values that guide the NHS”). The NHS uses various strategies to fulfill its core objectives. Its services are patient-based which means the illness of each individual is considered and NHS encourages patients to make own decisions regarding their healthcare and at the same times provides information to their families and carers. NHS uses staff-based approach by enabling the staff to sharpen their skills through experience and involvement with patient care. Finally, NHS has a system-based approach. It uses simple policies to maintain “appropriate balance between performance management and continuous improvement” (“The Healthcare quality strategy for NHS Scotland”). P3. Outline the characteristics of the economy in the UK The UK economy had suffered badly during the two world wars. However, the country has walked the path of recovery in subsequent decades although the former glory is yet to be reclaimed. In 2012, UK was the 6th largest economy in the world according to gross domestic product (GDP). Also, as a member country of the European Union (EU), UK is “part of single market that ensures the free movement of people, goods, services, and capital within member states” (“UK economic structure”). However, UK has its distinct economy as it uses its own national currency (Pound Sterling) and has not converted to Euro. Service Sector dominates the UK Economy as is reflected in its statistical data. The country’s industrial sector excluding manufacturing industry has experienced a sharp decline in just ten years from 23.4 percent in 1998 to only 17.6 percent in 2008. On the other hand, in 2008 the service sector had a share of 75.4 percent in the total GVA (gross value added). Moreover, UK’s business structure is mainly composed of small firms with 10 to 49 employees and micro firms with less than ten employees (Ortiz, 340-341). P4. Role of the government There are many existing government policies that are restricting the business market; these policies have been set in order to protect both the buyers and sellers. Governments set up rules and policies that enable organizations to exist in a competitive market. In UK, the tax system is simple and transparent so as to encourage international business. The tax policies are compatible with “global trading world” and “modern business practice”. Currently, the UK corporate tax is set at 23 percent and it has been predicted that it will be lowered by further 20 percent by 2015 (“A Guide to UK Taxation”, 1). The UK government plays an important role in enhancing employment. For instance, the current government has focused on enhancing the efficiency level of business so that UK businesses can become more competitive in the global market. This will increase employment opportunities. In order to help those people who are in search of jobs, the government has launched ‘The New Deal’ which enables young people to become trained and experienced through programs that are funded by the government. Also, the UK government ensures that sudden surges of prices do not occur. For this purpose, the Monetary Policy Committee (MPC) of the Bank of England monitors the interest rates. When there is increased borrowing and spending, the interest rates are increased which in turn causes swelling of prices. Increased interest rate reduces the borrowing capacity of both businesses and consumers, and therefore decreases the spending capacity. When people have less money to spend, the prices drop (“Government and EU influences on business activity”). When price level is not high, Apple becomes reluctant to increase the price of its products for the purpose of attracting more customers. Apple being a big corporation with various business activities, it is highly influenced by fluctuations in the GDP of UK. During the economic crisis, when GDP declined in the UK, there was drop in the sales of Apple products because the average income level of UK people was very low. However, in subsequent years UK’s GDP increased resulting in growing sales of Apple products. P5. Explain different types of market structure Market structure refers to “the number of firms in the market, their market shares, and other features which affect the level of competition in the market” (“Competition and market structures”). In a perfectly competitive market, there exists many small firms. Since the number of buyers and sellers is high therefore impact of an individual seller’s decision hardly makes any impact on the price. Also in this type of market, product sold by different firms is identical like a particular brand product. Different brands of same product do not form perfect competition. Since products are identical, therefore firms have no added advantage of winning consumer preference and therefore competition remains high. Moreover, the entry and exit of firms in the industry remain free with no barriers. Because of identical products, all firms remain informed about the price charged by each supplier (Baumol & Blinder, 200). In a monopoly market, there exists only a single firm with no substitute products available. In this market, it is difficult for new firms to enter and survive. In absence of substitutes the monopoly firm can charge high price for its product depending on the product’s demand elasticity. In UK, a firm is said to be monopoly if it enjoys more than 25 percent of the market share (Motta, 12). An oligopoly market which is the most common form of market structure is dominated by a few firms like the car industry or supermarkets. The price of each firm’s products is dependent on how other firms set their price and output. There are entry barriers of new firms although the barriers are less than monopoly. Since products differ in features and quality therefore advertisements play a big role for a firm’s survival and success (Baumol & Blinder, 240). In the smartphone market, Apple Inc. is an oligopoly since others brands of smartphones exist in the UK like Samsung and HTC. P6. How business markets are regulated in the UK Since UK has a free market system, the government adopts the approach to ensure that market conditions are