Understand the Role of Business Environment
Every organisation that operates in the market has some purpose of its business. This involves effective definition of its vision, mission, aims and objectives that combine together to form the organisational purposes. This section considered various organisations of different industries and their purposes are understood (Yaveroglu, Donthu and Garcia, 2003).
Coca-Cola is one among the top most brands in the world that has been serving end number of customers worldwide. It has certain statements of mission and vision that defines its purpose. The mission of the company is to refresh the world with its drinks and services and inspire them by providing them efficient value. Further they also have a vision to create a best place for employees to work in and enable the customers to gain an unending experience through its products.
Further another company that can be studied is British Airways that is running its business successfully in UK aviation industry and best known for providing customer services in travelling from one place to another. The purpose of the company is to provide its customers with best experience of travelling from one place to another (Sheth and Sharma, 2006). It also aims at becoming one of the leading airline companies in the world. The employees at this company are highly committed towards achieving better customer satisfaction.
This report carries out analysing various factors of the business environment considering Sainsbury as the organisation. Sainsbury is again a UK based company that deals in retailing grocery products and lies in the race of top supermarket chains of the country (Dettwiler, Lindelöf and Löfsten, 2006). The key purpose of the company lies in managing better service quality in delivering its products as well as maintaining better customer satisfaction too. Its key aims involve simplifying customer’s life through its exclusive products and services and providing products that can be used in day to day lives.
There are number of stakeholders that are related with Sainsbury or say Morrison’s that require the company to manage certain levels of satisfaction among them by fulfilling responsibilities towards them. Some of the stakeholders for the company:
Shareholders: Shareholders are people having significant value for the company as they are key investors for the firm (Wessels, 2006). These people expect effective coordination and involvement from the side of company and its managers. For Sainsbury as well as Morison’s to manage their smooth running, it is important to keep all the shareholders updated about all types of plans and strategies and involve them in all key affairs and decision taken for the firm (Thompson, 2011). This also means that shareholders must always be given timely and proper information about company’s profits and meetings for significant strategic decisions. Further these shareholders also have a considerable share in all profits and dividends earned by Sainsbury.
Customers: These are another stakeholder that has a significant role in company’s success. It is required that Sainsbury and Morrison’s provide all of its customers with better value and quality of all the products and also ensures that it provides all necessary information to them (Yu and Ramanathan, 2012).
Employees: Employees are a key source of company that must always be kept satisfied. It is therefore important for managers of Sainsbury as well as Morrison’s to keep all its employees satisfied and motivated to work effectively for the firm. Satisfied employees will remain committed to Sainsbury and thus involve in providing better service quality to all the customers.
Suppliers: Suppliers are people related with Sainsbury and Morrison’s having key responsibility for timely supply and delivery of raw materials to the company (Chen and Mohamed, 2008). This is important for managing all the activities of the company on time. Further it is also needed that Sainsbury provides the suppliers with value that they demand as there are number of firms operating in the same industry and may cause these suppliers to switch to another firm easily.
Apart from managing the stakeholders, there are several other responsibilities that company needs to fulfil for maintaining effective position in the industry. It is therefore required that Sainsbury develops an effective focus on other significant responsibilities also. These can be defines as:
Ethical responsibility: In terms of understanding the ethical responsibility, it is to be assured that Sainsbury does not involve themselves in operations that are based on immoral grounds (Wrigley, 2000). This involves every material that they source or activity that they involve in does not involve any type of harm to people, natural resources and environment. Sainsbury has a well managed ethical code of conduct that defines their ethical responsibility towards employees, customers and society as a whole.
Social responsibility: As far as social needs of Sainsbury are concerned, it requires managing effective relations with all its customers and employees. It also needs to ensure that any of activity in managing the operations does not harm the society in any ways. Sainsbury requires managing effective quality of service and support to its customers and therefore develop its products in providing efficient value to the society (El-Amir and Burt, 2008).
Legal and economic: Its economic responsibility involves managing production of its goods as per demands and expectations and in setting its prices in accordance to the standards maintained. Further legal responsibility requires aligning all the activities according to law and building up better framework of operations of the company.
