Role of Competition Commission in the UK - Essay Example

Part 1. The Basic Economic Problem The basic economic problem is that there is scar or the resources are finite in nature and will not sufficient for human beings to satisfy all their needs. This therefore requires that how the resources should be allocated and what factors of production are to be applied in order to satisfy all wants in most optimal manner. An economic system provides the necessary tools to allocate those resources in most optimal manner. It outlines the methods and possibilities through which this fundamental problem can be solved. 2. Imperfect Competition In a world where more than two sellers and buyers actually fail to match the conditions of the perfect economic system, an imperfect economic system emerges. Where perfect economic system fails to exist or could not be implemented, new market structures started to emerge which signifies the imperfect competition in the market. One way through which real life deal with this problem is to have a monopolistic market structure where large number of small sellers each having a certain degree of influence on the supply side of the market. Oligopoly is another market structure which deviates from the perfect model. If oligopoly exists in real life, it means that there are few but larger number of sellers which are controlling the market. Real life economy may also differ from perfect market conditions where there is only seller in the market and many buyers. This one seller controls the overall supply side of the market and remains the only supplier. 3. Role of Competition Commission in UK The major purpose of Competition Commission in UK is to ensure that a healthy competition exists between companies within the country for the ultimate benefit of the consumers as well as the economy. It conducts detailed investigation of the mergers as well as different markets besides evaluating other regulated industries.( Competition-commission.org.uk 2002)  It is important to note that Commission does not initiate an inquiry on its own however; the matters are being referred to by other authorities. On the reference from other authorities, commission therefore undertakes to perform the in-depth reviews and investigation of the proposed mergers and acquisitions. This is done in order to ensure that monopoly of the firms is not established in the economy and a fair chance is given to everyone to compete on fair terms with each other. 4. International Trade and Impact of same on UK’s Economy International trade is based upon the notion of comparative advantage in which each economy has a comparative advantage over other countries. It is suggested that not all countries are good at producing goods and services with same level of efficiency therefore they need to import those goods and services because producing them domestically will be more costly. Similarly, countries export those goods and services which they produce at low costs. International trade therefore helps the economies to better allocate their resources and achieve better efficiency. UK Government responds to the impact of global economy on UK by making certain policy initiatives. It is part of the European Union which is also the largest trading bloc in the world. By managing the trade barriers as well as taking on other efforts, UK government ensures that local industry is protected while at the same time it also exports to the global markets what it produces best at the minimum cost. UK government has also allowed concessions in terms of tariff and other facilities to EU member States while it has also made trade agreements with other countries. 5. Should UK Join EMU? Economic and Monetary Union is an effort by the European countries to converge the economies of member States at three stages. UK and Denmark have specifically not yet joined EMU at its third stage. At the start of the creation of EU, UK refused to accept Euro as its currency and still have not joined EMU. (Davies ,2012)  One of the key arguments in favor of joining EMU is based upon the assumption that one currency will be a natural step towards the one EU market. It will be therefore a first step to ensure that a unified single market is created. Joining EMU therefore will increase the overall competitiveness of the UK economy and will bring it in direct competition with other players in EU to compete with. Joining EMU will also remove the isolation of UK within EU and will give it better role in EU politics also. UK therefore should join EMU in order to improve its competitiveness.( Mandelson, 2012)  Part-2 Response to Domestic and International Challenges Primark is one of the leading retail chains of clothing items in UK and also operates at the global level. It has been able to meet the domestic as well as international challenges by becoming more efficient. Primark is known for its low prices and throughout the economic crisis it has been able to effectively respond to the situation by improving its supply chain management practices which have further resulted into reduction in prices. By controlling its costs, Primark has been able to keep its prices low and hence effectively responded to the challenges in the global as well as domestic markets.( The Telegraph, 2012) Primark has also been able to open new stores in various locations to increase its penetration into the existing markets. New stores have resulted into increase in the revenue and profitability of the firm. (Goodway, 2012) Impact of Change in Policies One of the policy changes made by the UK government in recent past has been the increase in value added tax on the goods and services. (BBC News 2011) . VAT increased from 17.5% to 20% however Primark maintained its current price levels and took the hit of increase in VAT on itself. A higher VAT means an increase in price which could reduce the overall demand for the products of Primark. In order to maintain the current levels of demand, Primark therefore attempted to take the impact of this rise in VAT and did not rise its prices proportionately. Apart from this, there has been reduction in the government support to the individuals which has decreased the disposable income of the consumers. A reduction in the disposable income of consumers reduces the purchasing power of the consumers. A reduction in the purchasing power therefore adversely affects the overall aggregate demand for goods and services in the economy. However, Primark has been