The Business Environment - Essay Example

Management Table of Contents Introduction 3 Task 3 Retail industry 3 China 5 United s 6 Europe 6 PEST 7 Opportunities and threats 10 Task 2 11Governmental impact on policies of new ventures 11 Task 3 13 Key traits of entrepreneurs 13 Conclusion 14 Introduction There are many challenges in starting a new venture in any industry as the business environment is vast and unpredictable. The foremost challenge that it can encounter is the change in global external environment. Thus, before starting a new venture the entrepreneurs should analyze the external environment crucially by employing PEST analysis and evaluating the opportunities and threat of the global retail industry. The report highlights the challenges that are encountered by retail industry globally along with the opportunities that comes along with threats in the same industry. Tata Motors is a renowned Indian multinational automotive manufacturing company that has served the best passenger cars, vans, trucks, buses, military vehicles and coaches to customers worldwide. The company has spread its operation internationally by opening offices and manufacturing units in Argentina, South Africa and United Kingdom. It has succeeded in penetrating the mentioned markets with its best branded automobiles. However, the company has the desire to start new venture in a different industry other than automobile. The company has earned goodwill and success in automobile industry and thus looks forward to penetrate a new industry where they can encounter the same result. The chosen industry is retail industry and the report prepared by Business Development Manager of Tata Motors highlights the main challenges and requirements to enter the new retail industry. Task 1 Retail industry In the past few years, the retail industry has encountered significant number of changes which have brought challenges and opportunities to the companies in this particular industry. The changes are in form of policies that have made it difficult for the existing companies as well as new ventures to operation without any major disturbance. The policies that have revolutionized the retail sector are deregulation of foreign investment, land use policy, monopoly policy, neoliberal reforms. It is observed that the small retailers have dominated few areas of the world while the transnational companies have taken a larger market share worldwide. The reason for choosing retail industry for the new venture plan is that it is the largest sector in the world economy. Countries worldwide define this particular industry differently but according to ILO retail industry is referred as the final step in distribution process where the retailer aims at selling merchandise in large or small quantities to its target customers. The global retail industry accounts for about $15 trillion revenue and is predicted to maintain strong growth in future (Global Union Action, 2013). The industry is diversified into a lot of sections such as small retailers and large multinational retailers that have dominated the markets for the past few decades. The list of retailers is provided below which have dominated the market worldwide with their excellent retail strategies and sales: Figure 1: Largest retailer worldwide (Source: Deloitte, 2013) From the above figure it is evident that Wal-Mart, Carrefour and Tesco Plc have occupied the top position in the retail industry. If Tata Motors has to succeed in its retail business then it has to compete with the market above mentioned competitors, who despite the huge disturbances in the external business environmental have succeeded to become the best entrepreneurship business in the world. The adverse governmental policies could not stop the companies to spread its business internationally. Tate Motors requires the same effort and courage to start a new venture in the retail world and attract as many customers possible for making their retail business successful just like automobile business. The global retail market is competitive and also dynamic as there are several changes in the external environment. The new retail business of Tata Motors has to encounter the following challenges in few well known attractive markets for retailers (Whitehouse, Lafferty and Boreham, 2007). China IN China, the economy grew at 7.8% in 2012 and is regarded as the slowest growth that the world has encountered (Global Union Action, 2013). Apart from this, the economy encounters a lot of challenges that can affect the new venture of Tata Motors if the company decides to enter China. There are high levels of debt which have accumulated through the shadow banking system. The banks accumulated troubled assets and there is a risk of bailing out of those assets by the government for maintaining solvency. The country also invests in such business which cannot contribute in increasing the growth of economy. The country should shift its concentration from investment led growth to consumer led growth which will be sustainable for the retailers and the new ventured companies. Thus, the retail industry in China encounters the above mentioned challenges which need to be addressed by the new venture. United States The economy in United States has overcome the challenges that it had encountered since recession. The economy is strong enough to support any diverse situation and recover from the state to dismal. The monetary policy is the biggest challenge for the economy presently. The Federal Reserve (FR) has engaged in a number of quantitative easing policies like government bonds and mortgage securities. The main goal of the policy is to support the asset price, interest rates and suppression of dollar at times of inflation. Another challenge is the fiscal policy. The retail sector needs a positive outlook for the success of the companies already existing in the economy. The rapid growth in retail sector is anticipated but not assured due to the above mentioned challenges. However, moderate growth is expected with the rise in demand. The unemployment has reduced the affordability of the households and this has affected the consumer spending. The plan for new venture in retail sector of US economy will be success only if the venture can overcome the challenges (Global Union Action, 2013). Europe After the bad effects of recession, the Euro zone has made efforts to recover from the situation and move towards a growing economy. This is good news for the existing retailers and the new retailers. The consumer spending is not very high in this economy rather the growth is supported by export. The economy also encounters a number of challenges which is severe for the retail sectors. The capital flight is one such