Governance in the Business Environment

Question: Section 1 Understanding the organisational purposes of businesses. You will need to: identify the purposes of different types of organisation. describe the extent to which an organisation meets the objectives of different stakeholders. explain the responsibilities of an organisation and strategies employed to meet them. Section 2 Understanding the nature of the national environment in which businesses operate. You will need to: explain how economic systems attempt to allocate resources effectively. assess the impact of fiscal and monetary policy on business organisations and their activities. evaluate the impact of competition policy and other regulatory mechanisms on the activities of a selected organisation. Section 3 Understanding the behaviour of organisations in their market environment . You will need to: explain how market structures determine the pricing and output decisions of businesses. illustrate the way in which market forces shape organisational responses using a range of examples. judge how the business and cultural environments shape the behaviour of a selected organisation. Section 4 Assess the significance of the global factors that shape national business activities. You will need to: discuss the significance of international trade to UK business organisations. analyse the impact of global factors on UK business organisations. evaluate the impact of policies of the European Union on UK business organisations.? Answer: Introduction: In this assignment, a thorough understanding is made on the different type of market structures, influence of stakeholders and relationship of an organization with the local, national and global environment. Section 1 The purposes of different types of organization are as follows: Public Sector The purpose of the organizations that work in the public sector is to serve the society rather than making profit. Private Sector The purpose of the organization which is working in the public sector is to gain profit from the services along with providing high quality services to the people (Aras and Crowther 2011). Sole trader The purpose of a sole trader is to provide the products and services to the people along with gaining profit. The sole trader takes the responsibility of all the debts and profits. The type of business that is owned by the sole trader are the specialist services like the plumbers, hair dresser or a photographer is sometime known as sole traders . There are a number of advantages and disadvantages: Advantages: This type of trade is very easy to set up and there is no need of any type of legal documentation. There is only a small amount of money is needed to be invested initially. The entrepreneur can make the decision solely. Disadvantages: As the whole business is ran by him solely so it might be that he may not be good in handling. Sole traders they need to work for longer hours so they do not get time to for vacations. The liability lies upon them when business fails. Partnership The purpose of the partnership is to divide the work, the profits as well as the losses equally among more than one businessperson. However, there should be a legal agreement among the individuals who are working in partnerships with each other Incorporated Company Private Limited Company (Ltd) The purpose of Private Limited Company (Ltd) organization is to give the individuals of the company a chance to posses the shares of the company. The people will get the profit if the rate of the shares increases (Baron 2013). Limited Liability Partnership (LLP) The purpose of Limited Liability Partnership (LLP) is to prevent the partners to pay the debts individually. Both the partners should clear any debts. Public Limited Company (plc) The purpose of the Public Limited Company (plc) is to invite the public to hold the shares of the company rather than the owners of the business Voluntary Organization: The purpose of the Voluntary Organizations is to provide products and services for the people, which are not aimed at gaining profit (Bansal and Hoffman 2012). Charity The purpose of the charitable organization is to help the poor, enhance the education, religion, health care, development of the community, enhance the culture, human right, and environment and prevent any conflict in the society Cooperative The main purpose of the cooperative is to work for the betterment of the members. The cooperative may or may not work for the non-members. The extent to which an organization will go meet the objectives of the stakeholder depends on the types of stakeholders. Primary: Primary stakeholders are the staff and shareholders of the company who take keen inertest on the operations of the company. Hence, the organization take special interest in carrying out he demands of the primary stakeholders (Baxter-Southworth 2011). Secondary Internal The internal stakeholders are the staffs of the company at various levels. Thus, the organizations take good interest in meeting the objectives of the internal stakeholders External The external stakeholders are mainly interested in the profits and the business of the organization. However, the organization is liable to meet the objectives of the external stakeholders as they also act as the financial assistance for the organization (Baron 2013). Connected The connected stakeholders like the trade unions, customers and the suppliers who have little power. Thus, the organization takes care of their interest but they are the secondary priority for the organizations The extent to which the organization meets the objectives of the stakeholders is as follows: Investors: The provider of the risk capital and the advisers are concerned with risk inherent