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Positive and Negative Impact of Macro Environmental Factors

University: REGENT COLLEGE LONDON

  • Unit No: 1
  • Level: Undergraduate/College
  • Pages 8 / Words 4000
  • Paper Type: Assignment
  • Course Code: L/508/0485
  • Downloads: 0
Answer :
Organization Selected : Zara

INTRODUCTION

Environment of a business means internal and external forces which influence business decisions, these elements are out of control of a business organisation. Business environment is totally uncertain cause it is quite difficult to predict future happenings, especially when environment changes occur too frequently due to information technology. An enterprise should constantly monitor environment and acquire appropriate practices which will improve current performance and ensure market success for long run. Due to globalisation, business environment of UK has totally changed in respect of creation of networks and activities that could transcend economic, social and geographical boundaries of the nation (Hilton and Platt, 2013). ZARA is the chosen organisation in this present assignment, its a Spanish clothing and accessories retailing firm that was implemented in 1975. Basically, Zara is a flagship company of Inditex group which own brands are – Pull and Bear, Massimo Dutti etc. Due to its global market presence, the brand has a wide network of supply chain. Apart from this, the present report is going to be described various types of business organisations, such as – public, private and voluntary. There will be a discussion on interrelationship between all organisational functions in accomplish goals and objectives. Furthermore, internal and external analysis will be conducted so as to take imperative business decisions. 

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TASK 2

P3 Relationship between various organisational functions and it is related with organisational objectives and structure

In this competitive era, large business organisations are tend towards applying cooperation between all departments of the firm thus to grab better future opportunities. It also helps the firm to attain and its mission and vision statement at marketplace. Following is defined various department of Zara, such as -

  • Finance department – The most common role of finance department is to make documentation and put a control over incoming and outgoing cash within an organisation. Finance manager of Zara determines cash flows and keep them up to date, assess performance of the organisation as well as evaluate straight away (Cai and Yang, 2014). Another important role of finance department is preparing budgets, financial statements (trading accounts, income statements and balance sheets). Due to introduction of computerised system, all this can be done far quicker and required less labour incentives.
  • Human resource department – This department of the company is liable for managing entire workforce in a systematic manner so as to reduce labour turnover. Human resource department of the company is liable for recruitment and selection and for this certain strategies are put into action. In this tone of competitive vying, firms are trying to retain best talent and for this HR managers organise several training and development programmes thus to improve skills and knowledge level of the firm.
  • Operational and production department – In manufacturing companies, operational department is liable for making products which are offered to customers. This division create outlines for products as well as making plans for productions; it involves quantity of raw materials, volume of goods etc. Along with this, production department also ensure about the availability of raw materials and determine whether goods and services are being delivered to customers on time (Chavis, Klapper and Love, 2011). It also test a product's quality as it will be satisfy customers' needs or not.
  • Research and development department – This department of the company is responsible for conducting market research thus to recognise needs and wants of target audiences. It also collects knowledge current and future market trends as well as who are or will be the competitors of the company. By gathering adequate marketing information, managers can easily improve their strategies and policies which supports to attain goals and objectives of the company.

Organisational structure of Zara -

Zara is affiliated with Inditex group thus, the actual organisational structure of the company was traditional. Here, department of operation, product development, finance and department of market research all were independent. But as per the time passes, certain changes has been made in organisational structure of the company. Buyers is consider at top most for getting information, orders, sales processes and further developments. Organisational structure of Zara relies upon buyers of the work of coordination and communication. Since, all departments of Zara work cooperatively and no barriers of communication (Commander and Svejnar, 2011). In this, units and its employees are allowed to get free access to take any necessary information or data. Henceforth, increasing speed of coordination improve operational efficiency of the company; it results accomplishment of goals and objectives in an effective manner.

TASK 3

P4 Positive and negative impact of macro-environmental factors

Macro environment consists all those internal and external factors which has direct and indirect impact on growth and success of the company. All these elements also reflect decision making process as well as operational activities of firm; thus management must recognise them and prepare necessary strategies to compete with macro environment factors. Following is defined positive and negative impact of external business environment on growth and success of the company, such as -

Basis

Meaning

Positive impact

Negative impact

Political factors

Political factors are those that has a vast impact on business associations, i.e. financial regulations of the nation. In UK, government has interference on public and private sector as well through taxes as well as restricted certain products suddenly.

Zara is a multinational brand located worldwide; thus the brand is managing its political relations with all nations and work by considering political decisions (Cuervo‐Cazurra, 2011).

After Brexit, UK economy will work independently as there is no interference of EU in import and exports of products in any nations.

