Challenges to Business in the 21st Century - Case Study Example

What Is The Greatest Challenge Facing Business In The 21st Century?

The primary challenge to businesses in the twenty-first century is financial security that has resulted from increasing risks such as competition that has been created by market dynamics and intensification of globalisation. Therefore, unlike in the past, business institutions cannot now foresee and mitigate market risks since the business environment has become volatile and dynamic impacting on business processes in different ways. The check and balances that previously existed to control the manner in which business activities were performed have been withered down through deregulation efforts that are aimed at enhancing the ease of conducting business. Therefore, in mid-twentieth-century, the blame for underperformance in business has shifted from market factors to governmental elements (Drucker, 2007). Scholars argue that strict government regulations have adversely affected performance of business organisations since they do not create an enabling environment that facilitates businesses to flourish. It is for this reason, that a deregulation campaign was initiated with an objective of removing some of the bottlenecks that hinder businesses from conducting business transactions in markets swiftly and efficiently. However, it is undeniable that the action worked perfectly in the short run but created a long-term problem that would adversely affect performance of businesses in the future (Sternberg, 2013).

The recent global financial crisis experienced in 2008 was a typical example of how the effects of deregulation can degenerate to despicable levels. The financial market forms part of the backbone upon which the global economy is anchored since nearly all business operations depend on banks to finance their short and long-term investments. Thus, the moment the financial system collapses it means the entire economy will be affected as a result of the spill overs from the financial market (Croley, 2009). Despite the fact that financial institutions had transferred their risks to third parties the impact of the crisis was so enormous that it not only affected European organisations but also spilled over its effects on other economies around the world. Therefore, it is from this perspective that the paper aims to postulate that and argue that the greatest challenge that business in the twenty-first century faces is financial security (Quayle, 2002).

Deregulation in the financial sector opened up opportunities for massive financial innovation. Institutions in the financial market came up with innovative products and services aimed at maximising their profits and at the same time distributing wealth to all quarters of the economy by enabling the low-income earners to own valued properties. In that light, the innovations were merely an incentive system that rewarded risk-taking at the expense of public entities. Ideally, the institutions would lend out vast amounts of unsecured capital at lucrative rates without bearing in mind the effects of massive defaulting among the clients (Sternberg, 2013). Ideally, since 1989 the rate of household debt to disposable income in the United Kingdom increased threefold from 57% to approximately 133% in 2008. The statistics imply that a majority of Britons are living beyond their means since they are borrowing more than they can afford. Institutions in the financial sector have come up with all manner of innovations to leverage from the increasing demand for capital. In that regard, they have developed mortgage services for clients that wish to own homes, financial incentives as well as credit services to spur consumption among the consumers. It is worth noting that nearly 58% of the gross domestic product for the UK is driven by easy credit and consumer spending. In essence, the saving culture has been overtaken by impulse spending thus driving more and more people to live beyond their means. In 1986, the saving rate per individual in the United Kingdom was roughly 8.9% however the figure dropped to 2% in 2007 before rising again to 4.8% in 2010 (Glick and Lansing, 2009).

Since a majority of the people are living beyond their means, imply that they are financially insecure thus making it difficult to plan for the future. In that regard, you will find that a substantial number of individuals have indulged in easy credit facilities that have locked them from savings thus increasing the volume of their income that they spend. Similarly, businesses have resorted to easy credit to fund large-scale investment projects whose viability is sometimes in doubt (Sternberg, 2013). As a result, some projects end up failing or rather not living up to their objectives thus resulting in bad debts that adversely hurt the financial market. It is prudent that deregulation and lack of business ethics are some of the primary reasons that are affecting the efficiency of business operations even in the wake of the global financial crisis (Cunningham and Fröschl, 2013). Regardless of the widespread effects of the global financial crunch still business operations are operating in the same manner of laxity regarding regulation thus making them susceptible to similar effects in the event of a repeat of the same.

Ideally, due to the impact and magnitude of the global financial crisis, it's hard to instil a sense of optimism to some investors that such an event will not happen in the near future (Wood and Brenner, 2002). It is from that perspective that economic growth and development and significantly slowed since 2008. Ideally, before the financial crunch the economy of China was growing at double digits but after the crisis, it drastically slowed down to the current 8% per annum. That notwithstanding, the country significantly reduced its foreign direct investment as well as the amount of capital that it funded development projects in developing nations (Schwab and Sala-i-Martin, 2011).

Financial insecurity has been facilitated by unethical business practice coupled with expanding innovation that is unregulated. Ideally, a majority of firms have transformed corporate social responsibility to a public relation stunt that is meant to turn a blind eye on the society from the ills that occur in the company. Currently, a majority of the organisations that are winding up or are being taken under receivership are mainly attributed to unethical practices and internal deals between the directors (Epstein, 2005). For instance, in the case of Lehman Brothers, the leaders of the financial institutions took lump sum amounts of unsecured loans that brought the operations of the bank to its halt. However, as much as other factors contributed to the fall of the institutions unethical practices played a significant role in the downturn of the company. Consequently, with the advent of rapid innovation the global market has become increasingly competitive. In that regard, businesses are striving to be innovative enough so as to obtain a competitive advantage over their rivals (Hargroves and Smith, 2013).

Conversely, innovation alone cannot enable a firm to compete since all other market players are pursuing the same goal. It is from that perspective that companies opt to engage in unethical practices to beat government and market regulations to obtain a competitive edge. For instance, in the European motor industry, numerous car makers have been forced to recall millions of cars due to ineffective technologies or defaults in their systems that were designed purposefully to bypass industry and environmental regulations (Sternberg, 2013). A case in point, Volkswagen was forced to recall millions of its cars after it emerged that it used a certain mechanism to cheat on the emissions of those units so as to comply with European standards. The move saw the sales volume of the manufacturer car slump by nearly 23% as well as its share index drop significantly after the revelations were made public (Ahonen and Moore, 2005).The public trust in the organisations was dumped after it emerged that they used to engage in dubious activities with the aim of gaining a competitive edge in the market.

In essence, regulation and deregulation have opened up a window that allows organisations to engage in varied activities with the aim of enhancing their fortunes but in the end, they jeopardise the financial security of their shareholders as well as compromise their markets (Thompson, 2013). Ultimately, technological and financial innovations have significantly contributed to the rapid growth of the global economy. However if the two elements are not employed with caution, they are in turn going to be a primary impediment to business in the modern day (21st century). Ideally, if the global financial crisis is anything to go by, it is evident the business environment can be prone to numerous challenges emanating from scepticism from the effects of a financial crunch, hence adversely impacting on the growth of an economy and individual business performance.