in and return provided by the investment. Information is needed to help them is decide upon whether to sell o hold back on the stocks The shareholders they are also interested in assessing the ability of the enterprise to pay the dividends. Employees: The employees for understanding the profitability and stability of the employers need information. They are more interested upon the ability of the enterprise to provide benefits of retirement ,remunerationand many more Lenders: The information that is required by them was to enable them to determine whether the loan and the interest attached will be paid when due. Customers: Information about the continuance of the enterprise and its long term involvement interests the customers. Government Agencies: The interest of the government officials is on the allocation of resources. Information is also required by them to regulate the activities of the enterprises. The responsibilities of an organization and the strategies are as follows: Social Responsibilities The responsibilities of the organization towards the society or the general people are termed as social responsibilities. The strategies to meet these responsibilities are to adopt environment-friendly ways to do business and introduce policies that should be followed by the stakeholders. The organization must be ethical in its conduct of business. Taxes should not be avoided for example, as this is treated as unethical. There is a range of policies, which is advised to the stakeholders about the social responsibility, which covers the number of operational area, that are covered. Examples: The social responsibility is of primary concern for business and companies. Thus, they are always up to making the environment better through community development. Legal Responsibilities The legal responsibilities include the actions of the company towards the law of the country. The organization should implement the strategy of paying the tax in time to avoid getting involved in kind of legal problems (Schaffer and Schaffer 2012). Legislation leads to imposition of the obligations on the organization which it must comply with or might face legal redress. The organization type and the framework in which it operates would help in determining which legislation considered as appropriate Example: If an organization is an incorporated company then it must register itself with Companies House to ensure that the details regarding share capital and ownership are kept up to date. They must complete the returns and pay the corporation tax on the profit each year. Stakeholder Responsibilities The strategies that can be implemented to carry out the social and the legal responsibilities can be applied to the stakeholder responsibilities as well. The organization must look into the responsibility of the stakeholders. The fall of the interest of both the legal and social is undoubtedly important to understand the specific responsibility of the stakeholders. Example: The responsibility of the government is to collect tax from the inland revenue, excise and custom duty. The duty of the shareholders would be in the growth of the capital of the shares and the dividends. Section 2: Allocation of resources in the economic system: The sole traders are also guided as per the economic system. This will help them is effectively allocating their resources. Economic system is a system where there is production, exchange, allocation of resources and distribution of the services and the goods in the society in a particular geographical area. Every type of organization functions within an environment. There are different types of economic systems that are functional in different regions. There are three types of economic systems and they are traditional, command and market economy. The allocation of the resources in these economic systems is governed by the three primary questions: what to produce, how to produce and for whom to produce. In the traditional economic system, the production of goods depends on the tradition and the roles that are passed on through generation. The way to produce the good is determined by the custom and is used by the traditional families and social units. It is mainly used by the Aborigin es of Australia , Mbuit of Cental Africa and Inuit of Canada. In case of the command economy and market economy, the government and individuals respectively determine everything related to production (Pollack, 2011). The market and command economy are the extreme economy, which are not adopted wholly. The command economy is more pronounced in Old kingdom Egypt, middle ages in Europe and Zhou Dynasty of China. The market economy example are found in United States , Australia and Canada. The size of the economy is dependent on the GDP. Majority of the countries are seen to follow mixed economic systems. The market economy is more accepted form in many of the countries as all the countries have the national interest, which is to be paid for emergency services, politicians and defence. The drawback of command form of economy is that there are very little choices available to the customers as the government decides everything. The traditional economy operates in a small regions and the decision is based on the barter system, which is currently not accepted by the countries. Effect of monetary and fiscal policy on the activities of business: The monetary policy and fiscal policies have serious impact on the functioning of the business organization. The government governs the fiscal policies while the monetary policies are governed by the central bank of the country. The changes in the spending by the government and taxation affects the demand level of the economy (Palmer and Hartley 2012). In