Table of Contents
Task 1: Identify different types organizational objectives and responsibilities which lead for organizational success. 3
T 1.1 Identify at least four different types of organizations that exist in the U.K 3
T1.2 Select an organization of your choice and identify its vision, mission and values. 10
T 1.3 Select an organization of your choice and describe the extent to which this organization meets the objectives of its stakeholders. 12
T 1.4 Explain the responsibilities of the organization you selected in Q1.2. In addition, explain the strategies employed to meet these responsibilities. 14
Task 2: Evaluate the concepts of Economic, social and global environment. 16
T 2.1: Explain how economic systems attempt to allocate resources effectively. 16
T 2.2 Assess the impact fiscal and monetary policy on business organizations and their activities. 22
T 2.3 Evaluate the impact of industrial policy, welfare policy other regulatory mechanisms on the activities of a UK organization of your choice. 26
Task 3: Analyze the behavior of organizations and the market environment. 28
T 3.1 Explain how market structures determine the pricing and output decision using examples. 28
T 3.2 Illustrate the way in which market forces shape organizational responses using a range of examples. 30
Task 4: Be able to assess the significance of the Global Factors that shape National business activities. 33
T 4.1 You have been selected by the trustees of your local youth group to make a presentation to young entrepreneurs in the area on the importance of international trade to the local economy. Key to this is a discussion on the significance of international trade to UK business organization. 33
T 4.2 Analyze the impact of global factors on UK business organization. 35
T 4.3 For an organization or organizations of your choice, evaluate at least two European Union policies and explain the impact of these polices on your chosen organization(s). 37
Task 1: Identify different types organizational objectives and responsibilities which lead for organizational success.
T 1.1 Identify at least four different types of organizations that exist in the U.K
1) Privet Limited Company
Private limited company is held by few individuals privately having a separate legal entity. In this, the shareholders cannot trade publicly shares. It restricts its number of shares to 50. Shareholders cannot sell their shares without the approval of other shareholders. It is a company which restricts the right of its members to transfer its shares and it doesn’t send the invitation to the public for subscription of its shares. The private limited company is a proven, successful business model. The business owners hold all shares of the company privately. Shareholders may operate the business themselves, or hire directors to manage the company on their behalf. Forming a private limited company results in protection of personal assets, access to more resources, financial assistance and greater tax cuts.
Private Limited Company is a more complex business structure than a sole trader or ordinary Partnership. A company limited by shares is simply referred to as a Private Limited Company. A private company limited by shares indicates that the company has shareholders whose liability is limited to their capital investment. The shares of a private limited company may not be offered to the general public, unlike those of a public limited company (plc.) and cannot be traded on a public exchange.
Private limited company has main nine characteristics. These characteristics help to control the Private Limited Company. There are;
i. Members – To start a company, a minimum number of 2 members are required and a maximum number of 200 members as per the provisions of the companies act 2013.
ii. Limited Liability – The liability of each member or shareholders is limited. The personal, individual assets of the shareholders are not at risk.
iii. Perpetual succession – The company keeps on existing in the eyes of law even in the case of death, insolvency, the bankruptcy of any of its members. This leads to the perpetual succession of the company. The life of the company keeps on existing forever.
iv. Index of members – A private company has a privilege over the public company as they don’t have to keep an index of its members whereas the public company is required to maintain an index of its members.
v. A number of directors – When it comes to directors a private company needs to have only two directors. With the existence of 2 directors, a private company can come into operations.
vi. Paid up capital– It must have a minimum paid up capital or such higher amount which may be prescribed from time to time.
vii. Prospectus – Prospectus is a detailed statement of the company affairs which is issued by a company for its public.
viii. Minimum subscription – It is the amount received by the company which is 90% of the shares issued within a certain period of time. If the company is not able to receive 90% of the amount, then they cannot commence further business. In the case of a private limited company, shares can be allotted to the public without receiving the minimum subscription.
ix. Name – It is mandatory for all the private companies to use the word private limited after its name.
In the case, if any private limited company doesn’t follow any of the above mentioned characteristics, it ceases to be a private company. Private Limited Company have a more valuable advantages and some drawbacks.
? Advantages of Private Limited Company
? A Private Limited Company is a legal entity; the company’s finances are separate from its owner’s finances.
? The Private Limited Company structure is suitable for profit or non-profit use.
? Protection from personal liability to Limited company owners.
