Business Environment - Case Study Example

Business Environment Table of Contents Introduction 3 PEST Analysis 4 Political Environment 4 Economic Environment 5 Summary 9 Conclusion 11 References 12 Bibliography 15 Introduction Electricity can be stated as the integral part of one’s daily life. For instance, on one hand, electricity is utilised in simple household activities and it is also used by the large as well as small manufacturing industries for the purpose of their operations and productions. Its growing importance in the social context has given birth to a unique industry focused on electricity production, supply, and consumption. After the Second World War, UK has been observed to have approx 560 electricity suppliers. Among the 560 suppliers, around one third of the companies in the industry were considered to be privately owned. In this century, it can be observed that the electrical industry of UK has developed tremendously. It is observed that UK electric power industry is concentrated towards resources and technology to a large extent (Simmonds, 2002). The political, social, economical and technological (PEST) factors have a very important role to play, as these help to determine how an industry is likely to react following changes in the external business environment. This paper is intended to conduct a PEST analysis of the electric power industry in business environment of UK. PEST Analysis PEST analysis stands for ‘Political’, ‘Economic’, ‘Social’ and ‘Technological’ which is popularly used as a model for analysing macro-economic factors. Furthermore, this helps in scanning the environment of the industry in which an organisation is operating its business (Fullen & Podmoroff, 2006). Political Environment Political environment is very important for the industry to establish and operate its business. The various reforms and policies introduced by the government of the nation have direct as well as indirect influence on an organisation operating within the UK electric power industry. For instance, the proposals related to reforming the electricity market was announced by the Department of Energy and Climate Change (DECC) in the year 2010 with an intention to include larger amount of ‘low carbon and renewable energy’ strategy. As per the policy introduced by the government, many corporations that are dealing in this industry ought to face challenges in their business operations. It is due to the fact that the imposition of this policy is likely to be reframed and restructured causing hazards in almost every facet of the industry (Renewable Energy Focus, 2010). The political environment of the UK is observed to be highly fluctuating in the current scenario. With due consideration to the above policy reform, it can be stated that political environment has a direct and strong impact on the industry operations of UK electric power sector. It has been noticed that over the past two decades, the government of the UK has focused on privatisation to a large extent. The government is also effectively involved with the growth of the public related welfare programmes which is likely to have both direct and indirect impact on the industry structure influencing its production function as well as the social trend (Central Intelligence Agency, 2011). Economic Environment In the year of 2008, the emergence of the global economic crisis hampered the economy of the UK to a large extent. With this concern, the emergence of the global economy created the need for the government to introduce certain rules and regulations to provide relief to the citizens which also included the facility of electricity supply as per the daily requirement. This adversely affected the prices of the components in the market, especially decreasing the prices in the real estate (Central Intelligence Agency, 2011). Although, this did not have any direct impact on the industry, however, the influence of this policy was quite strong in the real estate sector which again created an impact on the UK electric power industry. The emergence of recession provoked the government to introduce certain measures, with an intention, to make the economy of the nation stable. This attempt was also made by the government to stabilise the financial system of the UK. The measures were involved with reducing the taxes and nationalising some parts involved with banking sectors among others. These all newly introduced measures also affected the electrical industry indirectly (Central Intelligence Agency, 2011). As electricity is being used in the daily activities of society and industries, with the developed economy, the consumption average of the electricity also is likely to increase. In addition to it, the decreased taxes imposed in the organisations have also helped the industries of UK to invest more and produce in larger quantity. Here, it is worth mentioning that electricity is ought to be used in the process of production in almost every operation of the factories and industries as well as households (The Economist, 2010). Social Environment The government is also actively involved in social issues and to protect the environment, it has taken many necessary steps following the shift in the social trends. For instance, global warming has tended to be among the major international issues. UK government is observed to be highly involved with reduction in emissions of greenhouse gas with an intention to lessen or slow down the impact of global warming for social benefits. As an initiative, the government of UK has introduced legislation which was targeted towards reducing carbon emission. The adequate implementation of the legislation required the suppliers of electricity to generate the specified proportion (supplies) from the renewable sources. This legislation was introduced with two motives, first as mentioned earlier, to reduce emissions of greenhouse gases and, second, to save the natural resources focused on the social demand (KeyNote, 2010). Moreover, the consumption of electricity also increased due to population hikes in the recent past. One of the significant reasons for increase in the production was the increased rate of migrations in the country. To be mentioned, the population of UK is observed to be about 63 millions as was recorded in the mid of the year 2011. The migration rate in UK can be observed to be increasing tremendously, adding the extra numbers to the population. Hence, along with the increase in the population, the consumption of the electricity is also quite likely to increase (Central Intelligence Agency, 2011). It has been observed in this sector that most of the UK companies dealing with coal fired power stations are ought to stop their operations by the year 2015 in order to comply with the introduced emission legislation following the increasing awareness amid the society regarding harmful green house gas emissions. This too is considered to have major impact in the functioning of the electric power stations as it has been observed that many related companies utilise coal fired stations in order to generate electricity as it is considered to be one of the major sources used for generation of electricity (KeyNote, 2010). The population growth can be apparently observed from the diagram below. Source: (Office for National Statistics, 2011) Technological Environment Alongside, as an effect of globalisation, the demand of