challenge which has disturbed the stability of the economy. The euro crisis is also a main factor which contributed to the unstable banking system and is far from resolve. Thus to start a new business in the retail sector of Europe and sustain in long run will be difficult for Tata Motors. However, the company can implement successful strategies for overcoming the above mentioned strategies (Global Union Action, 2013). The following theories explain the global environment of the retail industry which can affect the new venture to great extent. PEST PEST analysis helps in screening the external environment in which a company operates and the factors that explain the macro-environment are political, economic, social and technological. The PEST analysis will help in determining the global environmental factors v\that can affect the new venture of Tata Motors (Allen, n.d.). Political The following are the general political factors that can affect business environment globally: Figure 2: Political factors affecting business environment (Source: Pradhan, 2009) The factors mentioned above affects the global retail industry to a great extent. However, the operation of the retailers is severely affected by the political trend in a particular economy. This depicts a direct relationship that is derived from the legislation and the retailers. The politicians can directly affect the retail business by exercising their power over location for using the land for planning. The land-use planning is a local issue but the politicians have the authority to intervene in the same. The government can also provide guidance and directions for assessing development of the companies and give proposals. The politicians have the power to manipulate news in the media against the companies if they are happy with the development of the same. The shopping climate has changed over the period and there is dichotomy of desire between experience and leisure. The price issue is related to the market power in retail sector. The potential abuse of power has exercised by many politicians who have blocked many merger and acquisition and new venture worldwide. The power for constructing and de-constructing competitive landscape remained the powerful weapon in the hands of governmental ministers and politicians. This is one of the most severe factors that can block Tata Motors from entering an economy with a new project (Buddlemeyer, Mourre and Warmedinger, 2005). Economic The following economic factors are general for every industry: Figure 3: Economic factors affecting business environment (Source: Pradhan, 2009) The above mentioned economic factors affect the retail industry to a great extent. However, the retail industry encounters a number of challenges pertaining to economic development. The economic position of the economy conditions the experience of retailers. The value as well as volume of retail sales is very vital in this case. The economic factors affect the retail landscape as the business has to invest a lot of money in infrastructure and assures that it will make a good return. The economy which is dominated by the corporate chains that has headquarters internationally has to check the requirements of the locals and try to meet the demand. The large retailers have demonstrated that power can be employed for studying the markets. Knowledge management is vital for the future economy. The personal disposable income of the individual affects the retail sector to a great extent. The monetary condition of the individual affects sales of the retailers. The decrease of disposable income affects the affordability of an individual who cannot think for any luxury good and his/her demand is restricted to the minimum amount. The life style of the households is also affected which restricts them to spend a lot of money for buying luxury goods. In such a situation it is hard forth retailers to build confidence within the customers for purchasing their brands and get the products at lowest possible price. Thus, Tata Motors will encounter the same difficulties in the retail sector (Fisher, Krishnan and Netessine, 2006). Social The following social factors affect the business environment of any company: Figure 4: Social factors influencing business environment (Source: Pradhan, 2009) The above mentioned social factors affect the retail industry to a great extent. The changing socio-cultural life of the population worldwide has challenged the retail sector. The attitudes and beliefs of the individuals are changing vigorously. The companies in the retail sector needs to identify this change in demand and desire of the individual so as to operate in the long run. The most challenging factor for the retail industry is that the modern consumers expresses contradicting wants and desires which are not rational sometimes. The consumers prefer to use branded products with a logo rather than purchasing a generic product at a reduced price. However, in the poor economy the socio-cultural factors do not play a significant role as the purchasing power of the consumers is low. Thus, understanding the taste, preference and affordability of the consumers in different economy is very hard for the companies. Thus, the new venture desired by Tata Motors needs to identify the socio-cultural barriers of the retail industry of each economy before choosing any economy for setting a new venture (Gaston and Kishi, 2006). Technological Figure 5: Technological factor affecting business environment (Source: Pradhan, 2009) The above mentioned technological factors affect the retail industry to a great extent. The technological factor has affected the supply chain of many companies in the retail sector. The technological changes have affected the processes and operation of the global retail industry. Internet has affected the operation of supermarket through the online grocery retailing. The online retailing has steadily encountered growth for the last few years. The subscription for online shopping has increased over 50% and is estimated to increase by 70% in future (Pradhan, 2009). Opportunities and threats It is vital for a company to identify the opportunities in a particular market which will assist it to operate without any disturbance. There are countless opportunities which a retailer can discover through market research and sales force. The opportunities include the unfulfilled desires of the consumers. The sales force has direct interaction with the customers who expresses their needs and wants which are followed to the companies who can modify the products or services accordingly. A particular market acts as a potential opportunity to any company for opening their business units (Fisher, Krishnan and Netessine, 