Changes in laws of industrial licensing and easy entry in foreign firms increase the level of competition for UK firms.

Apart from this, after leaving EU, UK economy faces several circumstances and issues which covers backlash to globalization, inequality, the growing divide between cities and rural areas, identity, and the future of the nation-state.

Economic factors

It consider all those elements which reflects economic growth of the nation and the firm as well; it is essential for decision makers to keep proper knowledge about inflation rates, interest rates, exchange rates and so on. It defines that entire world is facing global recession thus customers will spend as per their global recession.

As a developed nation, UK has strong economic condition; it results businesses can easily spread their market area. Due to high disposable income, customers will purchase qualitative cloths from brand like Zara.

Apart from this, to compete with external environment Zara has acquired affordable pricing strategy.

In 2008, economic recession had hurt corporate associations deeply in respect of decreasing sales and profits.

Rises in production or labour costs also expand financial burden on companies (Gebauer, Paiola and Edvardsson, 2010).

Social factors

It seems to impinge on clothing industry as customers spending or purchasing habits are changing as per their economic stability.

As this over dynamic environment, needs and wants of customers are altering day by day. In order to determine this, Zara conducts market research through social media sites so as to familiar with market trends.

In order to attract customers' it is essential for businesses to get involved in fulfilling social responsibilities towards society.

But the main objective of firms is to earn high profits and it is quite difficult for ZARA to consider value, cultural and beliefs of society while performing.

Technological factors

Digital technology has made easier the process of working, i.e. manufacturing to marketing to distribution. It also help firms to interact with its target audiences.

Zara is known as most disruptive name in fashion industry; the reason behind this is to utilise new technology which increases sales and profitability of the firm (Halbert and Ingulli, 2011).

 

Apart from this, technological advancement reduces the need of workforce which may raise unemployment in an economy.

Hacking or cyber crime can be a big issue.

Environmental factors

In order to sustain for long run and remain successful, business organisations should fulfil their obligations towards environment, i.e. nature and wild life preservation.

Zara has capitalised into sustainability; the brand is a parent company of Inditex which pledged its stores 100% eco-friendly by 2020.

Ignorance of hazardous wastage from supply chain and not considering recycling process can affect market goodwill of ZARA.

Legal factors

Every nation has regulated its own laws and legislations which must adhere by all corporate associations thus not to influence by them.

As ZARA is tend towards building positive market image and for this it focuses on fulfilling certain laws, i.e. data protection act, minimum wages act, health and safety act, labour relations act and so on (Hamilton and Webster, 2015).

If a business is not performing in legal and ethical manner means avoiding government laws then it would not survive for long term period.

 

P5 Internal and external analysis of ZARA

Internal and external analysis of the company can be done through SWOT analysis that is described as beneath: -

STRENGTH

WEAKNESSES

  • The major strength of Zara is having great market presence across the world. As per the latest count, there are over 2100 stores and average sale of 16 billion in a year. It is expanding as per the year passes. The brand is located in 88 countries where its outlets are located at most famous places.
  • Zara is ranked 53 in respect of brand ranking as well as its brand equity is evaluated at whopping of 10 billion dollars. The main reason behind strong brand equity is excellent performance and quality in past decades. Beside this, having a healthy cultural also make a brand being loved by people (Hilton and Platt, 2013).
  • In its stores, Zara modify its designs in 2 weeks whereas its competitors takes almost 6 weeks. This aspect automatically make the brand trendiest among customers. On an average, every year 450 designs are created by Zara.
  • Another strength of ZARA as it is always focused on how to keep customers back towards the organisation. For this purpose, the brand creates new designs and rotate them as per the time; it results people will always see something new whenever they come to the store. As it is the main reason as the brand has large group of target audiences.
  • In 2016, BBC news disclosed that it has founded evidence regrading child labour and employee exploitation in ZARA. By managing its safe side, Zara said that there were some issues but in a one factory not in all. Beside this, instead of taking actions as soon as possible it has taken time period of six months.
  • Due to having highest cutting edge, the chances of greatest risk. Zara is known for new product development and innovation and risks exists if new innovations may falter. As competitors also produce same products which reduces attractiveness of the brand.
  • Zara spends less on promotional and advertising activities as it is consider as significant part which directly impact on sales revenues (Klapper, Lewin and Delgado, 2011).
  • Government authorise of China are publicly scolding Zara cause its has listed Taiwan as a country on their website; it can be another weakness of the organisation.

