United Kingdom Economy - Assignment Example

Business Introduction Globalization today defines the modern day management practices in the largest organizations in the world. A modern day business manager is faced with much more intriguing and technically stranded scenarios then what he had been through a decade or two ago. In today’s fast paced corporate environment there is nothing known as static, the environment is extremely impulsive, vibrant and dynamic and owing to this one wrong move may prove to be as expensive as billions of dollars. Of course the business managers are aware of such skeptical situations and they try their best to foresee the ravaging ruffs and tuffs ahead of them in the business world but still they cannot avoid all of them and thus they need to keep a few revamp strategies in front of them on the table at all times [HUGH MUIR 2005]. Toyota Brake Paddle dilemma, the financial scandal of Lehmann Brothers, the research blunder of Coke and the Union Problems at Coke are some of the few examples that the largest Multi National Corporations have faced in recent times. This just goes on to show that even the industry leaders are not spared by the after effects of erroneous policies made by the management. The activation, advancement and freedom of media and technology have further more smothered the corporate environment today. The term stakeholders for a company has gone on to expand into explicable dimensions and today a single penny earned spent by a customer is driven through concepts such as CSR, Inflation, Charity, Savings, Discounts, Parity, Patriotism and further more innumerable aspects. Therefore to study an industry in today’s world one must ensure that the study examines and takes into account the modern day trends and prevalent policy measures. As this will give us a better picture of where the industry is going, what’s happening and what needs to be done. Snapshot of UK Economy United Kingdom, UK, globally the eighth largest economy with a Purchasing Power Parity (PPP) GDP of US$2.17 trillion as of 2010 is one of the most vibrant business places in the world. The economic stability and growth in UK is comparatively well placed if compared to various developed and dominant economies in the world, for instance as per a BBC report the unemployment in UK is around 8% as compared to 10% in France and 9% in US. UK is placed at sixth spot in the line of world’s largest producers of manufactured goods and is home to some of the greatest corporate houses such as BAE Systems, British Petroleum and Rolls-Royce to name a few. In terms of non-renewable resources UK is certainly among the big fishes in the ocean with the 30th and 39th largest oil and natural gas reserves in the world. The growth and development of an economy can be gauged by various measures however the infrastructure of a country is undoubtedly an impetus behind its progress and further development. UK Electric Power Industry at a Glance In the age of technology and speed the electric power supply of a country plays a vital role in boosting and supporting the operations of its economy. An economy might go completely off track if it is not supported by the electric power industry. Hence electric power industry plays a vital role as a strong pillar of the infrastructure of a country. The process cycle of electric power industry in the UK is summarized in the following figure [ELECTRICITY GUIDE 2011], The electric power industry is expressed quantitatively in the table below, Types of plants employed Electricity, Nuclear and Hydroelectric Maximum Capacity carried by wires 756,000 volts Pressure at substation transformer 2000-13000 volts Pressure at pole transformer 120-240 Volts PEST Analysis One of the most significant modern day management tools that are employed by managers to analyze the macroeconomic environment of an industry is PEST analysis. PEST is an acronym that entails Political, Economic, Social and Technological dimensions of any industry. Business Managers use this tool to understand the dynamics involved in a particular industry, the number and type of stakeholders concerned with the business and the barriers in terms of regulations, entrance into and exit from the business that they would like to be a part of. PEST analysis has been used by researchers, business managers and management students to get a grasp over a particular industry and to formulate feasibilities for multimillion dollar projects for a lot many years now [ELECTRICITY GUIDE 2011]. Throughout the length of this paper PEST Analysis will be employed to analyze the current challenges faced by the electric power industry of UK. Political Political dimension of PEST framework entails the involvement of government and law enforcing agencies in dictating terms in a particular industry. This includes environmental influence of operations, the tax and tariffs imposed and labor policies to be implemented under the guidelines drawn by the government and other authorities such as unions. The political environment is very strongly regulated in UK in case of electric power industry. There are four core companies that regulate various aspects of the electric power industry in UK and they include The National Grid, Elexon, Ofgem and Energywatch. These companies regulate all sorts of issues ranging from price to competition and from environment to conservation. National Grid is responsible for maintaining and keeping track of the supply side of the industry. Supplier issues and queries are addressed, received and resolved at National Grid ensuring smooth functions and a sufficient supply of electricity to area suppliers at all point in the supply chain. Elexon on the other hand deals in the wholesale rates and settlement policies of bills and tariffs in the industry. This brings Elexon into a commanding position as it is responsible for bringing the demand and supply into equilibrium. Energywatch is a customer relief body that keeps an eye over the performance of electricity companies in satisfying the complaints of their customers on time. In case a complaint is not satisfied Energywatch becomes the lender of the last resort and deals with electricity companies on behalf of unsatisfied customers to ensure their problems are resolved. Ofgem plays a vital role in ensuring that the methods employed by electricity companies to produce electricity are safe for the environment and are healthy for the future generations. In case a company falls short of its performance as an environmentally operator then Ofgem comes into action and assists the company in meeting the required standards of health and safety [GILLIAN SIMMIONDS 2002]. Economic The global economic downturn and the repercussions of recession have not spared the UK in any way. The interest