order to achieve lower taxation on profit or increase in tax on allowances, when there is investment made by the organization on the equipments and the staffs then fiscal policy is used. This will increase the profit as well as the expenditure on the resources by the firm. The more is the spending done by the government on firms who export would help generate more employment. The problem that is sometimes faced by the organization is that the workers can demand for higher pay due to rise in inflation because of increased spending by the government. Monetary policy tends to influence the variables like the interest and money supply that helps in regulating the economy. The low rate of interest is encouraged by the organization as it helps the business to expand. Business functions well when there is more supply of money in the economy (Morrison and Morrison 2011). Example: The expansionary monetary policy was implemented in the United States during the Great Recession. Fiscal policy: The Economic Stimulus Act of 2008in US helped in boosting the economy by sending the taxpayers 600 or 1200 dollars depending upon the marital status and number of dependents I think there should be a proper blend of the monetary and the fiscal policies so that the impact on the activities and the business organization is positive. Impact of the competition policy and activities related to regulatory mechanism on the selected organization. There are specific types of industries where the government can affect the market through the regulatory mechanism and competition. The legislation, Enterprise Act (2002) and the Competition Act (1998) of UK has three types of objectives: Exclusion of the practices and agreements tend to restrict free trade and competition in between the business entities. Banning of dominant firms with abusive behavior and anti competitive practices leading to the dominant position Supervise the mergers and acquisition. The threatening competitive process must be restricted (Miller 2011). The regulatory mechanism of the government helps in controlling activities of the organization. This includes the way taxation helps in encouraging the investment. The increase or the decrease in taxation depends on the skills and training, industrial policy, development in the region and environmental protection. The stated owned agencies that has been privatized are Ofwat , Ofcom and Ofgem. The competition commission regulates the other markets and organization. Section 3 Determination of price and output in the different market structures In case of any type of organization, the equilibrium price and quantity is achieved through the interaction of the supply and demand. There are different types of market structures and each has different way of determining the price and quantity: Perfect competition: In form of market, there are a number of suppliers andno barriers to the entryof firms. The customers are no willing to pay if the product is expensive and too low price is also not acceptable by the producers. Thus, the demand and supply is in equilibrium. Monopolistic: There are many suppliers of the products but the product sold is slightly differentiated. The organization s they carry out different type of pricing strategy. Oligopoly: There are only a few firms dominating the market because there are barriers to the entry of the firms. The organizationsin this form of structure needs to decide on whether to collude or compete, whether to charge a higher price of lower price and whether it is better to take the first move or wait and follow the strategy of the other firm Duopoly: In this type of market, there are two types of organizations controlling the market. Two organizations they compete with each other with respect to price so that they can attract more customers or supply where they effectively agree to share the market. The sole traders may perform in any type of market structure in which their profit is maximized. There are risks associated to the customers due to the lack of competition about the price and quality of goods so the competition policy promotes competition and prevents oligopoly and duopoly (Besanko, Braeutigam and Gibbs 2011). Examples showing the ways in which the forces of the market shapes responses of the organization: The demand and the supply of the products is affected by the availability of the quantity of goods and the services available and the price that is paid to them. It has been seen that when there is relatively inelastic demand there is plenty of supply by the purchasers of the services and the goods. There is also more power to choose and obtain the products. In case of monopolistic competition, strategy must be done carefully and consider what their customers want and need. I think that market forces play an important role. The market forces help in shaping the responses of the organization and this can be shown with the help of the following real life examples: In a duopoly market where Coca cola and Pepsi has a large marker share,they are seen to share the market with lesser investment made on advertising and price competition so that one can be dominant than the other. The electric and the gas companies of UK and the operation of the super markets fall into the category oligopoly. The electric and the gas companies they provide differentiated goods but have similar cost structure so when an organization makes a move the other organization follows it. This is because the products are slightly homogenous. Super markets compete on the services, values and prices. The influence over the suppliers is more by the supermarket rather than the gas and electric industry. Restaurants are form of monopolistic market, where the price and