OPPORTUNITIES

THREATS

  • Merger with Inditex group will provide more investment opportunities to Zara in emerging markets.
  • At present, the brand is located in more than 80 nations and now it is trying to expand business in developing countries; it will offer a chance to exploit market development to Zara.
  • Zara is a status symbol which people loves to wear thus the brand is becoming more popular; it results growing potentials at marketplace (Prajogo, 2016).
  • The main competitors of Zara are GAP, NEXT, H&M, Bentton and further ne w entrants that put an eye to recapitalize its profitability in new markets.
  • Another threat is increasing production costs as well as economic downturn may striking back consumers to spend less.
  • Raising in Euro rate.

 Related Sample:

Use of Pestle and Swot Analysis in Marketing Planning - McDonald's

TASK 4

P6 How strength and weaknesses are interrelated with external macro factors

In this over dynamic environment, it is essential for corporate units to be aware with environmental changes thus to obtain high cutting and retain its competitiveness over the world. But in business environment there are certain macro factors, like – political, social, economic , social etc. which can affect growth and sustainability of the firm at market. Strength and weaknesses of the company also interrelate with these macro environmental factors that is defined as under: -

  • Strength – As the main strength of the company is to have great brand image in UK cause its follows all government laws and regulation which are implemented by British government. Apart from this, economic condition of UK is also strong thus it is reason behind strong purchasing power of customers. Brexit reduces involvement of EU thus United Kingdom will implement its own policies which would beneficial for all corporations which are operating at there, like Zara.
  • Weaknesses – The main weakness of the Zara has it was involved in child labour, labour exploitation and further social social issues which can reduce brand equity of firm at marketplace. Therefore, brand which losses attention of social and cultural aspect of business as well as marketing are considered at the risk of losing its buyers (Savrul, Incekara and Sener, 2014).
  • Opportunities – As Zara spends one third of its profits into research and development activities; it would be a great opportunity for the firm while entering into new markets. The brand launch new design in every 2 weeks cause it is highly involved in innovation and new product development. It has acquired latest technology in its production process which will help the brand to leave a strong mark on customers' mind in 21st
  • Threats – Due to flexible political condition of UK, it allows foreign investments which increases the number of competitors within an organisation. Global economic crises can also reduces the customers' spending power; it leads customers' will not able to spend high amount on purchasing.

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CONCLUSION

From the above mentioned report it get analysed that business environment plays a vital role in growth and success of every corporate association as it encompasses all those factors which have positive and negative impact on working activities of firm. The report has stated various types of business associations, i.e. public, private and voluntary by having their own purpose and legal structure. It is essential for organisations to work cooperatively with all departments in order to accomplish business goals and objectives in the best possible manner. In addition to this, managers of ZARA are required to conduct SWOT analysis thus to determine all those internal and external factors which have a vast impact on future market condition of the company. Apart from this, after assessing positive and negative impact of macro environment management can modify its existing business strategies and policies and gain high competitive edge.

REFERENCES

  • Cai, S. and Yang, Z., 2014. On the relationship between business environment and competitive priorities: The role of performance frontiers. International Journal of Production Economics.151.pp.131-145.
  • Chavis, L. W., Klapper, L. F. and Love, I., 2011. The impact of the business environment on young firm financing. The world bank economic review. 25(3). pp.486-507.
  • Commander, S. and Svejnar, J., 2011. Business environment, exports, ownership, and firm performance. The Review of Economics and Statistics.93(1). pp.309-337.
  • Cuervo‐Cazurra, A., 2011. Global strategy and global business environment: the direct and indirect influences of the home country on a firm's global strategy. Global Strategy Journal.1(3‐4). pp.382-386.
  • Gebauer, H., Paiola, M. and Edvardsson, B., 2010. Service business development in small and medium capital goods manufacturing companies. Managing Service Quality: An International Journal. 20(2). pp.123-139.
  • Halbert, T. and Ingulli, E., 2011. Law and ethics in the business environment. Cengage Learning.
  • Hamilton, L. and Webster, P., 2015. The international business environment. Oxford University Press, USA.
  • Hilton, R. W. and Platt, D. E., 2013. Managerial accounting: creating value in a dynamic business environment. McGraw-Hill Education.
  • Klapper, L., Lewin, A. and Delgado, J.M.Q., 2011. The impact of the business environment on the business creation process. In Entrepreneurship and Economic Development (pp. 108-123). Palgrave Macmillan, London.
  • Prajogo, D. I., 2016. The strategic fit between innovation strategies and business environment in delivering business performance. International Journal of Production Economics.171.pp.241-249.
  • Savrul, M., Incekara, A. and Sener, S., 2014. The potential of e-commerce for SMEs in a globalizing business environment. 
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