rate in the UK is at a record low of 0.5% this indicates an investment encouraging monitory policy. The government wants people to consume more rather than to save. Furthermore the Consumer Price Index (CPI) as of September 2011 is at the record highest at around 5.2% against the government set CPI target of 2%. The unemployment in absolute terms is also not showing positive figure at 8% [THIS IS MONEY 2011]. These extreme numbers reflect that even one of the most stable, developed and progressive economies of the world is crumbling with capricious macroeconomic environment. With the arrival of winters just round the corner the electricity suppliers across UK anticipate an increase in demand of power across the country. Following the demand and supply model of economics the prices of electricity are anticipated to experience a further jump of up to 18%. This will do no good at all to the already ballooning inflation in the economy [ELECTRICITY GUIDE 2011]. The Electric Power Industry in UK is privatized and this allows the authorities and regulators to cap the price in the region to protect consumer rights and to promote healthy competition in the industry. With the regulatory authorities active and operational in the industry and participating in regulating the transmission, supply and price dimensions of the industry this empowers the consumers to a great extent. The rights of the customers are protected and this leaves the players in the industry at a comparatively brittle position where they cannot dictate their terms courtesy excessive competition in the Industry and also the presence of established regulatory institutions [DAMIAN KAHYA, 2011]. Social Another significant role played by regulators in the industry, as mentioned above, is the protecting of interests of the less privileged people in the society, these include special individuals, low salaried individuals and also those constituting the rural population. Fuel Poverty is a dilemma that is faced by large segment of rural and urban population of UK. Fuel Poverty refers to those households that spend more than 10% of income over energy subscription for maintaining the warm and comfortable environment in their tenements. Here to combat the challenges of Fuel Poverty and turbulent domestic economic conditions in the country the government has activated bodies such as the Ofgem to lash back at such issues and take the electricity providers on board to find a solution [GILLIAN SIMMIONDS 2002]. The regulatory bodies such as Ofgem ensure that the power industry competition and market forces remain harmless to these disadvantageous groups and ensure uninterrupted power supply to such consumers on regular basis. On the other hand there is also a need to edify consumers of the energy losses that they incur on annual basis and end up paying a handsome proportion of their income by employing low quality and cheap electrical appliances. Proper insulation and use of quality electrical appliance may save as much as £280 per annum bearing in mind that average household bill amounts £1300 per year [LARRY ELLIOT 2007]. Technological The electricity providers’ task has become exceedingly complicated today. They are not only required to make ends meet by matching demand with supply but they are also required to do things that were not their legal obligation a decade ago. The “go green” and “environmentally friendly” procedures for producing electricity are not only a government standard to be met; in fact it is the insistence of consumer groups and NGOs that has to be fulfilled at all times [LARS KOLDRUP 2010]. With the expansion of media and its empowerment it has become obligatory for electric power producers to use methods and technologies that harm the environment as less as possible. There is also a rising trend of increasing application and utilization of renewable energy producing methods to act responsibly towards the natural environment and the electric power industry needs to keep up with its pace. This signifies that the usage of fossil fuels and nuclear energy to produce electricity has to go down in the future and it will be replaced by solar and wind energy panels in the long run. The total energy produced by renewable energy sources in UK constitutes less than 7% of the total production. The bifurcation of this 7% energy production in UK is as follows [LARRY ELLIOT 2007], This goes on to show that there still is a lot of investment required in the development of renewable energy sources in UK for the maintenance of a sustainable natural environment. The investment of UK government of £13 million in Scotland for the development of a 3MW Ocean Energy Plant is a big initiative in this direction [LARS KOLDRUP 2010]. An Analysis of the Analysis Having understood the PEST of the Electric Power Industry in UK this can be stated that it is highly regulated and is subject to numerous barriers and guidelines. The regulatory authorities have put the consumers in a commanding position where the entire policy making revolves around the fulfillment of their needs and satisfaction. The price controls and pressures from NGOs and other authorities in the country making profits and beating the competition is a Herculean task. Moreover with neck to neck competition and strictly monitored and capped supply and transmission, entry into the industry is faced with humongous restrictions and barriers. A new entrant will be required to cope up diligently with the regulatory requirements in the industry. Similarly exiting from the industry has its downsides as well. If a company plans to exit this industry then it will be answerable to a whole lot of stakeholders and on the other side of the coin the reputation of the business will get hit big time and this will restrict the company from entering into any other venture because of the question marks raised on its credibility. References ELECTRICITY GUIDE, 2011, Industry Info; Industry Regulators, accessed 117 Nov 2011  LARRY ELLIOT, 2007, "Green energy industry attacks government rationing of grants". The Guardian (London), accessed 17 Nov 2011 GILLIAN SIMMIONDS, 2002, Regulation of the UK Electric Industry, accessed 18 Nov 2011 from Google Docs LARS KOLDRUP, 2010, Gains in Global Wind Capacity Reported Green Inc., accessed 18 Nov 2011 < http://green.blogs.nytimes.com/2010/02/15/gains-in-global-wind-capacity-reported/> HUGH MUIR, 2005, "Wake-up call from Working". The Guardian (London), accessed 18 Nov 2011 < http://www.guardian.co.uk/society/2005/jun/29/environment.interviews> RICHARD ANDERSON and DAMIAN KAHYA, 2011, Saving Money through Energy Efficiency, BBC News, accessed 17th Nov 2011 THIS IS MONEY, 2011, Economy tables: GDP, interest rates and inflation history, unemployment, accessed 18 Nov 2011 Read More