? Private Limited Companies have a reliable legal precedent to guide and direct the shareholders and directors.
? Private Limited Companies have an unlimited life.
? Ltd companies’ may bring additional taxes benefits, and are subject to lower corporation tax.
? Added credibility for Private Limited Companies, which can make it easier for a Private Limited Company to borrow money, raise capital and achieve financing without personal risk.
? Disadvantages of Private Limited Company
? Private Limited Companies must hold annual meetings and the shareholder and directors have specific formalities to observe.
? Owners of the limited companies have less personal control over the company compared to sole traders due to compliance issues.
? A Limited Company is more expensive to set up than a sole trader or partnership.
? Private Limited Companies pay annual fees and have periodic filing obligations.
2) Public Limited Company – PLC
A public limited company (PLC) is the legal designation of a limited liability company which has offered shares to the general public and has limited liability. A PLC’s stock is offered to the general public and can be acquired by anyone, either privately, during an initial public offering or through trades on the stock market. The appellation PLC is more commonly used in the United Kingdom and some Commonwealth countries. The mandatory use of the PLC abbreviation after the name of the company serves to instantly inform investors, or anyone dealing with the company, that the company is public and probably fairly large. A company that trades on the stock exchange. The shares can be traded and sold by any member of the public. It is governed by a set of strict regulations. They are required that they publish a true financial position so investors can determine the exact worth of any shares that they hold in the company. In the PLC if demand is increase its automatically increase the price.
PLC shared have a two types of values.
1. Normand value
2. Market value
While a PLC is also a limited company and shares the advantages of that structure, there are additional benefits. As with any company formation there are some disadvantages for changing to a PLC.
? Advantages of Public Limited Company
? A PLC can, first and foremost, raise capital by selling shares in the company. This is usually a lot greater than the amount which can be raised when you are only a limited company
? Having Company stock listed on a recognized exchange.
? If organization have a large number of shareholders, its essentially spreading risk in the company which can be useful. If managed properly, it can also prevent just one individual holding so many shares that they have an unreasonable control over the future and growth of the business
? The tag of PLC can be a more attractive proposition when it comes to finding finance for growth or for certain new projects. Because creditworthiness is increased. That means banks and other avenues of finance might be more willing to offer loans and credit arrangements than they would if just dealing with a limited company
? That availability of readily available finance, particularly in difficult economic periods, can enable a company to push forward with expansion plans, acquire other businesses and to fund research and development which would otherwise have to be put on hold
? Shareholders benefit from the fact that shares can be bought and sold and there is better liquidity overall.
? There is more prestige and people feel more confident about a business and its reputation and that acts as a form of free publicity
? Disadvantages of Public Limited Company
? The focus is more on protecting the shareholders. That means there are more statutory and legal requirements that your company now has to adhere to
? The level of transparency required for a PLC is much higher than with a limited company. Accounts need to be audited, providing fuller information concerning performance should be made available to anyone who wants to see them
? While with a limited company can maintain control over who has shares, this is a lot more difficult to achieve with a PLC.
? Organization may become far too focused on the short term benefits of the share price, particularly when the business is initially floated on the stock exchange. That could mean compromising or missing out on business overall strategic plan for growth
? The amount of finance that is required to go PLC is higher than with a limited company.
The pros and cons of becoming a Public Limited Company (PLC) mean that most businesses opt for this solution when they have forged a strong enough path in the market and their future success is more or less guaranteed. Getting it right can seriously improve the financial strength of business and move forward to the next stage of company development. Getting it wrong can be catastrophic and always get the best advice before going down this route.
3) Limited Liability Partnerships
A limited liability partnership (LLP) is basically a general partnership, but with the addition of giving the partners at least some limited personal liability. There is only one class of partner. The degree of liability limitation for an LLP varies from state to state. Some states provide a limitation of personal liability that is similar to a corporation. Some states only limit personal liability for the negligence of a partner. Some states take a middle ground, and limit personal liability for a partner’s negligence, as well as for partnership contracts and other debts. Because an LLP is a partnership, it must have two or more owners. A business partner is a co-owner of the business. A limited liability partnership is designed for businesses that usually operate as a traditional partnership. This tends to be accountancy firms, solicitors, dentists, veterinary practices, architects, chartered surveyors, medical practitioners and other professional services firms.
