Business Environment - Coursework Example

Introduction The present economic crises are considered as the “crises of confidence” as it involve a complex web of relationships between the different macroeconomic variables. (El Gamal, 2008). The correlation of different macroeconomic variables with each other is therefore, creating significant volatility in the external business environment. The current circumstances indicate that the world’s most sophisticated financial system is going to collapse because of multiple failures of giants such as AIG, Lehman Brothers; Northern Rock clearly indicating as to how external environment is rapidly changing. There are many reasons for this change in the external environment as organizations are fighting their way to reclaim their original position in the market. Large banks such as Northern Rock failed to sustain itself despite support from Bank of England and such the carryover effects are even felt by the organizations working in other sectors of the economy. Subprime mortgages may be just tip of the iceberg as there are other very serious causes of the failure of the financial system. Due to inter-linking of different macroeconomic variables, governments of UK and US even went on to pump in funds into failing organizations in a bid to stabilize the economy. It has also been observed that the different economic policies adopted by the UK and US Government specially after 1970s were largely in favor of free market economy which allowed different organizations to go beyond their capabilities and as such caused the current financial crises within the both these countries. Due to this reason, British Government specially has been planning to reorganize and restructure the mortgage market in a bid to lessen the impacts of the current financial crises. This research paper will provide an analysis of some of the PEST or LEPEST factors which British Government may consider for successful implementation of its plans. Further, this research paper will also discuss how a bank would respond to such influences. PPEST Analysis As discussed above that the current crises are the crises of confidence and as such not British Government is taking efforts to revive the failing institutions in particular and economy in general. As a part of these efforts, British Government is also undertaking to restructure the existing mortgage market in the country in a bid to rationalize it so that in future no such episodes happen. PEST Analysis in such circumstances can serve as an excellent tool to provide great insight into some of the critical factors required to assess the impact of different policy initiatives by the British Government. Following sections of this paper will therefore, identify some PEST factors which British Government might consider in a bid to reduce the impact of crisis. Political Factors Political factors normally include government regulations, stability of the political structure as well as the system of the country, taxation policies etc. Britain is considered as the founder of modern democracy and as such its political system and structure are considered as one of the best and the most stabilized system in the world. Press is relatively free from Governmental influences and rule of law is strongly implemented with the relatively efficient bureaucratic system in place. Over the period time and specially after 1970s, British Government started to pursue free market economic policies and also initiated the process of economic de-regulation so that the role of government is up to the minimal in natural working of the market forces. UK is a welfare State, and it is the responsibility of the State to provide assistance to those who need it. It is also because of this reason that UK has one of the largest welfare infrastructures in the world. Policies of the Government are largely balanced and protect both the consumers as well as the producers thus doing business in UK are largely easier as in comparison to other countries. UK’s current financial regulatory environment is two tiered as Bank of England is responsible for regulating the monetary policy whereas Financial Services Authority or FSA is responsible for regulating the financial institutions. In order to reduce the impact of the current financial crises, it is therefore, important for the British Government to consider political factors also as they provide a better understanding of the current regulatory environment and its effectiveness against the current crises. Economic Factors Economic factors encompass many different economic variables which must be taken into consideration for making an effective decision making. Economic indicators include economic growth patterns, inflation, interest rates as well as exchange rates. UK’s economic progress has been steady over the period of time as it has recorded consistent growth during last ten years. Its recent performance, however, is not satisfactory as its real GDP growth during 2008 was merely 0.7% whereas the forecasts for current year are for negative growth. Similarly, inflation was higher in 2008 however, it is forecasted that the same will improve in current year.