There are different types of economic systems that government follow in taking its significant decisions regarding allocation of resources. There are various decision that are to be taken by components of a country’s economy like government, private or public sector etc (Jones and et.al., 2005). These economic systems can be defined as:
Command economy: Command economy is one where the government has full control over all the resources and takes the responsibility of its allocation involving land capital, labour etc. In this type of system the government has an access to all information regarding allocating resources in managing the economy of the country. Under this type of economic systems there are mostly issues relating to shortage or excess of resources (Curtis and Samy, 2014). China, Korea and Cuba are countries lying under command economy that are being planned and administered by central administrators.
Free economic systems: These are other economic systems that involve industries to allocate resources. Here the government has very little participation in the resource allocation and the organisations having control over the economy allocate economic resources. This type of system is helpful as this provides better support to the organisations to grow. US and UK posses the free market economic systems where the industries have been involved in allocation of resources.
Mixed economy systems: Under this type of economic systems, both the leading organisations and industries and the government have role in managing resource allocation (Ward and Lewandowska, 2008). Here the organisations control the resources and mutually decide with the government in taking decision of what to produce and how. Further there are several interventions that government has on these countries in terms of various economic and other policies. UK also lies under mixed economic systems and involves its decisions of resource allocation with the mutual intervention of government as well as retail industry that supports the overall economy. Further there are countries like Europe, US and also China that are marked under mixed economic systems also and have partially allocating resources through industries and government.
Transitional economic systems: Under these systems, resources are allocated by the organisations in their own in terms that they are not affected by the various policies implemented by the government over business activities (Sohal and Perry, 2006). Countries like Armenia, Azerbaijan and Czech Republic are countries that lie under transitional economies and have been developing their own terms towards allocation of resources and overall development.
In understanding the fiscal and monetary policies and their impacts on Sainsbury and Tesco, there are several factors and changes that can be considered as their effects. These are:
Changes in interest rates: considering any of the companies of the retail sector of UK, say Sainsbury or Tesco, both of them are likely to get affected by the changes in the economic policies (Sparks, 2011). The changes in monetary policies largely affect the interest rates that may go higher or also sometimes decrease. When the interest rates rise, it becomes a problem for the company in managing its capital and costs increase. Further with the decrease in interest rates, both the retail firms benefit themselves in managing better capital investments in their companies.
Impact upon tax rates: Further with fiscal policies and its changes, larger impacts can be seen in the tax rates offered by the government. These tax rates are responsible in affecting the supply, import and export of goods across boundaries (Shaw, 2006). Sainsbury and Tesco both are likely to get impacted by the changes in tax rates.
Fluctuating exchange rates: These relate with the changes in values of currency across various countries that further impact the operations of both Sainsbury and Tesco. With the changes in the fiscal policy, there are significant changes in these exchange rates that may affect the profits earned by countries while trading goods beyond boundaries (Gibbon and Sliwa, 2012).
Quantitative easing is another element of the monetary policy that is being used by the central banks of various economies in boosting their economic growth. This policy has significant impacts as it helps in increasing the supply of money within the market. Mainly economies like US have largely benefited with this concept with the increase in economic strength while there have been countries that had negative impact due to increasing risks and lowest returns.
Understanding the impacts of various policies under regulatory and competition, some of them largely impact the operations of firms like Sainsbury. In terms of understanding the competition for Sainsbury, there are companies like Tesco, Asda, Morrison’s, etc. The latest sources define that market share of the company is around 16.5 % and is still having the tag of third largest supermarkets chain of UK (Cosgrave, 2014). There are various regulatory mechanisms that are governing the operations of Sainsbury, involving Office of Fair trading and Competition commission. These have a significant role in controlling monitoring and regulating the prices of the company. Further these regulatory bodies also play an important role in setting effective standards for providing customer service. The Office of fair trading is involved in guiding Sainsbury Operations in managing all its imports and exports under the legal framework of UK and European Union. Further there are several ant competitive practices that govern Sainsbury in managing their limits of competition in the market (Davies and Ormosi, 2013). The key concern of these policies are related with setting of prices under Predatory pricing where firms mutually decide on managing a fixed price and thereby reducing the threat of mutual competition and affecting other retail firms. Further the Competition act 1998 has further responsibilities to keep a check on all other activities of Sainsbury and ensuring that they do not involve in unfair trading and related activities.
