Introduction Business context
Business context or business environment can be defined as the combination of external and internal factors which are important as they influence operations of a company. The factors which are included in the business environment govern the way through which decisions are taken within business and also their implementation in the market place. This can also be called as the scenario or setting within which organization functions in the particular market. It consists of the factors that not possess opportunities to business but also provide threats to it (Cameron, 2011).
In this project, business environment of an organization will be analyzed and how it affects business decisions. In the second part, information on European Union will be given where argument will be given on pros and cons of continuing British membership. In the third part, concepts of demand and price elasticity will be explained and how this helps to take decisions in business will also be given.
Analyzing of business environment assignment of any organization can be done with help of any business model like that of PESTEL analysis. For this, organization taken is Tesco plc of which Pestle Analysis will be done here. Tesco is one of the largest food retailers of the world and UK is the largest market of the company. Tesco operates a large number of stores and has also been providing employment to a large number of people. Pestle analysis of Tesco can be done in the following manner
Political factors – Tesco operates in a globalised environment having its stores all around the world. Now, the company is operating in six countries in Europe including UK which is now its biggest market. Tesco now operates in countries of Asia. The performance of the company has been highly influenced by political and legislative conditions of the countries in which it operates including European Union (EU). For employment legislations the government if UK demands that retailers have to provide a mix of job opportunities so that locally-based and lower-paid jobs along with centrally-located and higher-paid jobs (Strategic management of Tesco, 2013). With this, Tesco always provides jobs because it is labor intensive and local sector and it knows that it has high impact on jobs. Tesco also employs disabled and elderly people and also students.
Economic factors – These factors are a concern for Tesco as economic factors have an influence on demand and prices and also costs and profits (Ritz, 2005). The most important economic factor is the level of unemployment which leads to a decrease in demand for goods and this then adversely affects profits of the company. The economic factors are outside the control of company but effects of these factors on marketing mix and performance is high. International market is still in its growing phase and is recovering from recession of 2008 so Tesco is highly dependent on the market of UK which contributes to profits of the company (PESTLE and SWOT analysis for Tesco, 2013).
Social/cultural factors – The recent trends in UK indicate that now consumers are in favor of bulk or one stop shopping which means that they want to buy multiple items of different uses at one place itself. Due to the social changes Tesco has now started selling a large number of non food items (Palmer, 2004). Demographic changes like increase in female workers, aging population and decline in home meal preparation means that retailers like Tesco have to provide value added products and services. The type of goods and services that are demanded by consumers is dependent on their attitudes and beliefs (De Toni and Tonchia, 2003). The level of awareness among consumers is increasing day by day and therefore their way of shopping towards food products is also changing. Tesco is adopting such a product mix which is focusing on demands of consumers.
Technological factors – The advancement of new technologies has lead to benefits of both Tesco and customers. The company has now adopted system of wireless devices, electronic shelf labeling and self check out machine which provide facilities to customers visiting the store. Also, the introduction of electronic scanners and Electronic Funds Transfer Systems has helped the company to improve upon the efficiency of stocking and distribution activities (Flavián, Haberberg and Polo 2002).
Environmental Factors – There has been an increased pressure on companies to acknowledge their responsibility towards society and environment. The corporate social responsibility of Tesco is concerned with ways in which it exceeds the minimum obligations towards its stakeholders that is specified through corporate governance and regulation. Government has launched various strategies that are to be followed by retail sectors like reduction in consumption of resources and minimization of environmental damage (Johnson and Scholes, 2003).
Legislative Factors – There are various government rules and regulations which have an effect of functioning and performance of Tesco. The policies of government of UK on monopoly controls and reduction in power of buyers will limit entry to this retail sector with presence of control like license (Myers, 2004). With the aim to implement politically correct pricing decisions, Tesco offers its consumers a reduction in prices on fuel purchases based on amount spent by them on groceries at its stores.
- There is a growth in supermarket of UK so Tesco can make use of its low cost structure and improved skills of merchandising to achieve its objectives in future.
- Tesco can make use of its telecoms so as to improve and develop retail services. it can increase its approach towards banking by capitalising its brand in other sectors also.
- The health and beauty ranges of Tesco in UK are in its growing phase so the company can invest in huge amount in this also as this will be progressing.