(Economist.com,2009). British Government must take into account this factor because this is the only factor which has been worst hit of the current crises. The economic downturn and its consequences on the world economy are so severe that the downturn in these countries is affecting the economic growth of other countries of the world. The propose regulations from British Government therefore must look into the current economic scenario and what will be the direct or indirect impacts of the regulation on the economic situation of the country. It is also critical to note that over the period of time, UK Government has adapted a policy of de-regulation and as such allowed enterprises to freely conduct their business however recent economic conditions indicate that the UK government must regulate the financial market specially in a bid to regulate the market to the extent where its fall back does not impact the economy as a whole. It is because of this reason that it is of utmost importance that the UK Government must consider the economic factors currently affecting the economic conditions of the country. Social Factors Social factors are also one of the most contributing factors in affecting the strategic decision making of the different entities. By taking stock of the factors such as population growth, health, ageing structure, demography as well as other socio-cultural aspects. UK’s population is increasingly become old due to low mortality rates as well as low birth rates. It is because of this reason that the UK has allowed immigrants to migrate to the country in order to fill the gap between the supply and demand of labor. Further, it is also important to note that the UK is a welfare State and its policies are largely directed at providing assistance to its citizens. Government not only provides support in terms of providing a certain level of funds to the registered persons but also offer them council housing units. The current economic crises have also resulted into the foreclosures of large number of homes obtained against mortgages secured through Banks. In such a circumstance the overall demand for the council housing may increase therefore Government may have to arrange extra housing units to accommodate those who may become homeless because of their inability to pay back their debts. This factor is therefore also critical in the sense that it has quite serious significance for the Political government of the UK too because dissatisfied voters may vote against the present regime as it was also witnessed in US where Conservatives failed to win elections for third straight time. It is therefore of critical importance that while framing the regulations; the government must consider social factors and their consequences on the British society as a whole. Technological Factors Technological factors are related as to how the emerging technologies are going to affect the implementation of the decisions made. It is critical to note that technological factors tend to change very rapidly and as such requires a close monitoring as well as analysis in order to forecast their accurate impact. British Government can take this factor into account while framing the regulation because technology is going to impact as to how the banks and other financial institutions are going to perform. The current trends in the industry suggest that the trends are increasingly in favor of the Internet and virtual banking and as such a future scenario may develop an entirely different manner as in comparison to the current status of the technological advancement. It is critical to understand that one of the reasons for unprecedented growth of the banking industry was the advancement in technology and globalization of financial markets. This phenomenon allowed the integration of the financial markets with each other thus creating strong correlation between them. This correlation, as discussed above, therefore, also helped in creating a web of linkages which resulted into negative consequence of this fall out on the other markets of the world too. British Government therefore must give a due consideration to the technological factors specially to the possibility of the consequences of the proposed regulations on the technological advancement to take place in future. How Businesses will get affected? A business is considered as an entity which thrives and succeeds only when it can interact with its external environment, and if it lacks that ability chances are that the organization will start to become complacent thus may go out of the business. If we consider a financial institution or a bank, the consequences of the above analysis will greatly affect its future because if the proposed regulation consider above factors than it may be an entirely different scenario for the business to deal with. Many studies have indicated that a careful analysis of the PEST allows to minimize the risk and improve the capability of the firm to maximize the opportunities therefore organizations must give a due to thought to the PEST factors.(Wilkinson, McAlister & Widmier, 2007). For example, if British Government announces that it is regulating the financial markets by capping the lending limits of the financial institutions than for a bank, it may be quite difficult to retain or attract those customers who fall beyond the threshold level a bank can offer to lend under the proposed regulation. This will therefore, not only reduce the market share of the financial institutions but will also impair their chances to grow in future. On the other hand, if government announces that it is going to offer subsidized interest rates on the mortgage purchase then this proposed action of the government may result into an increase in the overall demand for the loans as consumers will prefer to purchase their homes at relatively lower interest rates. Conclusion Current financial crises are considered as the crises of confidence and as such require a complete new methodology to assess the impact of external events on the organizations. PEST analysis can be one of the major tools which organizations may use in order to better understand their environment and adjust their strategies accordingly. Reference list   1. Economist.com [online]. (2009). [Accessed 21st April 2009]. Available from World Wide Web: . 2. Michael Wellin (2007). Managing the psychological contract: using the personal deal to increase business performance. London: Gower Publishing Ltd. 3. Philip Atkinson (1990). Creating Cultural Change. The TQM Magazine. 2/1, pp.1. 4. El-Gamal. Mahmoud (2008). Economist Says Current Financial Crisis Is First And Foremost A Crisis Of Confidence. Available: http://www.sciencedaily.com/releases/2008/09/080925122353.htm. Last accessed 21st April 21, 2009 Read More