Significance of Social Factor that Shapes National Business - Literature review Example

?SIGNIFICANCE OF SOCIAL FACTOR THAT SHAPES NATIONAL BUSINESS PART Introduction International trade is a term used to collectively describe all business transactions taking place between two or more regions beyond their political boundaries. According to Grimwade (2000), the world has witnessed a significant growth in international trade, a factor that that has contributed to a rapid growth in global output since the year 1945. International trade has expanded at a rate approximated to be one and half times that of the global output over the post war period. As highlighted by Grimwade (2000), this trade has thrived over the years owing to a number of advantages it has offered various nations across the world. These advantages have significantly benefited a number of UK business organizations. One of the most significant benefits of international trade to UK business organizations is in terms broadening its horizon and markets (EconomyWatch, 2010). If a business organization in the UK was to only sell their goods or services locally without pushing their goods or services to consumers in other nations, the UK would be completely limiting the potential of such business organizations. Such business organizations may more often than not be assured of a steady trade from their UK consumers, but they may not grow to their full capacity if they were trading with seven other nations, for instance. International trade is important to the UK business organizations as it helps the organizations in terms of increasing customer figures and sales. A significant example of a business organization in the UK that has benefited from international trade in terms of broadening its horizon and markets is Marks & Spencer. As a company within the retailing industry, Marks & Spencer has about 155 stores managed under franchise in 28 regions globally due to growth in international trade (Marks & Spencer Company Website, 2012). As highlighted by the EconomyWatch (2010), the UK business organizations have also benefited from the international trade in terms of production cost, which is normally reduced by virtue of taking part in international trade. By doing business in other nations, business organizations in the UK are able to open themselves up to lowered/reduced production costs, for instance, a business organization in the manufacturing televisions UK may find out that its products could be produced at a substantially less cost in a factory in Japan. This not only helps the business organization save money, but also helps the consumers as the televisions can be sold to them at a cheaper cost. Tesco, a UK supermarket brand and a firm within the retailing industry forms a good example of a company that has benefited from international business. The supermarket opened up about 18 franchise stores outside the UK and has seen it and the franchisees share the cost of opening the stores as well as the subsequent profits, as a result benefiting from reduced cost (Fletcher, 2010). Another significant benefit the UK business organizations accrue from international business is in terms of raw materials (EconomyWatch, 2010). If it was not for international trade, the UK wouldn’t have been able to acquire or get its hand on raw materials needed to make a number of products especially within the food industry. As a colder nation, the UK depends on hotter nations for fruits such as mangoes, and the hotter nations depend on the UK for items such as potatoes. Therefore, without international business/economic integration of trade, the UK business organizations would have had a very scarce choice in terms of raw materials for production. Marks & Spencer as a small user of palm oil relies on palm oil imported from other countries, a benefit it has accrued as a result of expansion in international trade (Marks & Spencer Company Website, 2012). Another significant benefit accrued as a result of the expansion of international trade by the UK business organizations has been in terms of increased global market share. As a result of the expansion in international trade and economic integration a number of firms within the UK have been able to expand their businesses rapidly across the globe, as a result gaining an increased global market share. The enhanced market strength as a result of international trade often comes with advantages. International business strategy has made it possible for giant business organizations such as MacDonald’s and Marks & Spencer to expand rapidly in terms of their outlets globally, while at the same time, increasing their market strength globally. The McDonald’s chain of fast foods has for instance more than 2000 outlets globally, with only 25% being company owned. International business has therefore without a doubt been of great importance to the UK business organizations providing opportunities in terms increased global market share. According to the HM Treasury, UK (2011), the UK economy has, however, been over reliant on exports around the world. As highlighted further by HM Treasury, UK (2011), this is evident in the fact that the UK economy has over the last decades become seriously unbalanced and heavily indebted, revealing a decline in its underlying competitiveness. Its share of global exports has declined while its current account deficit has increased.UK exports have, for instance, compared poorly against other developed countries. According to Louis (2011), only 5% of the UK exports went to the BRIC nations compared to 11% of Germany, 11% of the United States and 21% of Japanese exports. According to Shah (2011), however, despite the many opportunities that come with increasing global business, a number of organizations have not fully realized the benefit from the increasing global economic integration. This factor can be attributed to unfairness within the current model for international trading, economics as well as the present form of excessively corporate-led globalization. PART 2 According to Gillespie (2007), businesses are influenced by external environments as much as they are influenced by competitors. The three global factors that have an impact on UK business organizations include legal, political and environmental factors. Legal factors: Legal factors relate to the legal environment in which a business organization operates. In the last few years, the UK experienced number of significant legal changes that have had a significant influence of the behaviours of various firms in the UK. The introduction of disability discrimination, age discrimination, an increase in the amount of wages earned as well as the greater requirement