There are no general partners in a limited liability partnership, but an LLP is similar to a general partnership. Each limited liability partner contributes to the everyday business operations. However, each partner enjoys limited personal liability for the other partners’ acts. All states allow some form of LLP, though state laws vary. Note that some states only allow LLP status for professional partnerships, like accountants, lawyers or architects. In all states, limited liability partnerships can only be formed by registering with the appropriate state office.
Limited Liability Partnerships also have a pros and cons.
? Advantages of a Limited Liability Partnership
? The main advantage of an LLP is the limited personal liability provided to each of the partners. Generally speaking, each partner’s personal liability for another partner’s acts is limited to the partnership’s assets.
? Liability protection for all partners. The main advantage of an LLP is that all partners are protected by some form of liability protection, but this also means each partner gets a say in how the business is ran.
? Securities laws. Since all members of an LLP are considered general partners, security laws do not generally come into play when the members change ownership.
? Required by law. In some states, certain professions are not allowed to form other types of business structures, and are required by law to become a limited liability partnership.
? Disadvantages of a Limited Liability Partnership
? Multi-state considerations. Some states recognize LLPs formed in other states, and some do not. This could affect the limitation of liability in the other states.
? Liability protection. Although an LLP offers all members some form of liability protection, corporations and limited liability companies offer more comprehensive protections and are very popular with business owners.
4) Guarantee Company/ Non-profit Company
Limited by guarantee companies are most often formed by non-profit organizations such as sports clubs, workers’ co-operatives and membership organizations, whose owners wish to have the benefit of limited financial liability. A company limited by guarantee does not have any shares or shareholders but is owned by guarantors who agree to pay a set amount of money towards company debts. Furthermore, there will generally be no profits distributed to the guarantors as they will instead be re-invested to help promote the non-profit objectives of the company. If any profits are distributed to the owners, then the company will forfeit its right to apply for a charitable status.
Guarantors can certainly take a portion of company profits for themselves, but most of the time this does not happen because limited by guarantee companies are usually set up for non-profit purposes. This means that all of the money generated by this type of company is kept in the business or used to promote its non-profit purpose and activities. If guarantors do keep any profit for themselves, the company will no longer be considered ‘non-profit’ and it will be ineligible for charitable status. There is nothing to prevent someone setting up this type of company to run a profit-making business in which the guarantors will keep the profits, but a limited by shares structure simply makes more sense for that purpose.
? Advantages of Non-profit company.
? Eternal Life: Nonprofit organizations can exist long after their founders leave as long, as their purpose stays relevant and they continue to generate revenue
? Organization at Scale: If organization a mission-driven individual who wants to make the world a better place, organizing a nonprofit around their chosen cause is the best way to build a team to expand their efforts and make a bigger impact.
? Protection from Personal Liability: Employees of nonprofits are not personally liable for the debts of the nonprofit.
? Tax-Exempt Status on Net Income: Nonprofits do not pay taxes, so all earnings can be cycled back into the organization to improve it.
? Public and Private Incentive to Help Out: Donations made by individuals and corporations are tax-deductible, thereby incentivizing people to contribute to nonprofits.
? Grants Eligibility: An additional source of funding for nonprofits is through government grants.
? Employee Benefits: If nonprofit has enough employees, it may qualify for group discounts to health or life insurance benefit programs.
? Volunteer Board Members: Typically, nonprofits do not pay their board members, which can save a lot of money.
? Highly Motivated Employees: Research shows nonprofit employees are highly motivated by intrinsic rewards like achievements of their clients and a good work/life balance, rather than pay.
? Disadvantages of Non-profits company
? Continued Maintenance: All nonprofits are required to submit annual filings and comply with all laws of incorporation.
? Public Scrutiny: Anyone may request copies of any nonprofit’s filings and review their expenditures, salaries, and income.
? No Profits: No individuals or shareholders can receive profits from nonprofit. This can make it more difficult to generate interest from potential investors. Volunteers and Volunteer Board Members:
? Volunteers are a pro and a con: From a con perspective, sometimes it may be had to find willing volunteers to help you achieve mission and even when do, they can be difficult to manage.
? Funding Difficulty: While listed as a pro before, getting funding for nonprofit can be a constant struggle.
? Overworked Employees: Small to medium-sized nonprofits typically have tight budgets and only a handful of employees, meaning more work for less pay. It’s a scenario some are calling “The Plight of the Overworked Nonprofit Employee.”
? The “Nonprofit Employees Should Get Paid Less” Trap: Many people justify paying nonprofit employees less, because they “should be dedicated to the cause rather than the salary”.