quantity sold depends on the reputations and the quantity provided.This is the reason why the Michelin 5 star rated restaurants cost more than ordinary restaurants (Hulleman and Marijs 2012). Change of behavior of an organization due to the cultural and business environment. In any type of trade, the environment plays a crucial role; this environment also affects sole trades. The macroeconomic environment of an organization is influenced by the following factors: Political: This is shows how stable is the political environment it is related to the fiscal and monetary policies Economic: This shows whether the economic environment is favorable for business. Social: The population structure also affects the functioning of the organization. Technical: If technological development is sound then it is said to be favorable for the business. Ethical or Environmental: The affect of the organization due to the current environment. Legal: Whether the legal framework in the country, helps in assisting or hinders the business operations (Chorafas 2011). Example: PEST for Coca Cola: Political Analysis: The government tries to regulate the manufacturing procedure of the products. The product is subjected to the Occupational Safety and Health Act. Economic Analysis: The recession of 2001 made the US to take up aggressive actions. The company Coca cola took note of this and knew that the interest on the loan is likely to rise when there is return back of the economy. Social analysis: To maintain a healthy lifestyle of the consumers, the company introduced diet Coke. Technological Analysis: The Company is constantly upgrading the technology such as changing the design of the packages so that more customers are eager to purchase. The micro economic environment of the organization depends on the Porters five forces: Strength and level of competition Threat of new entrants Threat of product substitutes Power of the buyers Power of suppliers Example: Porters five forces for Coca cola: There is high level of competition faced by the company Coca Cola.The main competitor for the company is Pepsi. There are minimal barriers to the entry of new entrants. Company from the new entrants faces medium pressure. There are a large number of substitutes available in the market like soda, juices and energy drinks. The individual buyer has no pressure on Coca Cola. The large firm like the Wal-Mart has more bargaining power but lessens with respect to the brand loyalty of the customers. The bargaining power of the supplier is lower for Coca Cola. Section 4 When engaging in any type of business the sole traders need to adhere to the global policies so that it can transact business internationally. The international trade has a significant role to play for both the supplier point of view as well as the customer perspective for the organization, which are working in the UK. As the resources and the customers are not equally available in the market of UK, hence the international trade helps the organization to trade products put of the country as well as get raw material from the foreign countries. A car manufacturer in UK can manufacture more products than it is demanded in the UK. The manufacturer can then export the products in other parts of Europe as well. The cost of human resource is also different in different countries. Hence, if the organization in the market of UK wants to do a particular business that is not possible in the UK, then they can do the business elsewhere by hiring the staffs from that particular country. As the cli mate is not favorable to mine diamonds or grow bananas or grapes in the UK, they can move out to a place, where the climate is favorable as well as human recourses is cheap (Du 2013). The global factors can affect the organization in the UK either negatively or positively. The international trade comes under the positive impact when the organization is able to export a well as import products and services from the foreign countries. The government of Europe has removed the rules and restrictions from the trade. Hence, the foreign organizations organization can do free trade with the organizations in the UK (Hamilton and Webster 2012). On the other hand, the natural disaster and financial downturn in the foreign countries also affect the market of UK. For example, the financial crisis in Greece and the natural disaster in Japan and Peru affect the trade with these countries with the UK. Some other global factors that affect the trade of the UK are: Kyoto Protocol Rio Earth Summit Third World Poverty G-20 Global Financial Stability The policies implemented by the European Union aims at providing a common market for all the countries where they can trade freely. The European Union started in the year 1958 with six members. The countries re benefited because the import and the export tariffs were removed with a common tariff applied to all. The countries are assured no obstacles to cross-border travel and trade, there has been a standardization on the legislation regarding the technical and safety standards, the legal barriers ion trade was abolished, the VAT rates were similar and the qualifications of the employees are recognized equally among the countries (Gil Aluja and TercenÃÅ'Æ’o 2012). Hence, an organization in the UK and another in Germany can compete directly as the legal regulations a d rules will be equal for the two countries under the European Union. Conclusion: The overall assignment helps in understanding the purpose of the business, the environment of the business in which it operates, behavior of organization in the market and significance of the global factor on shaping of business activities. 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