The European Union (EU) is an economic and political union consisting of 28 member states. A member state of European Union is a state which is party to all treaties passed on by European Union. With this, member states are subjected to obligations and privileges of membership of EU. This membership with EU places each member state to bind with laws in exchange for their representation in judicial and legislative of EU. United Kingdom is also a part of member states of EU. It is now believed that UK would be better off outside this political bloc of EU and now it seeks to withdraw from EU (McDonald, 2000). Until now, none of the member states of EU has lets the bloc but after joining of UK into its precursor, the European Economic Community in 1973 decided to put a referendum. This was put in 1975 on continuation of membership of UK. Since polls of 2010 in UK, there has been a consistent favour of withdrawal of British from EU. In January 2013, David Cameron, British Prime Minister promised for a referendum on membership of Britain in EU if his party win a majority in the next general election (Tyc, 2008).
- As a member state of European Union, it is possible for UK to become one of the largest economies of the world. UK is also the largest single market of world and enjoys an economy larger than that of USA. All this has been possible with membership of EU. There is estimation that 3.5 million jobs in Britain are directly or indirectly linked to trade of UK with other member states of EU. The economic benefits which UK is able to enjoy are because of its membership with EU. In addition to this, being a member of EU, the Britain is able to be a part of making rules and regulations of the single market (The Economic Benefits to the UK of EU Membership, 2009).
- Britain is in need of EU for not only economic benefits but also for financial regulation. In order to influence market of Europe, it is need of UK to work with other member states of EU.
- EU provides business benefits also to the British directly. The registration of industrial designs and Community trade mark are two way laws of EU which has now made business and protected intellectual property less bureaucratic. EU can now register for an industrial design and trade mark and get is recognized for all its member states. The competition law of EU has been of great importance and new way is opened for new entrants into markets which were not allowed previously which also enables British companies to expand on the continent (Stanek, 2001). This is valuable for British employers as they are able to get a wider pool of employees and has an access to a large and talented workforce.
- This allows personal benefits as individuals are free to travel and work or study anywhere in EU and none of the European citizen needs a visa to visits another country of EU for up to three months. The EU citizens have facility to vote and participate in local and European Parliament elections at wherever place they are residing in EU.
- Membership with EU also provides health and social benefits. The EU Health Insurance Card is a free card that facilitates the citizens of EU to receive emergency health care on the same terms as that are within the EU country they are visiting at that time.
- Membership of Britain with EU provides crime benefits also. The (EAW) European Arrest Warrant has been playing an important role in bringing criminals to justice across borders of member states preventing the delays in justice that used to come in past (Barnes, 2003). In 2009, UK issued 220 EAWs and of them 80 were executed with success.
- The biggest disadvantage for UK of continuing membership with EU is that costs of EU has been increasing for UK. There is a lot of bureaucracy behind being a member of EU.
- There a lot of inefficient policies within EU which are implemented on member states also. A large percentage of spending of EU goes on Common Agricultural Policy which distorted agricultural markets by placing minimum food prices for many years. This caused lot of economic problems for UK (Britain says EU membership review reveals pros and cons, 2013).
Concepts of demand and supply
In the context of economics, supply and demand are the most important concepts. Demand refers to the quantity of goods that a consumer desires to have and has the ability to pay for it. It is both the willingness and ability of consumers to pay for the goods desired. Quantity demanded is the specific amount of that product that buyers are showing a willingness to buy at a given price. On the other side, supply is defined as that quantity of product or service that a market place can offer to customers. Quantity supplied is the amount of product that is offered by suppliers (Cho, Permyakov and Ogwang, 2007). Both supply and demand together determine market price of a product. It is a balance of the two components.
Price elasticity of demand
Elasticity refers to the degree of responsiveness of one variable on another. This means that how much change in demand is caused due to change in its price. It is the concept which gives percentage change in quantity demanded in response to a one percent increase in its price and all factors of demand remains constant (Principe and Eisenhauer, 2009).
If the percentage change in quantity demanded is more than percentage change in price then it is said that demand is elastic. This indicates that if price of god changes then there is considerable change in its demand (Price Elasticity of Demand, 2013). On the other side, if percentage change in quantity demanded is less that percentage changes in price then it can be said that demand is inelastic. This means that if price of a product changes then change in demand is not up to that extent. If there is equal change in price and demand then this is known as unit elastic.
Price elasticity of demand helps the firms to take pricing decisions of their products and price elasticity determines the prices (Hughes and et.al., 2006). For example, if a product is a necessary good like wheat then its elasticity of demand will be inelastic as change in its price will have very little effect on its demand. It will be consumed at any price by the consumers. But on the other side, elasticity of demand for luxury goods is quite elastic as change in their price will have an effect on change in their demand and if their prices are high then they will be demanded in less quantity (Rainbird, 2004). Also, if a product has its close substitute available then it will have an elastic demand as customers will switch to substitute product if price increases.
From this report, it can be concluded that business context and environment is important which need to be analysed before taking decisions in business. A proper evaluation of internal and external factors helps to understand the critical issues in the market and then act upon them.
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