External Business Environment
Analysis of External business environment
External business environment includes a range of factors such as social, political, economic, technological, legal and environment which put its huge impact on the development of various industries operating in the market (Mugurel-Alin, 2014). Service industry is one of the leading and growing sectors in UK which is focused on rendering better quality of services to its customers related to accommodation, food and beverage as well as transportation. This includes various sub industries such as hospitality, travel and tourism, airline as well as agriculture. In the present report, external business environment of the service industry has been discussed. For better understanding of this report, Hilton hotel is selected.
UK economy mainly includes two types of sectors including private and public sector. Private sector organizations are established by entrepreneurs or individuals whose main purpose is to generate profits behind conducting its business activities. However, many private firms are organized by individuals who may be controlled by different organizations or people. For instance, these types of businesses are organized by shareholders who can be institutional or private investors (Useem, 2014). On the other hand, public sector organizations are financed and controlled by the local and central government of UK. In this sector, products and goods are delivered to the community through local government, public corporations as well as statutory agencies. Main aim of public sector is to ensure the welfare of community’s thorough rendering better quality of products and services instead of generating profit.
While considering the GDP rate, UK economy is considered as the sixth largest economy in the world and it is the tenth largest economy according to the measurement of purchasing power parity (PPP) (Structure of UK economy, 2013). In case of UK economy, service industry mostly contributes in analyzing the national income and enhancing its growth rate in the world. Service sector contributes in GDP by covering 78% share. This industry includes various businesses such as hotels, restaurants, bars, pubs, travel agents, lodging, conference centers, airline companies and banqueting organization. This industry contributes in enhancing the revenue of UK by rendering various taxes such as income tax, value added tax, council tax, fuel duty and many more.
In order to conduct its business practices in a legal manner, service industry which includes businesses such hotels, travel agents and airlines needs to be followed the economic policies of UK government (Carroll and Buchholtz, 2014). In service industry, Hilton hotel is one of the leading and growing hotels in the UK which is focused on providing better quality of services to its customers that are related to accommodation, food and transportation. Along with this, it follows all the economic policies of government for conducting its business in a legal way. Major economic policies made by UK government are as follows:
This policy is maintained by the central government and tax authority of UK. This policy is used to adjust the level of tax rate as well as spending for the purpose of controlling and regulating the economy (Gitman and McDaniel, 2008). It is essential for the organizations working in business and service industries to pay tax properly according to their revenue and profitability as well as the tax rate set by the UK government. This tax revenue is spent by the government for the development and growth of country.
Monitory policy is control by the Central Bank of UK for the purpose of supplying money by setting interest rate according to the condition of market. With the help of monitory policy, various activities related to banking operations, credit system and proper utilization of money supply are managed by the UK government (Meade, 2012). Fluctuation in interest rate puts its impact on the wages of individuals that leads them to invest less money on entertainment and leisure. Thus, it also affects the revenue and profitability of service industry.
Income of individuals can be termed as an amount in terms of monitory fund or payment which has been given to the employees by employer for working in his or her organization. Income of individuals puts its huge impact on the budget of customers (Hult, Hurley and Knight, 2004). So, service industry needs to consider this factor at the time of setting the prices of its services as well as goods.
Employment includes the procedure of selecting and recruiting candidates for fulfilling the goals and objectives of organization. For rendering better services to customers, it is required for the hospitality, travel and tourism industries to recruit qualified and talented employees.
Wealth includes the number of valuable resources in terms of money, property, businesses or other resources which are possessed by an individual, region, community or country. Availability of wealth is the term which is used to classify individuals into class including high level, middle level and lower level (Batini, Jackson and Nickell, 2005). By considering this factor, businesses should focus on rendering different variety of products and services according to the class of customers.
It is the term in which population living in a society is classified on the basis of economic function, skill level and social class. This classification should be identified by the business operating in service industry for understanding the needs of customers along with providing services according to those needs.
Demographic trends include the following changes that come into the human population over a duration of time. These changes are related to age, geographical location, education, gender, marital status, race, income, health and religion. These factors are necessary to be considered by the management of Hilton Hotel at the time of performing its employment functions. One of the major factor that influences the employment patterns of hotel is income (Bridges and Thomas, 2012). This factor influences Hilton to provide better salary to its employees as per their expectations otherwise, it can lead to enhance the level of employee turnover which will be not good for the development of company. Another factor is religion which generates problems for hotel management in maintaining proper communication due to availability of language differentiation. Age is also a major factor that influence the employment patterns because hospitality industry needs young and smart people to deal with customers effectively and it also needs employees which can work in the both shifts as it provides 24*7 services.
Social structure of people includes various levels of social classes that can be distinguished on the basis of income, wealth, position and status. Social structure involves different kinds of factors such as lifestyle, attitude, income, educational status, religion and family which needs to be considered by the service industry at the time of dealing with people employed in it. In social structure, income is one of the major criteria which puts its huge impact on the needs and requirements of employees (Walker, 2009). Along with this, education level is required to be analyzed while taking decision about the job analysis, job description and person specification. By using educational level, business entity can recruit separate candidates for the separate position. For instance, manager must have qualification of M.B.A in HR and chef must have at least 5 year experience in cooking with the qualification of diploma in this field. Further, religion factor is also required to be focused by airline companies and travel agents at the time of selecting new employees.