of business organizations to recycle are significant examples of recent legislations that have had a great impact on a firm’s actions (Gillespie,2007). These legal changes have had a significant effect on business organization’s cost especially where new procedures or systems have been developed. Alternatively, they have had an effect on demand especially where the laws created have impacted on the possibilities of consumers buying the goods or using the services. Political factors: These refer to changes in government and its policies such as the level of a government’s intervention in an economy. Political decisions by a government usually have a direct impact on any business organization’s success. As a result, this factor has gained a lot of significance in recent times. Business organizations operating within the European Union, for instance, ought to adopt directives as well as regulations formed by the European Union (Gillespie, 2007). The political field has therefore a significant impact upon regulation of businesses, and the purchasing power of consumers as well as that of other businesses. Businesses are therefore normally forced to consider the stability of a political environment or a government’s policy on the economy. Environmental factors: Environmental factors relate to weather and changes in climate. Changes in weather and climate can have a significant influence a number of industries such as tourism, farming or even insurance. With significant changes in global climate occurring as a result of global warming in addition to the increasing environmental awareness, this external factor is turning out to be a key issue for many business organizations to put into consideration. The increasing desire to protect the environment is having a significant influence a number of industries such as the travel and transportation industries evident in the fact that more taxes are being placed on air travel and the general move towards more products that are environmentally friendly (Gillespie,2007). These processes are affecting demand patterns and creating more business opportunities. A significant policy of the EU and which is related to the environment protection set down was the climate change legislation that has had a significant impact on the UK businesses. PART 3 The European Union places a significant effect on businesses by laying down policies that any nation intending to do business in Europe has to comply with. One of the most significant policies the EU set down was the climate change legislation that has had a significant impact on the UK businesses. According to Regeneris Consulting Ltd (2009), this legislation on climate change was introduced by the EU in reaction to the increasing evidence and concerns over the effects of global warming. The legislation outlines a framework for moving the UK towards a low carbon economy. However; this policy has had significant impacts on UK businesses. The policy has greatly affected all the organizations in the UK with large scale total energy use covering about 10% of industrial and commercial emissions. Its impact has therefore been most significant for energy intensive manufacturing companies who are not part of the European Union ETS. The policy has also created a demand for renewable energy use as it has been able to put a lot of pressure on electricity providers to come up with alternative sources. This has created opportunities for energy from tidal, wind and biomass energy within the UK. This policy has had a significant effect on businesses in the UK as it has increased the number of investments in technologies as far as energy use is concerned (Regeneris Consulting Ltd, 2009). Another recent policy of the European Union that has had a significant impact on UK business organisations is the EU common money policy. This policy was introduced by the EU with an aim of attaining a number of benefits including achieving stability in terms of prices, creating confidence among the investors, creating a simpler market economy, reducing transaction costs owing to the absence of currency exchanges as well as creating an integrated banking system, as a consequence removing all the currency risks among the member nations (Regeneris Consulting Ltd, 2009). The common currency policy has had significant impacts on the UK businesses in a number of ways such as sales and marketing, accountancy, financial management, data processing and administration. The policy has helped increased competition among euro zone businesses. Many UK business organizations with euro zone clients have therefore benefited from cheaper transactions as well as reduced accounting costs as the move meant investing in new systems as well as historical data conversion to make sure euro compliance (Regeneris Consulting Ltd, 2009). Curtis (2012) argues that the speculation of a possible meltdown of Euro zone is rife and should there be a Euro zone meltdown, the UK economy could be negatively affected in a number of ways. One of the effects would be in terms of competition. If euro collapses, each member nation would have new currencies with some thriving and others devaluing rapidly, as a result re-drawing the competitiveness of the EU member states and creating a huge uncertainty. There would also be a reduction in exports, as a result slowing the UK economic growth even further. The UK is also linked to various banks in more vulnerable nations through their sale of insurance as well as other agreements on debt default. Banks would therefore have less to lend and would therefore possibly create another credit crisis and a stunting economic growth. References Curtis, P 2012, What would the Collapse of the Euro mean for the UK? EconomyWatch, 2010, Benefits of International Trade, Retrieved on February 5, 2012 from http://www.economywatch.com/international-trade/benefit.html Fletcher, R, 2010, Tesco takes Franchise Route in Overseas Push, Retrieved on February 5, 2012 from http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/7998407/Tesco-takes-franchise-route-in-overseas-push.html Grimwade, N, 2000, International trade: new patterns of trade, production & investment, Routledge Gillespie, 2007, PESTEL Analysis of the Macro-Environment, Oxford University Press HM Treasury, UK, 2011, The Plan for Growth, Retrieved on February 5, 2012 from http://cdn.hm-treasury.gov.uk/2011budget_growth.pdf Louis, R, 2011, Britain’s Strong Links to the Euro Zone Raises the Risk of another Recession Marks & Spencer Company Website, 2012 Regeneris Consulting Ltd, 2009, The Economic Impact of EU and UK Climate Change legislation on Liverpool and the Liverpool. Shah, A, 2011, Trade, Economy, & Related Issues Read More