If the advantages and disadvantages of nonprofits line up with personal values and goals, then almost ready to take the first step to jump into a nonprofit role. But before, consider these five pieces of advice from seasoned nonprofit professionals.
T1.2 Select an organization of your choice and identify its vision, mission and values.
The stated mission, vision and values of a business should provide a key insight into the strategy and culture of a business. Of course, it’s not always the case that stated vision & values are consistent with the way a company does business. However, for many successful businesses there is a clear and sustained link between the two.
Company Name: – Walmart
i. Walmart’s Vision Statement.
The company traces its success to the ideals of its founder, Sam Walton. These ideals are emphasized in Walmart’s vision statement: “To be the best retailer in the hearts and minds of consumers and employees.” The company aims to achieve a top position in the retail industry. Based on its current situation, the firm has already fulfilled the “best retailer” part of the vision. Walmart’s vision statement also points to the minds and hearts of the people that matter most to the business, i.e. consumers and employees. The company has realistically influenced the minds of consumers and employees on the basis of financial benefits. Employees earn wages, while consumers save money through Walmart’s low prices. However, the “heart” component of the vision statement remains to be proven.
ii. Walmart’s Mission Statement.
The company’s strategic decisions are also a direct manifestation of its mission. Walmart’s mission statement is “Saving people money so they can live better.” This statement is synonymous to the company’s slogan, “Save money. Live better.” The firm follows and succeeds in fulfilling the “saving people money” component of the mission statement. Consumers save money through Walmart’s low selling prices. However, it is not yet clear if the company satisfies the “live better” component of the mission statement. There are criticisms on Walmart’s very low wages that are barely enough for employees to make ends meet. There are also criticisms about the long-term effects of the firm’s continued large-scale sales of cheap and sometimes hazardous imported goods.
? Service to the Customer
Customer First – Listen to, anticipate and serve customer wants and needs
Frontline Focused – Support and empower associates to serve customer everyday
Innovative and Agile – Be creative, take smart risks and move with speed
? Respect for the Individual
Listen – Be visible and available; collaborate with others and be open to feedback
Lead by Example – Be humble, teach and trust others to do their jobs; give honest and direct feedback
Inclusive – Seek and embrace differences in people, ideas, and experiences
? Strive for Excellence
High performance – Set and achieve aggressive goals
Accountable – Take ownership, celebrate successes and be responsible for results
Strategic – Make clear choices, anticipate changing conditions and plan for the future
? Act with Integrity
Honest – Tell the truth, keep your promises and be trustworthy
Fair – Do right by others; be open and transparent
Courageous – Speak up, ask for help, make tough calls and say no when appropriate
Brea-Solis, H., Casadesus-Masanell, R., ; Grifell-Tatje, E. (2012).
Hicks, M. J., Keil, S. R., ; Spector, L. C. (2012).
T 1.3 Select an organization of your choice and describe the extent to which this organization meets the objectives of its stakeholders.
What is a Stakeholder?
A stakeholder is either an individual, group or organization who is impacted by the outcome of a project. They have an interest in the success of the project, and can be within or outside the organization that is sponsoring the project. Stakeholders can have a positive or negative influence on the project. There are a lot of people involved in getting a project from inception to a successful completion. Any organization going to have to know how to manage each and everyone one of them, even those who don’t work directly under them. One such person is the project stakeholder. A stakeholder is a person, like any other member of the project, and some will be easier to manage than others. Company going to have to learn to deal with a variety of personalities and make sure in productive dialogue with them to know the project goals been hired to meet.
I chose the Starbucks organization and identify its stakeholders. Starbucks continues to
improve its corporate social responsibility practices to address the concerns of different
stakeholder groups. The following are the main stakeholders in Starbucks Coffee’s business:
1. Employees (baristas, partners)
3. Suppliers (supply firms, coffee farmers)
? Employees: Starbucks prioritizes employees in its corporate social responsibility efforts. As stakeholders, employees typically demand for better working conditions, job security and
higher wages. Starbucks’ organizational culture emphasizes the employees first attitude.
