Technological and Economic Factors Affecting Business Environment - Literature review Example

Technological and Economic Factors Affecting Business Environment Introduction People’s perception on time and distance has changed because air travel is associated with reliability and speed. Regardless of geographic location, as long as the service in air travel continues, distance would be irrelevant. It continuously grows because of innovation and adaptability that the operation management employed so that the company could cope up with the dynamic changes of the environment. The travel industry matches prices with the different segment and classes of society to attract travellers. This paper will investigate the changing business environment of the travel industry over the last five years. It will further examine the technological and economic factors that affect the airline industry in UK. Technological Factor The first business in travel and tourism to embrace technological innovation is the airlines industry (Buhalis, 2004, p.1). Dale, et al. (2006, p.4) indicated in his book the early technology adopted by the air travel. Viewdata system was the first technology that connects “tour operators and travel agencies via terminals.” It grants travel agents to book flights based on the preferences of their customers. In the 1950s, they develop the Computer Reservation System (CRS) to make direct bookings via the system. With the development of Global Distribution System (GDS), travel agents across the globe can access the available flight and seats for travellers. The timeline of technological innovation of the airline industry shows of their early improvements. Therefore, by the year 2005, the airline industry has developed its own booking system to gain competitive advantage. Capoccitti, et al. (2010) indicate the operations improvement of the airline industry by using technology in managing the CO2 emission. The concern of stakeholders, which affects UK travellers, is on reducing the gases that harm the earth’s atmosphere. In 2010, the companies invested in green technologies to assure travellers of their accountability. Goh (n.d., p.95) affirms that the British Airways emphasises in its plan to devote in information technology because of the opportunities it entails in the economic aspect. Recent technology changes are the use of RFID that replaced the barcode system. Currently, the travellers can utilise their mobile phone to check-in via the internet, which adds customers’ experience (Boyle, 2011). Hence, innovation and technological advancement are critical to the viability of the airline industry in the new global business environment. Impact of Technology The development of technology increases the competition among the airlines industry because it changes the processing method, the information dissemination, and communication process. With the evolution of technology, the business environment is rapidly changing, which tightens competition. According to Khosrowpour (2003, p.237), airline companies compete with travel agents to obtain a high market share because they refer other airline companies with available flight to customers. Furthermore, Doganis (2006, p.197) states that information technology aids companies in their distribution system and revenue management. The effective forecasting method of most companies is due to the improvement of technology, which allows them to predict sales based on the available seats. Hence, it stimulates other companies to adopt technology because it benefits both customers and companies. Moreover, the demand of customers changes. They want fast and accessible service, which motivates companies to improve services. Aside from accessibility, technology is essential for companies that cut cost or expenses. Economic Factor According to the Civil Aviation Authority (2008, pp.1-6), the decline of the traffic growth in UK commenced in the year 2005. This was affected by the 2001 bombings in the United States that instilled fear for most travellers. The security was stabilised to guarantee the safety of leisure and business travellers. Furthermore, another terrorist threat augmented the anxiety of travellers in 2006. The CAA added that the international holidays celebrated by UK residents were affected. Moreover, the CAA notes that the gradual decrease of travellers is caused by the “changes in the UK consumer expenditure.” The house prices decreased by 15% in 2004, 0.1% in 2005, and increased by 5% in 