capable of making efficient use of scarce resources, and the price mechanism is controlled by demand and supply forces. In a competitive market, there is tendency in the market for enhanced resource allocation and production level. In cases where market fails to perform, the government intervenes. Government can intervene in many ways for regulating business activities. There can be government laws that affect production of certain products like cigarette smoking and alcohol consumption can be legally banned for underage people. Also, government can fix the minimum wage for workers. The UK government passed the Equal Pay Act in 1970 to prohibit wage difference based on gender discrimination. According to this Act, men and women deserve to be paid equal wages provides they are doing similar kinds of work. Within the next five years, different pay scales for men and women were eliminated so that women’s pay rates were integrated with men’s pay rates. However, this Act has been subjected to criticisms since the working conditions of men and women very often vary which makes equal pay scales not viable. To justify this, “equal pay for equal work” has been replaced by “equal pay for work of equal value”. In 1975, the Sex Discrimination Act was passed according to which women should be given equal treatment in workplaces like men with regard to “hiring, promotion opportunities, job transfer, provision of training, and dismissal procedures” (Connolly & Gregory, 150). Currently, the UK government is emphasizing on “creating new policies in response to the recession that will enable the economy to grow sustainably” (Steppler & Way). The government has introduced a new tax relief on 6th April 2014 for those investors who are putting their money on social enterprises. The objective is to stimulate the growth of social service sector. Individual who make investments in the service sector like the NHS, can demand income tax relief which is equal to the percentage of the amount invested. In cases where individuals invest their capital profits in any social venture within three years of the profit earned, they can claim tax deferral relief in respect of the gains. Moreover, if the investments are made for three or more years, then any revenue from the investments will be exempted from tax (Steppler & Way). Since healthcare sector is included in this, therefore this policy can largely benefit NHS. With increasing investment, the organization can provide better quality healthcare to all the needy people. P7. Explain how EU requirements influence business markets in the UK EU regulations have a strong impact in the UK business markets. EU promotes equal treatment of employees in the workplace. It also has laws to protect the rights of employees so that they cannot be exploited. EU encourages a democratic framework in industries which means workers should be allowed to participate in making decisions. The common currency has influenced UK businesses in many ways. UK firms are required to meet “common standards of quality and safety” (Floyd, 11). Free trade system induces the UK firms to make efficient use of labor and resources to maintain competitiveness in the European market. Since labor and goods can be freely transferred between the EU member countries, therefore skilled workers can be easily available. The current economic situation in Europe has put a dent in the consumption level for all kinds of products including Apple iPhone and iPad devices. Other than this, Apple is facing challenge from Android devices which have lower price than Apple devices (Lunden). In the context of healthcare sector, the EU does not make significant policies but the UK healthcare sector gets mostly influenced by other policies in relation to free market. For national governments, healthcare policies remain a matter of great significance and therefore most countries do not like EU’s interference with national health policies. In response to the reluctance of member countries, the EU confines its role in enhancing cooperation between member countries and also provides help to healthcare sector of the countries if the need arises. The EU allows investments to maintain healthcare projects on the European level but has refrained from attempting to synchronize national health policies of the member countries (Duncan, 1027). Although the EU is not permitted to interfere in the rights of member states to run their individual health policies, it is nevertheless true that two EU laws exist that have a major impact on British medicine – the doctors’ directive which allows “free movement of workers and professional people” between member countries, and working time directive which dictates the “minimum rights for workers”. This law indicates that no worker can work for more than 48 hours a week, and has also prescribed minimum hours for resting (Duncan, 1028). M1: Compare the methods used to achieve objectives Apple Inc. is a profit making organization as opposed to NHS which is a healthcare service sector that aims to provide free health service to all people who need medical help. Therefore, Apple focuses on enhancing the sales of its products for maximization of profit. For this purpose, it recruits skilled salespersons who can effectively make consumers aware of the value of Apple products. The company also concentrates on expanding its retail and online stores as well as third-party distribution networks to establish relation with wider range of customers. The retail stores are situated in places where large number of customers can gather to get the experiences of high quality sales and post-sales service (Apple Annual Report 2013, 1). Apple focuses on establishing its brand image that indicates simplicity and user friendly devices so that people can easily use the products. Apple brand image can create trust in the minds of potential customers regarding quality, thus encouraging them to buy Apple products. In order to convey the value of its products to a wider consumer base, Apple focuses on making simple commercials with attractive music in the background. The NHS being a