Different types of market structures are present that are responsible in determining various decisions related to pricing and output. These include:
Monopoly market: This is termed as the market condition, where only two or three companies are operating in the industry. Under this type of market, the companies have a prime focus on increasing the profits and market share and do not have any concern in setting their price thinking about the customers (Sheth and Sharma, 2006). Thus the pricing and output decisions are taken freely irrespective of concern for the customers.
Oligopoly market: In such type of market the pricing and output decisions are taken by considering the top most competitors only. Here while taking pricing and output decision the companies lay emphasise on customers and also set the prices lower so as to facilitate better growth of other companies and invite new entrants to enter into the retail market (Dettwiler, Lindelöf and Löfsten, 2006). This is comparatively a better approach to pricing and output decisions that lays some focus over the customers too.
Perfect competitive market: Under this type of market structure, there are few numbers of companies operating in a particular industry, all of them having strong competition. The companies like Tesco and Sainsbury operates under perfect competition in the market (Wessels, 2006). Under such type of market structure the pricing and output decisions are taken on the basis of market demands and supply statistics. Sainsbury does not directly involve in setting its prices but manages its pricing strategy by having proper estimation of the costs and sales volume expected. Here the company also requires taking out effective estimation of its profit margins that help it in setting prices to manage its profitability in the industry.
Product life cycle: This is a complete process and life cycle event of a product starting from its entry into the market, its introduction, growth, maturity till the decline within the market. It is very important for business to identify their product's stage, within the market and therefore define its specifications and competitive advantages to make it understand the type of competition. It is significant for the managers to have a deep knowledge of the various products and stages in which their product lie to determine the competitive markets like monopoly or perfect competition etc.
There are various elements considered as market forces that have a responsibility to shape the responses for the company. Sainsbury needs to consider all the following market forces:
Demand and supply structures: It is significant for Sainsbury to manage its focus upon demand and supply within the market (Yu and Ramanathan, 2012). It is important for Sainsbury to ensure that it is able to meet the estimated market demands and makes it products available in the potential markets. Further it is also important to ensure that the products are neither short nor in excess to manage balance in the economy.
Perceptions and reactions of customers: This is another force of market that affects the decisions and response of Sainsbury. Here the company requires managing its focus upon customer’s expectations, their perceptions about company’s products and their further reactions that help in customising its products (Wrigley, 2000).
Cost and output: It is another force that Sainsbury needs to focus upon in deciding whether the products and its costs are feasible with the estimated profits. It needs to ensure that if the demands of any of its products rise, it is able to manage the productivity.
Price elasticity: This is also an important concern for the Sainsbury in understanding the impact of its change in prices over the sales of its products. This brings the changes in customer’s reactions over change in prices that need to be understood by the company.
External business environment certainly makes an impact on the operations of the organisation and therefore it is required to manage so that deviation in the operational activity can be managed. Considering this, business environment of UK affects the operation of Sainsbury and to manage it, company engage different strategies. Political environment impacts operations with the change in policy. Company responds by following the same and making necessary adjustment in its operations. Change in economic situation influences cited firm to respond by altering the nature of products and its prices (Jones and et.al., 2005). In the time recession, company has responded by offering ready to eat foods at economical price and this has apparently boosted it sales. Further, change in life style leads to rise in demand of nutritional and fresh foods for which Sainsbury made contact with different suppliers in order to procure fresh foods and satisfy the need of customers in an effectual manner. This has assisted company in boosting its sales volume and hence also able to manage the cultural factors in a desired manner. However, legal factor has affected the firm by forcing it to adhere with different laws such as health and safety, employment, competition and other related. With this, cost of operation gets enhanced from which profitability of firm gets affected (Ward and Lewandowska, 2008). However, it helps company in remaining ethical and socially responsible from which brand image of company gets increased. Further, culture diversity is one of the key issue that forcing company to respond by modifying the business model. In this context, Sainsbury has offered different sort of products in its portfolio so that needs and wants of customers can be settled. In this regard, company offers product under vegetarian, non-vegetarian, egg less products, sea food and other related. This helps Sainsbury in meeting with the needs of customers in an effectual manner.
