Economic and financial management can be defined as a process to plan, organise, direct and control business activities of a company. (Matthew, 2017). The present report is going to demonstrate micro and macro-economical factors which influence failure of an organisation. For this purpose, New Look Company is chosen which is a British global fashion retailer, having a chain of high street shops. Its business has been liquidated over some years in Belgium. Therefore, some theory of economics are presented. It highlights impact of Brexit, inflation, competition, labour market and more on this company.
Impact of economy on business organisation
Today, mostly companies focus on identifying and fulfilling the needs of customers in certain specific niche markets. It serves as an objective to ensure fund adequacy, safety on investment, optimum utilisation of resources and more. In this regard, economical aspect assist organisations to take appropriate decisions related to finance or investment. But, their businesses are almost affected by economical trends and this would also aid managers to take better decisions (van Duuren, Plantinga and Scholtens, 2016). In context with New Look, it was established in 1969 and operates a chain of more than 900 stores in international market. These chain offers fashionable garments including menswear, women-wear and clothing for teenagers. According to recent article given by Elias Jahshan (2019), it has evaluated that Belgium division of New Look has filed for insolvency. Its managers have reviewed that its global operations have swapped after announcing a debt-for-equity. In Belgium, this fashion retailer operates near about six stores but now, it has filed for bankruptcy on 16 January 2019 by proceedings with the Brussels Enterprise Court. So, it shows that New Look will now wind up its operations from Belgium due to low performance and failure in generating profitability as per expectation. In addition to this, respective company also wind up its operations in China that leads to close near about 120 stores over there.
The reason behind liquidation of New Look's business over in these areas (China and Belgium), can be identified by analysing economical impact, as described below:-
Impact of Brexit: The macro-economical effects of Brexit on organisation can be classified in terms of long-term and short-term. It involves some restrictions on access of UK to EU marketplace, where new barriers have arise within trade of UK. In addition to this, uncertainty which surrounds the outcome of referendum has also deterred investment (Hein, Detzer and Dodig, 2016). It has been estimated that before Brexit, trade volume between UK-EU was near about 1196 billion euros. But after Brexit, various risk factors have arisen which affect New Look and other international organisations, to conduct their business in each other territory. It includes increasing bureaucracy and administrative expenses, higher fluctuations in foreign exchange rates, revaluation of supply chain and higher logistic costs etc. Therefore, due to these factors and high import duties that directly impact on marketing and selling price, New Look Under Belgium fails to earn expected profitability.
Labour market: The strength of labour market is considered as main factor, which determine a country's policy related to decreasing economical data (Schaltegger and Wagner, 2017). In context with China marketplace, a tight labour market as well as rising wages rates, create many economical changes. Due to growing demand of labours under industries, employee seek to get high wages. Therefore, negotiation with labour unions is considered as main factor which impact on profitability of New Looks' business in China marketplace.
Inflation: Economy in China and EU is fast overheating. All such extra liquidity seems to drive up prices and wages more rapidly. Therefore, this inflation period of these nations, general level of price of commodities and services also rises (Burtonshaw-Gunn, 2017). It impacts on purchasing power of buyers which eventually effect sales performance of both domestic and international companies. Therefore, it is also referred as one of the main reasons due to which New Looks has decided to close its stores under China and Belgium marketplace.
Applications of economical theories to range of contemporary business.
As per current scenario, New Look is going to liquidate its business from China and Belgium marketplace. It is not being able now to pay its debts therefore, it has involved creditors under liquidation process (Xiao and O'Neill, 2016). This company also announces some plans for pursuing a debt-for-equity swap. It is part of restructuring scheme which includes reducing the debt of respective company from £1.35 billion to £350 million. But shuttering business over marketplace of China and Belgium may impact on existing business of New Look in other countries also. Currently, this retailer has run more than 100 stores in France, Poland and others in UK. Therefore, it is essential for managers to apply some economical theories to maintain its performance in existing countries. By analysing the strategies used by major competitors of respective company, managers can determine which economical theory they have to apply over mention context. Currently some major competitors of New Look in same fashion industry are ASOS, Lulus, Zalando and more (Giannakis and Papadopoulos, 2016). It has analysed that due to some supply chain management or ethical issues under Turkish textile industry, ASOS has decided to close its business in Turkey. Indulging business in unethical operations has impacted business reputation of ASOS in adverse manner. Therefore, to resolve this stage of liquidation, its managers has used concept of new classical macroeconomics. This theory mainly emphasises on effectiveness of rigorous foundations which are based on microeconomics.
New classical macroeconomics: Since New Look currently faces issues related to failure in generating profitability and enhancing sales performance. Therefore, it is recommended to managers to apply the concept of new classical theory to business. This theory emphasise to identify circumstances which affect market. New Look provides wide range of goods (women-wear, menswear, clothing for teens) and services (online and offline selling) at international marketplace (Reguera-Alvarado, de Fuentes and Laffarga, 2017). Therefore, by defining commodities, the environment can be introduced into market economy through constructing demand and supply curves, for respective goods and services. Constructing such demand curves includes estimating willingness to pay measures as per customer needs and purchasing power. In this regard, managers of respective retailer can construct a proper demand curve and determine a range of values. Therefore, intersection of demand with supply curve will represent the most efficient allocation of resources as per customer's preference. This would help New Look in enhancing its sales performance in existing countries where it operates stores.
Analysis of micro and macro economical forces on contemporary business
Business environment refers to specific factors and forces which affect ability of a firm to build and maintain its successful customer relationship. It includes micro and macro-economical forces that affect sustainability of businesses (Bashir, 2016). Microeconomics concerns on actions of individuals within an economy such as workers, suppliers, intermediaries and more. While macro-economics consider economy as a whole and focuses on issues like growth of production, inflationary rate in prices, level of import and export etc. Since every retailers' primary goal is to satisfy needs of targeted marketplace and serve its products within market. Therefore, it is essential for such organisations including New Look, to concerns on micro and macro-economical forces. It helps in understanding the economical situation of marketplace of countries, where respective company has operated its business. It indicated how prices of goods and factors of production can be determined to run business effectively. If price of any product is increased then it will lead to decline in sales and customers will opt for other alternative substitutes which will impact on profitability of organisation. Similarly, if they provide their products at minimal rate then this will also impact on company's image. As when a company offers its products on low rates then people points out on quality of products. Economical situation can have worse impact on organisation. Microeconomics also aid managers in understanding the conditions of efficiencies in production, consumption and distribution process to offer services accordingly (Siminica, Motoi and Dumitru, 2017).
Similarly, macro-economic analysis aid in determination of level of aggregate employment and per capita income. Along with this, it also helps in identifying the general level of prices, economical growth and business cycles. All these processes, helps New Look in analysing the causes of fluctuations in national income. This would aid in formulating effectively policies related to control business cycles as per inflation and deflation period of economy. Thus, by understanding these factors, managers of New Look can monitor and measure operational activities to maintain its performance in respective stores. In addition to this, they can also take better decisions in terms of interest for organisational success.
It has concluded from this report that to run business effectively at international marketplace, it is essential for organisations to concern on micro and macro-economical factors. This would help in analysing the market situation in terms of economy, per capita income and more, for forecasting demand and supply of sales accordingly. In addition to this, by understanding concept of economical and financial management, international organisations also get opportunity to prevent their businesses from excessive loss in profitability. As per fluctuation in economical conditions, they can formulate effective policies and strategies to run business appropriately.
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