Employees are also given wages above the legally mandated minimum wage. In 2014,
Starbucks boosted its CSR performance for this stakeholder group by giving scholarships
to employees based on a partnership with Arizona State University. In this partnership,
Starbucks pays for 56% of tuition fees for employees’ junior and senior years at the
University. However, the company’s performance in addressing employees as
stakeholders have room for improvement. In some countries like New Zealand, Starbucks
gives very low wages to juvenile workers. These youth rates are often criticized. The firm
can improve its corporate social responsibility performance by addressing such issue in
this stakeholder group.
? Customers: Starbucks considers customers as among its top stakeholders. The interests
of this stakeholder group are high quality service and products, such as coffee and related beverages. As the world’s most popular specialty coffeehouse chain, Starbucks effectively addresses this interest. The company also includes customers as major stakeholders by
extending the Starbucks culture to customers at its cafes. For example, warm and friendly relations are emphasized within the company and in how baristas interact with customers. Thus, Starbucks Coffee’s corporate social responsibility efforts fulfill the interests of this
? Suppliers: Starbucks suppliers are composed of wholesale supply firms and coffee
farmers. The main interest of this stakeholder group is compensation and a growing
demand from Starbucks. Farmers aim to increase coffee yield to generate more revenues. Starbucks addresses the interests of these stakeholders through a number of corporate
social responsibility programs. For example, the firm’s supplier diversity program ensures
that more suppliers from around the world are included in the supply chain Thus,
Starbucks’ corporate social responsibility efforts comprehensively address the interests of this stakeholder group.
? Environment: Starbucks has corporate social responsibility programs for environmentally
sound business. The company’s CAFE program has led to higher biodiversity and shade
quality in certified coffee farms. Currently, 90% of Starbucks’ supply is from CAFE-certified farms. This significant figure shows that Starbucks is effective in addressing its corporate
social responsibility to this stakeholder group, although there is room for improvement.
? Investors: As in any business, Starbucks must address investors as stakeholders.
Investors have interests in high financial performance of the company. Starbucks’ global
expansion and continued dominance in the coffeehouse industry indicates high financial
performance. Even though it suffered considerable decline in 2007, Starbucks has
recovered and is on a growth path once more. Thus, the firm satisfies this stakeholder
? Governments: Starbucks must address the interests of numerous governments as
stakeholders, considering the company’s global presence. In general, Starbucks
complies with rules and regulations. However, the company has been criticized for tax
evasion in Europe. Starbucks uses a network of locations in different European countries
to exploit tax advantages. At present, much of this system remains, with Starbucks paying unexpectedly low taxes in the U.K. Thus, the company’s comprehensive corporate social responsibility efforts can be improved to address this stakeholder group.
T 1.4 Explain the responsibilities of the organization you selected in Q1.2. In addition, explain the strategies employed to meet these responsibilities.
Walmart provides food, apparel and household products to hundreds of millions of customers in 28 countries around the world. They are committed to doing so in a way that creates economic opportunity for associates, suppliers and others in retail supply chains; enhances the
environmental and social sustainability of supply chains; and strengthens the communities
where they live and work.
For 10 years, they have been leading initiatives with their stakeholders in these arenas of opportunity, sustainability and community. They aspire to use their strengths to help others while also strengthening business, and reshaping the systems they all rely on to help improve social,
environmental and economic outcomes.
? Walmart approach to global responsibility:
? Shared value
For Walmart, unlocking the full potential of our business means that use Walmart strengths to
support and improve the social and environmental systems upon which all rely. Whole-system
change. Working with others, Walmart aspire to reshape whole systems to achieve significant
and lasting improvement in social, environmental and economic outcomes. For example,
enhancing environmental sustainability in retail supply chains means addressing their social and economic dimensions, too. Walmart organization have placed, and will continue to place,
increasing emphasis on social issues such as empowering women and supporting worker safety and dignity.
? Create shared value for business and society.
Walmart seek to create value for stakeholders across business and society, because shared
value enhances the quality and viability of solutions. They believe that social and environmental programs are of interest to long-term shareholders because they strengthen the systems rely on as a retailer.
? Lead through the business.
Walmart work to integrate their social and environmental priorities into routine business
activities such as merchandising, sourcing, store operations, logistics, human resources and
technology, through leadership practices, organizational roles, operational processes and tools.
? Focus on actions that draw on Walmart’s particular strengths.
Walmart company can make the most significant difference when they draw on particular
strengths as a retailer. These strengths include their 2.3 million associates globally, supplier
relationships, purchasing in categories like food and apparel, physical assets and capabilities in logistics, marketing, operations and merchandising.
? Use philanthropy to complement business initiatives.