UK local government is mostly focused on the welfare of society through ensuring the level of products and services provided to them by the hospitality and service industry. Due to this aspect, government is mostly focused on influencing businesses to follow the rules, regulations and policies made by them in order to maintain the safety standards in its practices. Along with this, they also develop different legislation related to environment safety, employment policy, minimum wage rate, labor policy as well as other legal issues. Following all the legislation and policies leads to enhance the cost of the management of Hilton (Altonji and Doraszelski, 2005). In UK, various types of authorities are working for the welfare of communities including country council, district council, metropolitan district, unitary district and London boroughs. These all authorities are responsible for giving permission for the establishment of new project in the country. So, approval from theses authorities is necessary to be taken by Hilton before opening its new hotel or any project. Further, UK local government always tries to take some major decisions for promoting tourism activities in that particular city and also focuses on enhancing the development of hotels such as Hilton.
European Union (EU) is a professional and political body in UK which has 28 member states. Main aim of this union is to provide proper guidance to its member companies for performing its practices in a legal manner (Rennie and Leigh, 2008). Along with this, it renders financial support to all of its member states for the development of its business. In case of service industry, airline companies, hotels, restaurants and travel agents are needs to follow all the policies made by EU in order to operate its businesses in an effective manner. Policies made by EU for the better development of service industry are as follows:
Pressure groups can be defined as those groups which can influence public policy for the purpose of their own interest. Along with this, pressure groups consist the power to affect the rules and policies that are made by regulatory bodies. In case of Hilton, this type of group influences management to perform their business practices in an ethical and legal manner in order to ensure the safety of environment as well as society. Main aim of this group is to protect the local environment of city by taking legal decisions. This group can also be influenced to political actors to perform their duties in a proper way (Richardson and Mazey, 2015). Pressure groups are mostly focused on reducing the impact of hospitality industry on environment related to CO2 emissions, climate change and damages of natural resources as well as wastage of water, food and beverages. Food commission is one of the main examples of pressure group which is working in the UK for minimizing the level of food wastage in the respect of hospitality industry. In accordance to this, it is required for the management of Hilton to coordinate properly with the pressure groups.
Legislative process of EU and UK is very complex as it is very tough for Hilton to deal and follow the rules and regulations of government. Legislative process of EU and UK directly influence the business operation of Hilton to a higher extent. Legislative process of UK includes several policies such as Health and Safety act, Anti-discrimination Act, Human Right Act, Equality Act as well as employment and labor policies (Bridges and Thomas, 2012). In accordance to the Health and safety Act, it is essential for the management of Hilton to ensure the safety of customers and its employees at workplace. Further, labor policy influences hotel management to provide proper wages to its employees as per the industry standards. In case of equality act, it is needed for organization to provide equal opportunity to its all employees without any discrimination at workplace. It is also requited for business entity to render healthy and friendly environment to its workforce. Thus, legislative policies influence Hilton to perform its practices in a fair manner at both local and national level.
Main businesses that are operate in the hospitality sector including hotels, resorts, restaurants, pubs etc. Main aim of these all businesses is to provide better quality of accommodation to its customers or to render high quality of food items and beverages or both. Description of these two services and its characteristics are as follows:
This service is provided by the management of hotels, resorts and motels including Hilton hotel. Businesses in this category include the objectives of rendering better lodging facilities to its customers as per their needs and requirements (Useem, 2014). Further, these businesses have objective of rendering memorable experience to its clients by giving them outstanding accommodation. Some of the characteristics included in this category are as follows:
It is one of the important services included in the hospitality sector. This service is provided by the businesses such as restaurants, fast food restaurants, pubs, bars as well as some high level hotels which include restaurants. Some of the characteristics included in this category are as follows:
Structure of a private company involves board of directors, shareholders, middle level managers and lower level employees. Every person in company has different roles and responsibilities which are necessary to be fulfilled by all of them in an effective manner. In order communicate about their responsibilities, various processes can be adopted by the management of company. In case of shareholders, annual meeting is the best sources for the communication and interaction. It is necessary for organization to involve shareholders in decision making process by conducting meeting in order to get better solution for the further improvement (Altonji and Doraszelsk, 2005). Further, to communicate employees about their responsibilities, official mail system can be considered by the middle level managers. Further, middle level manager and board of directors can communicate with each other in order to delegate duties and responsibilities through conducting meeting on weekly and daily basis.
From the above study, it has been concluded that external business environment may have huge impact on the business practices of service industry including hospitality, airline, travel and tourism etc. External business environment includes several legislative policies, social structure of people working in industry, economic policies, structure of local and national government etc. which put its both positive and negative impact on the business operation of the organization as well as its revenue and profitability.
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