able to withstand these challenges by being more competitive and it has further penetrated into existing market through ethical and better conduct of its business. Impact of EU Policies One of the policies of EU is related with the carbon emission and how organizations should actually play their part in reducing the overall carbon footprints. Primark has set into motion its strategy to reduce its UK Carbon emission by 10% by the end of 2013. The reduction in the carbon emission means firm has to put in place effective infrastructure to reduce the carbon emission. What is however, important to note that this may increase the overall cost of doing the business which has a direct impact on the profitability of the firm. (Primark-ethicaltrading.co.uk) Businesses incorporated in EU are also facing relatively less or no obstacles to operate from any part of EU. This is one of the favorable policies of EU to allow free movement of capital and labor across EU. This has allowed Primark to expand itself into new markets besides finding new sources of cheap labor and material within EU Zone. This policy can have maximum positive impact on the firm as it reduces duties and taxes for the firm resulting into higher level of profitability. Key Stakeholders of Primark One of the key stakeholders of Primark is its shareholders which are the owners of the firm also. Though this is one of the most important group of stakeholders with strong power and influence over Primark however, Primark also gives due importance to other stakeholder groups also. Shareholders are always concerned about an increase in their wealth and it is also one of the dominating values of this stakeholders group also. However, Primark has been focusing on generating more value for its shareholders by generating more profitability and revenue.( Woodard, 2012)  Its profits have increased during recent time as it was able to open more stores and further penetrated into its existing as well as new markets. Another important stakeholder group of Primark is its customers and firm has been able to offer them low cost and high quality products. Besides, Primark has an excellent track record in terms of managing its business ethically. It has therefore been able to address to differing values of its customers by offering them low priced and ethically sourced products. Another important stakeholders group of the firm is its employees. It has 36000 employees serving at more than 250 locations across the world. Primark offers a clean and diverse work environment to work with and also compensates its employees well. Various compensations offered to employees based on performance serve as the stronger motivation for employees to work hard and perform effectively. Primark also offers other facilities such as employee discounts, insurances, retirement contribution etc.( Primark.co.uk 2012)  All three stakeholders group of Primark are served according to their needs and influence on the firm. Most importantly, Primark has been focused on serving its customers well by offering them low priced fashion clothing items. Responsibilities of Organization to Shareholders One of the key responsibilities of an organization towards its shareholders is to maximize the shareholders wealth. This is achieved through the increase in the value of the shares of the firm which invariably depends upon how well the firm manages its affairs to remain profitable in the long run. Primark is the subsidiary of British Food Processing Company ABF and it is also its major shareholder. Over the period of time, Primark has been able to increase its revenue as well as profitability to generate more value for its shareholders. Primark has been able to increase its profitability by opening up new stores in different locations. AB Foods is a FTSE 100 Company and witnessed a rise in its revenue as well as profitability recently. Its collective revenues have increased to £12.3 billion from £11.7 billion and similarly its profitability has increased too. (Lynch, 2012) . The major reason for increase in the revenue has been due to the opening of new stores of Primark and the revenue and profitability they contributed to the overall revenue and profit of the firm. It can therefore easily be assessed that Primark has been able to successful fulfill its responsibilities towards its shareholders. References 1. BBC News (2011) VAT rate rises from 17.5% to 20%. [online] Available at: http://www.bbc.co.uk/news/business-12099638 [Accessed: 18 Dec 2012]. 2. Competition-commission.org.uk (2002) About us | Competition Commission. [online] Available at: http://www.competition-commission.org.uk/about-us [Accessed: 18 Dec 2012]. 3. Davies , G. (2012) UK will join EMU but only when time is right. [online] Available at: http://www.independent.co.uk/news/business/uk-will-join-emu-but-only-when-time-is-right-1241966.html [Accessed: 18 Dec 2012]. 4. Goodway, N. (2012) Primark powerhouse gets it right for a new generation as Marks & Spencer stutters. [online] Available at: http://www.standard.co.uk/business/business-news/primark-powerhouse-gets-it-right-for-a-new-generation-as-marks--spencer-stutters-8289248.html [Accessed: 18 Dec 2012]. 5. Lynch, R. (2012) Flying the flag pays off at Primark as ABF beats a billion. [online] Available at: http://www.standard.co.uk/business/business-news/flying-the-flag-pays-off-at-primark-as-abf-beats-a-billion-8289346.html [Accessed: 18 Dec 2012]. 6. Mandelson, P. (2012) Britain should still consider joining the euro. [online] Available at: http://blogs.ft.com/the-a-list/2012/05/04/britain-should-still-consider-joining-the-euro/#axzz2FOiUhjIs [Accessed: 18 Dec 2012]. 7. Primark.co.uk (2012) Values & Diversity. [online] Available at: http://www.primark.co.uk/page.aspx?pointerid=aaf2a52fc5e940baa54add5adecdea98 [Accessed: 18 Dec 2012]. 8. Primark-ethicaltrading.co.uk (2012) Primark Ethical Trading - Environmental Sustainability. [online] Available at: http://www.primark-ethicaltrading.co.uk/environmental_sustainability [Accessed: 18 Dec 2012]. 9. The Telegraph (2012) Primark-owner profits rise as new shops open - Telegraph. [online] Available at: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9657605/Primark-owner-profits-rise-as-new-shops-open.html [Accessed: 18 Dec 2012]. 10. Woodard, R. (2012) Primark in 15% FY profit and revenue hikes. [online] Available at: http://www.just-style.com/news/primark-in-15-fy-profit-and-revenue-hikes_id116036.aspx [Accessed: 18 Dec 2012]. Read More