This organization complement and extend the impact of Walmart’s social and environmental
initiatives through philanthropic efforts. Through both in kind and cash gifts, Walmart and the
Walmart Foundation give over $1 billion annually to projects that create opportunity, enhance
sustainability and strengthen community.
? Collaborate with others.
Since Walmart believe that collective action is essential to the transformation of systems, they
shape their programs in collaboration with other leaders and stakeholders. They are also
investing in enhancing the effectiveness and ease of dialogue and action across sectors through support for organizations and tools, such as the Consumer Good Forum and the Sustainability
Index. At Walmart, continually engage stakeholders to understand their perspectives, improve
the effectiveness and relevance of Walmart initiatives, increase transparency and trust and
collaborate on addressing business and societal challenges.
? Children’s Food Safety ; Nutrition
Walmart will carry out a children’s food safety program in partnership with Children and
Teenagers’ Foundation, which is an important portion of the National Campaign on the
Safeguarding of Children’s Food Safety. It is designed to promote the awareness of children’s
food safety and improve children’s behaviors and habits through food safety education on
children in the forms of “walking into families, schools and communities”. This program will be officially launched by the end of 2016.
? Sustainability Initiatives
While providing better service and quality goods to customers, Walmart actively shoulders the
social responsibility of sustainability and protecting the environment. Walmart keeps improving
sustainability practices in its operations in China that would have benefits throughout the supply chain. Walmart launched its Sustainability 360 Program demonstrating that sustainability has
become an essential ingredient to its global strategy, maintaining goals to be supplied 100
percent by renewable energy; create zero waste; and sell products that sustain people and the environment.
Task 2: Evaluate the concepts of Economic, social and global environment.
T 2.1: Explain how economic systems attempt to allocate resources effectively.
Any system that involves the mechanism for production, distribution, and exchange of goods apart from consumption of the goods and services within the different entities can be classified as an Economic System. The various kinds of economic systems and their classifications broadly follow the methods by which means of ownership are established. Thus, the mode of ownership of capital leads to the different kinds of economic systems in vogue. and governments distribute resources and trade goods and services. They are used to control the five factors of production, including: labor, capital, entrepreneurs, physical resources and information resources. In everyday terms, these production factors involve the employees and money a company has at its disposal, as well as access to entrepreneurs, the people who want to run companies or start their own businesses. The physical materials and resources needed to run a business, along with the data and knowledge companies use to be successful, are also factors in production. Different economic systems view the use of these factors in different ways.
An economy is a system whereby goods are produced and exchanged. Without a viable economy, a state will collapse. The different kinds of economic systems are Free Market Economy, Mixed Economy and Command Economy. All these are characterized by the ownership of the economics resources and the allocation of the same.
1) Free Market Economy.
Market economies are based on consumers and their buying decisions rather than under government control. All economic resources are owned by the people. Market trends and product popularity generate what businesses produce. The producers choose how to make products based on the most economically sound decision: that might mean machine labor to save costs or human labor for specific skills. The buyers decide who gets which products by what they are willing to pay for what they want. Complete market economies do not utilize price controls or subsidies and prefer less regulation of industry and production. Market decisions rely on supply and demand for pricing. Government’s role is to create a stable economy for the market to operate properly. The government plays only a peripheral role in setting up the basic structure and rules controlling the markets. The market system relies on many factors to ensure its success. The profit motive or incentive for a financial reward for enterprise stimulates production. Information regarding available products and services needs to be available to producers and consumers. Producers use the information to set accurate prices and procure supplies at the lowest cost. Price relates directly to the costs and benefits of product creation and use and required profit. The market forces of demand and supply determine the equilibrium market price, which in turn determines profits. This profit motive is the driving force behind the whole economy. Market economy believes in Laissez-faire meaning non-intervention by the government in the functioning of the economy. Consumers reign supreme in a market economy.
Characteristics of a Market Economy.
? A market economy is a type of economic system where supply and demand regulate the economy, rather than government intervention. These decisions in a free-market economy are influenced by the pressures of competition, supply, and demand.
? One of the most important characteristics of a market economy, also called a free enterprise economy, is the role of a limited government. However, a number of limitations and undesirable outcomes associated with the market system result in an active, but limited economic role for government.
? In a market economy, almost everything is owned by individuals and private businesses not by the government. Natural and capital resources like equipment and buildings are not government-owned.