non-profitable organization focuses more on delivering quality healthcare service to all people. The emphasis is more on delivery than promotion through advertisements. It regularly updates its policies or makes new policies according to the changing medical needs in UK. M2. Explain how equilibrium is established in different types of market Equilibrium in a market is achieved when the marginal cost (MC) becomes equal to the marginal revenue (MR). This same condition is applied in a monopoly market. In a monopoly market, the single existing firm can enjoy equilibrium if it can maximize profit by selling its product. The goal is to produce products with quality that will bring maximum profit. When the products can be sold at high price, then there remains no incentive to enhance its quality or change the price. In the short run, the monopoly firm can suffer from economic loss and decision needs to be taken to close the business or continue. Unlike a perfectly competitive market where new firms can enter thereby increasing production and reducing the price, in a monopoly market it is difficult for new firms to enter. Therefore, there are no external factors that can eliminate monopoly profit which means “monopolies may earn economic profit in the long run” (Hall & Leiberman, 300). For any competitive firm, the optimum quantity of output is unique compared to other firms. The optimum output is determined by various factors like profit structure, price of products, production costs and production management. Every firm in a perfectly competitive market needs to sell its product at the market price since all firms will produce similar products. Any firm attempting to sell products above the market price will not be profitable since consumers can opt for same products at lower price. Similarly, it will not be logical to sell products below the market price since that will mean unnecessary sacrifice of profit. Therefore, since a competitive firm has no control over market price, it has to decide optimum production level after considering the cost of production and revenue from sales. Optimum level is achieved when marginal revenue becomes equal to marginal cost, since each extra unit sold will bring revenue equal to market price. This means further production cannot increase profit (Besanko et al., 2009, p.30). M3. Explain why the government needs to regulate business markets Governments make policies that influence the business markets in order to ensure that resources are efficiently allocated, and they are subjected to optimum utilization to derive maximum benefits. Increasing monopoly can lead to price cartels, difficulty for new firms to develop and limited development of the infrastructure. Government intervention can discourage monopoly and through proper taxations can enhance investments in non-profitable ventures like research and development, healthcare sector etc. D1: Analyse the performance of a selected business against its stated objectives In order to gain maximum profit, pricing strategy is very important for any organization. Since the customer base of Apple products is mainly the youth, therefore the company’s aim is to target the mainstream users as only in this way the initial success of a product launch can be sustained for long term. For this purpose, the company uses pricing strategies like skimming and versioning (Rao & Klein, 59). In skimming strategy, price for new products are set high to capture early customers who are less sensitive about the price. In this way maximum profit can be earned from this group of customers. Later, the price is reduced so as to capture those customers who are more price-sensitive (Rao, 170). Since Apple products are subjected to high demand elasticity therefore in the long run products get more demand if the price is reduced. In versioning strategy, those customers are targeted who are willing to pay high price for “marginal improvements in attributes, features and benefits” (Smith, 195). For instance, wealthy customers can buy latest versions of Apple products while less wealthy customers can buy the previous versions at lower price. D2. Evaluate the effectiveness of the EU in UK economy As member of the EU, the UK is part of an economic system which is larger than USA and Japan combined. The presence of single market system enables transfer of goods and services to other EU member countries without having to pay tariffs. Moreover, this system includes common trade laws and so UK does not have to worry about abiding by different trade policies of the member countries. Such facilities allow UK to enjoy the benefits of large exports to other EU countries which accounts for 51 percent of total export value of UK compared to just 13 percent to USA. It has been estimated that between 1992, when single market was created, and 2006 the GDP of EU has increased by 2.2 percent (€233 billion), and such increase has been reflected in UK where GDP increase has been £25 billion in the same period. Also, another significant advantage of being an EU member is that UK receives a large share of global FDI. For instance, UK ranked fifth position as recipient of FDI in 2009. Free movement of labour has enabled UK business sector to get high skilled labour to compensate skill shortages in the country (“The Economic Benefits to the UK of EU Membership”, 2011). References “A Guide to UK Taxation”, 2013, July 30, 2014 from: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/183408/A_guide_to_UK_taxation.pdf Baumol, William J. & Blinder, Alan S. Microeconomics: Principles and Policy, 12th ed, Cengage Learning, 2011 BBC. “Business studies: Aims and objectives”, BBC, 2014, July 29, 2014 from: http://www.bbc.co.uk/schools/gcsebitesize/business/aims/partnershiprev1.shtml Besanko, David. et al. Economics of Strategy, John Wiley & Sons, 2009 “Competition and market structures”, 2014, July 29, 2014 from: http://www.economicsonline.co.uk/Business_economics/Competition_and_market_structures.html Connolly, Sara & Gregory, Mary. “Women and work since 1970.” 142-177. 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