2007. The interest rate in 2005 is 4.50%. In addition, the jet fuel prices boost, which “tripled” the prices in 2004. In effect, the cost of air travel increases that slowdown the air traffic. In January 2004, the fuel price is $320 per tonne, while in 2007, it increased up to $900 per tonne. The statistic showed the changing environment that effects the stability of airlines industry. The inflation rate in 2005 bounces to 1.9%, whereas, it increases to 4.8% in 2011 (BBC News, 2005; Trading Economics, 2012). High inflation rates result to high energy prices, clothing, and air fares; hence, the airlines strive to remain profitable by raising the ticket prices. Milmo (2007) recaps the additional fuel charge of British Airways in 2004 by £2.50, and then tripled in 2005. The competition tightened because other low cost carriers refused to add fuel surcharge. The growth of household income in 2010-2011 is similar in 2005 level at 3% (Lawson, 2011). In 2005, the CAA (2008, p.2) concluded that when the household income increases, the demand level for air travel tends to “more than proportionate.” Assaf and Josiassen (2011, p.5) posit that “airlines currently face a threatening period of major financial losses following the last four years increase in oil price.” The data presented are the evidences that construe the statements of the two authors. The economic downturn affects the viability and profitability of airline industries. Therefore, they have no choice but to increase ticket prices to remain in operations. The authors attested that 24 airlines have failed to remain viable. Thus, changes in the macro and micro-economics have an adverse effect on the business sector. For an instance, the rising cost of fuel contributes to the high ticket fares, which influence the demand of passengers. Conclusion Technological and economic factors are considered as the change agent that influences the dynamic and rapid business environment of the airlines industry. Technological advancement leads to lower cost of rendering services to customers, immediate and accessible system, and effective management of revenue. With the rapid changes in the environment, the competition becomes stiffer that requires companies to be innovative and adaptable. Furthermore, economic factors such as inflation rate, household income, and high fuel prices affect the viability and profitability of airlines. References Assaf, G.A. & Josiassen, A., 2011. The operational performance of UK airlines: 2002-2007. Journal of Economic Studies, 38 (1), pp.5-16. BBC News, 2012. UK inflation rate jumps to 1.9%. [Online] (Updated 19 April 2005) Available at: http://news.bbc.co.uk/2/hi/business/4459637.stm [Accessed 6 Jan 2012]. Boyle, R., 2011. Technological trends and their impact on the airline industry. [Online] (Updated 4 Jan 2012). Available at: http://www.sita.aero/content/technological-trends-and-their-impact-airline-industry [Accessed 6 Jan 2012]. Buhalis, D., 2004. eAirlines: strategic and tactical use of ICTs in the airline industry. Information & Management, 41 (7), pp.805-825. Capoccitti, S. Khare, A. & Mildenberger, U., 2010. Aviation industry - mitigating climate change impacts through technology and policy. Journal of Technology Management & Innovation, 5 (2), pp.66-75. Civil Aviation Authority, 2008. Recent trends in growth of UK air passenger demand. [pdf] Available at: http://www.caa.co.uk/docs/589/erg_recent_trends_final_v2.pdf [Accessed 6 Jan 2012]. Dale, G. Oliver, H. Marvell, A. & Jefferies, M., 2006. CGE AS travel and tourism double award for Edexcel. UK: Heinemann Educational Publishers. Doganis, R., 2006. The airline business. 2nd ed. New York: Routledge. Goh, J., n.d. The integrated air express industry. [Online] Available at: http://www.adb.org/Documents/Conference/Simplifications_of_Customs/part3.pdf [Accessed 6 Jan 2012]. Khosrowpour, M., 2003. Annals of cases on information technology. UK: Idea Group. Lawson, B., 2011. UK household income drops to 2005 levels according to new report. Newsdailybrief, [internet] 13 May. Available at: http://newsdailybrief.com/uk-household-income-drops-to-2005-levels-according-to-new-report/354266/ [Accessed 6 Jan 2012]. Milmo, D., 2007. British Airways raises fuel surcharges. The Guardian, [internet] 13 Nov. Available at: http://www.guardian.co.uk/business/2007/nov/13/britishairwaysbusiness.oil [Accessed 6 Jan 2012]. Trading Economics, 2012. United Kingdom inflation rate. [Online] Available at: http://www.tradingeconomics.com/united-kingdom/inflation-cpi [Accessed 6 Jan 2012]. The Business Environment of Car Manufacturers in the UK Introduction UK is accounted as the fourth largest car manufacturer in Europe -- after Spain, France, and Germany. It accounts for 10% of the export and import industry of car producers. Since the beginning of 1960s, the economy of the UK was dependent on the car producer. However, by the time Euro was weakened against the US dollars, the export production started to fall. In 2002, Ford as one of the largest car manufacturers stopped producing car because the company had experienced greater supply than demand. To remain viable in the car industry, the companies have to sell all cars available in the market to compensate their losses. This paper aims to examine the business environment of car manufacturers in the export and import industry of UK. It reviews factors including political, economic, social, technological, and legal with reference to the international trade and investment. International Trade and Investment The automotive industry has been the source of conflict in the international trade with the UK government because cars are “highly regulated in the world.” The UK is concerned with issues such as “divergent national approaches to safety, environmental and energy conservation, and protection of domestic industries” (OECD, 2002, p.93). With regard to investment, the UK projects market openness. It is the fourth largest car manufacturer in Europe estimating 5.5% GDP. International trade and investment are considered to be part of the UK’s whole system. The UK has estimated of over 40 car producers that are owned by foreigners. According to Sedghi (2011), the UK has accounted 10% of the total export production of cars. Imports have increased with 70% of produced cars were sold in 2000. The UK eliminated restrictions on Japanese manufacturers. The UK is committed to the standards harmonisation of automobile regulations. The OECD discovered that prices differ in other locations. That’s why the government constrains price discrimination and price-setting restrictions charged to dealers, and agreements to obstruct imports (OECD, 2002, p.93). Since the UK economy practices openness, it is easy for car manufacturers to import and export their products. Political Factors It has been discussed the openness of UK economy to the market and investment; hence, the discussion will focus on the tax policy of the government on Co2 emission. The UK government introduces the fuel tax to cut carbon emission that supports the environmental law in fighting climate change. This type of policy aims to improve “fuel efficiency” of new cars imported and exported by companies (ECMT, 2007, p.62; Wallis, 2003). The carbon tax policy has a positive effect on the environment because it encourages car manufacturers to invest in innovation by restructuring efficient cars. However, it will entail additional cost for the companies, which threatens their existence in the competitive environment (Heneric, et al., 2005, p.188). Economic Factors The year 2011 seemed critical for car manufacturers due to the economic slowdown or recession in Europe. According to Milmo (2012), the car sales decrease significantly to 4.4 % since 1994, which means that there is a decline in the CPI level of consumers. Haugh, et al. (2010) remark that the demand of consumers has decreased because of low confidence level on the ability of the government to bounce back. Furthermore, the exchange rate remains unstable because of the global financial crisis and the weak US dollar. Meanwhile, the currency of the UK oscillates (Holweg, et al., 2009). Lastly, the unemployment rate will continue to rise when the company’s profit depreciates. Social Factors The BBC News (2012) reported that in 2009, the population rate increased by 4%, with 30% of the population owns cars. The RAC foundation agrees by stating that consumers are still dependent on cars, despite the “rapid growth in the use of cars.” Car ownership falls due to the recession experienced in Europe, which affects the economic condition of the UK. In effect, the demand of consumers fell because they lack confidence. However, large number of UK population wants to own a car even at an early age to “ensure of their total mobility” (Barker, 2002, p.42). The government encourages consumers to own a car that aims to increase sales and aid the economy; however, with the high cost that entails of owning cars, most individuals resort to buy