The significance of international trade in terms of comparative advantages can be seen as it enhances the domestic competitiveness and takes advantages of international trade technology. It helps to increase the sales and profits, maintain cost competitiveness in the market. In terms of the comparative advantage, the trade benefits are depends on the opportunity cost of production (Bourdet, 2000). The opportunity cost of production of goods is the amount of production of one good reduces to increase the production of another good by one unit.
Balance of payment is a systematic record of all economic transactions made between one particular country and all other countries during a specified period of time. It presents a classified record of all receipts on account of goods exported, services rendered and capital received by residents and payments made by them on account of goods imported and services received from the capital transferred to non residents. It is an important indicator of pressure on a country’s foreign exchange rate (Hartley, 2010). It helps to forecast Sainsbury market potential, especially in the short run. Economic growth and competitiveness to UK business organisation can be seen this business becomes more efficient in dealing with the other country about its product and services. Sainsbury able to get raw materials in less price by which it can easily decrease its production cost and increase its sales by attracting more and more consumers. Due to globalisation it helps the Sainsbury to expand its business worldwide and strengthen its relation with outside the country and they may get to learns many more new techniques and learning’s that helps the managers of Sainsbury to innovate its product and increase the sales of its product in the competitive market (Nichols, 2014).
Through PESTEL Analysis the impact of global factors on Sainsbury can be identified this analysis is a simple and easy to understand the political, economical, social- cultural, technological, Environmental and legal factors (Schwind, 2007). This process is used to forecast future. There are many factors that are affecting the macro environment that affects the decision making of the managers of Sainsbury. Such as, government policies, tax changes, political related trades, barriers etc.
Political factor: It includes the EU policies, globalisation of businesses, changes in tax rates. As it operates worldwide, the political factors naturally influence the performance of Sainsbury. Because of financial crises government encourages the retailers to create jobs for the local people (Chen, Wu, and Xie, 2000). As Sainsbury has increases employment opportunities in turn it is getting increasing sales of its products and services.
Economical factors: The economic changes of the government have direct impact on the business. These include interest rates, taxation charges, economic growth, inflation and exchange rates. So Sainsbury influenced by these factors that has direct impact nationally as well as globally (Dudovskiy, 2013).
Social factors: Social and cultural factors are very important for Sainsbury to understand as the changes in the social trends impacts on the demand for a Sainsbury products and the availability of individuals to work (Hartley, 2010). Sainsbury operates good amount in charities, sponsoring games, arrange social activities, it is also involves in raising funds for animal welfare etc.
Technological factor: The technological development advancement of machinery helps the consumers as well as Sainsbury to increase its sales through advertising its product on internet (Schwind, 2007). Sainsbury’s run their business as a result of better technology. Sainsbury’s is now using the self service counter.
Environmental factor: These factors includes the changing of weather and climate, Changes in temperature. Sainsbury is decreasing the waste produces in their production process and stores by increasing social conscience in customers.
Legal factor: Sainsbury fulfils its all legal procedures and formalities like age and disability discrimination, legislation, ID proof etc (Mukherjee, 2002). this company provides its customers proper discounts and offers on their products.
The impact of the EU on the business organisation can be seen as under:
European Union policies have several significant impacts over the Uk business organizations that may be in term of economic or regulatory too. With the increase in globalisation and economic crisis all over the world, the EU has been farming certain policies and regulations that further impact the business organizations. The company has been providing free trade facilities to the countries under its memberships that helps them in earning certain amounts of revenues and benefits. Further the EU policies have also been effective in reducing the barriers to trade that help the business to prosper and grow, at a better rate through improved financial status and developing economic strength (Hussen, 2004). Government has also promoting trade and encourages sales of goods in terms of exports or discourage goods that come from other countries as import with the help of better tax policies. The EU policies have also been helpful for the business organizations in promoting better employee management and developing policies to facilitate training of employees fro their benefits . All such activities have been helpful in promoting the growth and development of UK business organizations (Schwind, 2007).
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