the technology has also increased. The UK has itself introduced numerous technologies that are appreciated by the entire world because of its less harmful effects and greater power generating abilities. With due consideration to the operations of the electric power industry, technology can be stated as an inseparable part. To be more precise, innovation and incorporating new technology is quite necessary for the electric power industry. UK can be observed to have remarkable progress in the terms of technology. The industry is also been observed to incorporate technologies in the operations such as electric generation or electric supply, facilitating the user with better electric supply (Electricity-Guided, 2011). Government of UK has adopted adequate research and development strategies with respect to the advancement of the technologies involved in this industry. It is in this context that innovation has emerged to be one of the main tactics for the industry to flourish further. As an effect of globalisation, the demand of technology has changed vigorously causing an increase in the demand of the technology in the UK electric power industry. It is quite evident that the electric power industry is technology oriented in nature. Previously, it has been observed that many companies related to electric power industry were generating electricity through the help of coal fire but with the introduction of social awareness and government reforms to reduce emission of carbon, the industry is accommodating many technologies such as wind turbine and solar system. These new introduced technologies have proved to be very effective in development of the electric power industry. As the cost involved in developing these technologies is much lesser than the coal fire technology, it is also being adopted widely by the companies involved in the electric power sector of UK economy. Moreover, this too supports the policies introduced by the government (Electricity-Guided, 2011). Summary PEST analysis is considered to be one of the important tools used for determining the political, economical, social and technological environment of the industry. The electric power industry of UK is highly influenced by political as well as economic conditions of the UK. Social environment do have a major role to play in the growth of the industry. Furthermore, technological development is observed to be very necessary for the industry to flourish. The demand for the electricity is huge in the UK as a result of rapidly increasing population. The impact of depression in the economy of the UK is observed to have influenced the living standards as well as the industrialisation in the electric power generating sector. Therefore, with the declination in GDP rate of the UK economy in turn caused the income and consumption power of the citizens to decrease which again created a constraint for the electric power industry. This intended the government of UK to take initiatives to upgrade the standard of life in the economy. Reduction in the taxes and low loan rates among others, are the initiatives taken by the government which in turn played a vital role in boosting the power consumption to a large extent. The government policies have undoubtedly affected the electric power industry significantly. Due to low rate of interests on loan as well as reduction in taxes, the purchases of houses and other luxurious goods such as iPods were in demand which caused direct increase in the consumption of the electricity. Population of the UK was also observed to be growing rapidly and increasing day by day providing the industry with adequate number of labours as well. But due to the emergence of the constraint in terms of global warming, certain policies introduced by the government can have direct effect on the operations of the industry. It is worth mentioning here that most of the companies dealing in this industry are highly dependent in coal fire stations. Conclusion Electric power industry is considered to be one of the major industries which are highly responsible for contribution in the GDP of UK economy. Electricity plays major role in the daily activities of individuals and also in the manufacturing sector along with other corporate or industrial sectors as almost every industry operating in UK uses electricity for their operations. The recession caused the government to introduce certain policies which helped in upgrading the economy as well as increasing the utilisation of electricity. The business of the electric power industry declined because of the recession in the economy which adversely affected the industry witnessing a direct impact of the economic fluctuation. However, certain measures were introduced by the government to stimulate the economic growth. The companies involved in the electric power industry need to seek various markets in order to diversify such risks associated with economic fluctuations taking lessons from the recession faced by the economy of UK. With the effect of globalisation, various new markets have further been introduced which are attracting the attention of various sectors belonging to different regions within the economy. References Central Intelligence Agency, 2011. Economy-Overview. The World Factbook. [Online] Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html [Accessed December 06, 2011]. Central Intelligence Agency, 2011. People and Society. The World Factbook. [Online] Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html [Accessed December 06, 2011]. Electricity-Guided, 2011. How Are The Gas And Electricity Industries Regulated? Industry Regulators. Available at: http://www.electricity-guide.org.uk/regulators.html [Accessed December 06, 2011]. Fullen, S. L. & Podmoroff, D., 2006. How to Write a Great Business Plan for Your Small Business in 60 Minutes or Less. Atlantic Publishing Company. KeyNote, 2010. Executive Summary. Energy Industry Market Review. [Online] Available at: http://www.keynote.co.uk/market-intelligence/view/product/10351/energy industry/chapter/1/executive-summary [Accessed December 06, 2011]. Moselle, B. & Et. Al., 2010. Harnessing Renewable Energy in Electric Power Systems: Theory, Practice, Policy. Earthscan. Office for National Statistics, 2011. Second Estimate of Gross Domestic Product. 3rd Quarter 2011. [Online] Available at: http://www.ons.gov.uk/ons/rel/naa2/second-estimate-of-gdp/q3-2011/stb---second-estimate-of-gdp-q3-2011.html#tab-Key-Data--Q3-2011- [Accessed December 06, 2011]. Office for National Statistics, 2011. UK population projected to reach 70 million by mid-2027. Home. [Online] Available at: http://www.ons.gov.uk/ons/dcp171780_240701.pdf [Accessed December 06, 2011]. Renewable Energy Focus, 2010. UK Electricity Market Reform Announced. News. [Online] Available at: http://www.renewableenergyfocus.com/view/14722/uk-electricity-market-reform-announced/ [Accessed December 06, 2011]. Simmonds, G., 2002. Regulation of Tithe UK Electricity Industry. Industry Brief. [Online] Available at: http://www.bath.ac.uk/management/cri/pubpdf/Industry_Briefs/Electricity_Gillian_Simmonds.pdf [Accessed December 06, 2011]. The Economist, 2010. UK Economic Conditions. World Economy. [Online] Available at: http://www.economywatch.com/economic-conditions/uk.html [Accessed December 06, 2011]. Bibliography Henry, A., 2008. Understanding Strategic Management. Oxford University Press. Read More