older cars. Technological Factors Innovation of technologies has been the driving force of the automotive industry. Thus, they continue to produce cars along the dynamic changes in the environment. Modern cars are “safer, lighter, more fuel efficient, and faster” (Barker, 2002, p.42). Technology helps car manufacturers to develop their engines, fuels, suspensions, gears, brakes, tyres, and etc. to garner a competitive stunt against their competitors. Furthermore, with the advent of technological change, cars become reliable because of the electronic systems and controls that can expose malfunctions or defects. In addition, the automotive industry fosters the Low Carbon Transport Innovation Strategy to produce cars with low carbon emission (Great Britain, et al., 2007, p.2). This is in line with the campaign to reduce carbon emission for a cleaner environment. The car manufacturers produce cars that are stronger, fuel efficient, and clean to show that they are socially responsible. Legal Factors UK has applied the emission standards of EU that include “carbon monoxide, hydrocarbons, nitrogen oxides, and particulate matters.” The cars should pass the test of the permitted carbon emission. The older the car, the more pollution it emits (Environmental Protection UK, 2012). Thus, the car pollution law affects the production of cars that should meet the standard of the host government. The car producers must create fuel efficient cars to achieve the criteria for environmental friendly goods. Pollard (2012) predicted that by 2012, the government will restrict the carbon emission to 120g/km. The car pollution law will force the car manufacturers to produce costly and modern cars to meet the standard requirement. However, the law is voluntary for car manufacturers. Conclusion The automotive industry has faced challenges in the current state of the economy. The global financial crisis marked by the economic slowdown affects the consumers’ demand. In terms of trade and investment, the UK government practices an open market for export and import industry of car manufacturers. References Barker, L., 2002. The motor industry: 2002 market review. [Online] Available at: http://www.just-auto.com/store/samples/48177.pdf [Accessed 9 Jan 2012]. BBC News, 2012. Car ownership up as mileage falls. [Online] (Updated 20 April 2009) Available at: http://news.bbc.co.uk/2/hi/uk_news/8007798.stm [Accessed 9 Jan 2012]. Environmental Protection UK, 2012. Car pollution. [Online] Available at: http://www.environmental-protection.org.uk/transport/car-pollution/ [Accessed 9 Jan 2012]. European Conference of Ministers of Transports (ECMT), 2007. Cutting transport CO2 emissions: what progress? France: OECD Publishing. Great Britain, Parliament, House of Commons & Trade and Industry Committee, 2007. Success and failure in the UK car manufacturing industry: government response to the Committee’s fourth report of session 2006-07, third special report of session 2006-07. London: Stationary Office. Haugh, D. Mourougane, A. & Chatal, O., 2010. The automobile industry in and beyond the crisis. [pdf] Available at: http://cid.bcrp.gob.pe/biblio/Papers/OCDE/86280.pdf [Accessed 9 Jan 2012]. Heneric, O. Licht, G. & Sofka, W., eds., 2005. Europe’s automotive industry on the move: competitiveness in a changing world. New York: Physica-Verlag. Holweg, M. Davies, P. & Podpolny, D., 2009. The competitive status of the UK automotive industry. UK: PICSIE. Milmo, D., 2012. UK car sales fall to lowest since 1994. The Guardian, [internet] 6 Jan. Available at: http://www.guardian.co.uk/business/2012/jan/06/uk-car-sales-drop [Accessed 9 Jan 2012]. Organisation for Economic Co-operation and Development (OECD), 2002. United Kingdom: challenges at the cutting edge. France: OECD Publishing. Pollard, T., 2012. Tough emissions laws for 2012. [Online] Available at: http://www.carmagazine.co.uk/Green-Cars/Search-Results/Green-News/Compulsory-emissions-laws-leaked-to-CAR-Online/ [Accessed 9 Jan 2012]. Sedghi, A., 2011. UK car production has risen: which are the biggest producers? The Guardian, [internet] 14 April. Available at: http://www.guardian.co.uk/news/datablog/2011/apr/14/uk-car-production-manufacturing-data-2011 [Accessed 9 Jan 2012]. Wallis, N., 2003. UK tax policies to control CO2 emissions from motor vehicles - early impacts and lessons for other European countries. [Online] Available at: http://www.eceee.org/conference_proceedings/eceee/2003c/Panel_3/3079wallis/paper [Accessed 9 Jan 2012]. Read More