2006). The major threat to this industry is consumer demand. The fluctuating demand for products or services has affected the super market chains and retail stores around the world. The price wars among the competitors in this industry have affected the consumers to a great extent as the quality is compromised. The products or services that are supplied by the companies are getting imitated in the local market and this has affected the consumer demand. The lower income group of consumers preferred lower priced imitated products or services that will fulfill their need. The rise and fall of purchasing power of the consumers also affects the demand in the market. The lower income group cannot afford to buy high priced goods when they do not posses enough disposable income. Hence, it can be stated that the new venture of Tata Motors should consider all the factors before entering any market (KPMG, 2013). Task 2 Governmental impact on policies of new ventures In certain economy, new venture is encouraged by the government in form of innovation. In such cases capital formation is associated with tax policy. These tax policies gives reward for long term investment and encourages the entrepreneurs to take risk. The tax differentials serve as important tool which encourages investment in the growing economy. In such an economy, venture capital is the only source of finance for the company. The government devises strict and stringent polices for directing a new venture as company should comply all the rules and regulations. The most important regulation exercised by the government pertains to environment. It is very important for the companies to comply with environmental regulations. Several laws have been devised so as to protect environment from harmful effects of gases that are emitted from the manufacturing units. The community is affected by the harmful gases and air gets polluted. The environmental law restricts the emission of harmful chemicals in the surrounding and in this case the companies require permission before executing any such process. The government has devised particular rules and regulations for the new ventures. The venture has to comply with the rules and regulation so as to start the business in a particular economy. The rules ensure that the new venture should implement good waste management system. Proper waste management ensures that the company should not pile up inventory. This waste management is particularly directed at retail sector as the food items in inventory become stale. This affects the surrounding environment and even human being residing in that particular society. The new venture should also ensure that it is not increasing the carbon foot print. The vehicles that will be used by the venture should not emit much carbon in the environment (KPMG, 2013; Kauhanen, 2008). The retail industry maintains a number of suppliers who are associated with the companies for many years. The rules and regulations that are attached to the new venture highlights that it should maintain a healthy relationship with the suppliers. The suppliers have to follow the code of compliance followed by the venture. Hence, the venture has to ensure that the suppliers are complying with the rules and regulations devised by the government. Government has restricted the use of plastic by the retail industry. The use of plastic affects the environment negatively as it emits carbon monoxides when it is burnt. Carbon monoxides are harmful for the living beings on earth. Hence, the new venture has to take into account all the rules and regulations that are directed for the retail industry. It will help them to sustain in long run (Fisher, Krishnan and Netessine, 2006). Task 3 Key traits of entrepreneurs Tata Motors is a well known and successful company who has served its customers with best vehicles. The company desires to diversify its business and enter the retail sector. In order to do so, the new venture requires personnel who have adequate knowledge regarding this sector as the operation in automobile and retail sector are totally different. Entering retail sector is very challenging for a new company as it has to understand the external environment where it will operate. In order to plan for a successful entry in the retail sector, Tata Motors has to ensure that the entrepreneurial plan should consider the challenging external environment (KPMG, 2013). The entrepreneurs who will start the entrepreneurial business in retail sector should have the tenacity to take appropriate steps to avoid obstacles that will emerge during the course of business. The entrepreneurs should think strategically and have innovative mind to devise appropriate plan for overcoming the challenges. The entrepreneurs should be intelligent enough to predict the obstacles that can affect the business in future. The entrepreneurs should be passionate enough to invest huge amount of money for staring up a new venture. A new venture is always risky for the entrepreneurs as the success is dependent on the customers. The entrepreneur should be tolerant enough to sustain in any uncertain event and potential threat to the venture. The entrepreneur should have a clear vision regarding it future operation (KPMG, 2013). Conclusion It can be concluded that the global business environment is very challenging for starting a new venture. Tata Motors have to take strategic initiatives and make careful entrepreneurship plan for entering global market. It can be stated that the political and economic factors are the two main factors that should be considered very important for the new venture. The power of the politicians and government can block the plan for setting up retail business in the economy. However, the entrepreneurs should be tactical in handling this disturbances or obstacles and maintain a good relationship with them. Reference List Allen, M., no date. Analysing the organisational environment. New York: Select Knowledge Limited. Buddlemeyer, H., Mourre, G. and Warmedinger, M., 2005. Part-time Work in EU Countries: Labour Market Mobility, Entry and Exit. [pdf] European Central Bank. Available at: < http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp460.pdf > [Accessed 7 July 2014]. Deloitte, 2013. Global Powers of Retailing 2013: Retail Beyond. [online] Available at: < http://www.deloitte.com/assets/Dcom > [Accessed 7 July 2014]. Fisher, M., Krishnan, J. and Netessine, S., 2006. Retail Store Execution: An Empirical Study. [online] Available at: < http://www.newyorker.com/talk/financial/2012/03/26/120326ta_talk_surowiecki > [Accessed 7 July 2014]. Gaston, N. and Kishi, T., 2006. Part-time workers doing full-time work in Japan. 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