? A market economy has freedom of choice and free enterprise. Private entrepreneurs are free to get and use resources and use them to produce goods and services. Workers are free to seek any jobs for which they are qualified.
? A market economy is driven by the motive of self-interest. Consumers have the motive of trying to get the greatest benefits from their budgets.
? Competition is another important characteristic of a market economy. Instead of government regulation, competition limits abuse of economic power by one business or individual against another.
? A system of markets and prices working together are the structure of a market economy, not the central planning by government.
2) Mixed Economy.
The government’s role in other areas depends upon the priorities of the citizens. In some, the government creates a central plan that guides the economy. Other mixed economies allow the government to own key industries. These include aerospace, energy production and even banking. The government may also manage health care, welfare and retirement programs. Most mixed economies retain characteristics of a traditional economy. But those traditions don’t guide how the economy functions. The traditions are so ingrained that the people aren’t even aware of them. The government only sets up the basic regulations within which the private businesses can play. There is generally no more government intervention in this sector. The government does not intervene in the day to day operation/administration of this sector. Then there is a parallel public sector, totally under government control. Here the economic resources are owned by the government.
The government outlines the demarcation between legal and illegal, aspects of how the market can work. This sector generally operates in those economic areas where there is a high social need little to no profit margin.
Characteristics of Mixed Economy
1. Co-existence of the Private and Public Sectors.
Co-existence of the private and public sectors is the outstanding feature of mixed economy. In mixed economy, both public sector as well as private sector industries will be functioning. Certain industries will be in the public sector and certain industries in the private sector.
2. Existence of Joint Sector
Joint sector is one where both Government and private individuals establish an organization jointly by contributing the necessary capital.
3. Regulation of Private Sector
Under mixed economy, Government exercises strict control and regulation over private sector industries.
4. Planned Economy
The entire economic structure is subject to the planning of the Government. Mixed economy is a planned economy.
5. Private Property
Under mixed economy, private firms and individuals have right to own and use property.
6. Provision of Social Security
Under mixed economy, Government takes steps to provide social security.
7. Motive of Business Concerns
The motive of the business concerns is profit but coupled with the objective of social welfare.
Advantages of Mixed Economy
There will be competition between public and private industries, which will result in greater efficiency and production in a mixed economy.
? Reduced inequality
The profit of public sector industries goes to the Government and as a result inequalities of income will be reduced in mixed economy.
? Systematic plan
In a mixed economy, economic activities are carried out as per plan. The entire economic system is subject to systematic planning of the Government.
? Economic Stability
The economic activities take place in a planned manner. So there will be economic stability in mixed economy.
? Consumer sovereignty
Goods are produced as per the wishes of the consumers, which results in consumer’s sovereignty in a mixed economy.
In mixed economy, freedom of enterprise and profit motive are the important features. Further there is competition between public and private sectors
? Promotion of social welfare
Mixed economic system gives importance to the promotion of social welfare. Under this system, both private and public sectors work for the welfare of people.
? Rights of Individual
Under mixed economy, individual rights are protected. People have freedom to buy any commodity.
Disadvantages of Mixed Economy
? Unhealthy Competition
There is unhealthy competition between private and public sectors in a mixed economy.
? No freedom to pvt sector
There is no freedom to private sector in mixed economy. This is because Government regulates private industries through its various regulations and licensing.
? Inefficient public sector
Inefficiency of public sector is another demerits of mixed economy. They may suffer heavy losses. People will have to bear these losses. The objective and targets of economic planning also may not be achieved in a mixed economy.
? Unemployment and Uncertainties
On account of capital scarcity, Government regulation and control, the growth of private sector may be less than what is fixed in plan. It may lead to unemployment and uncertainties in a mixed economy.
? Threat of Nationalization
There is always a threat of nationalization in the mixed economic system because of which the private sector does not work actively.
3) Command Economy.
In a command economy, it is also called a planned economy, the government controls all economic activity. In a government directed economy, the market plays little to no role in production decisions. Command economies are less flexible than market economies and react slower to changes in consumer purchasing patterns and fluctuations in supply and demand. There is government regulation controlling almost every aspect of people’s lives. Here the government owns all the economic resources and all the factors of production. Since people do not own the economic resources, there is no place for private initiative and no incentives at work.
Five Characteristics of a Command Economy
1. The government creates the economic plan for all regions of the country.
2. The government allocates all resources according to the economic plan. The goal is to use the nation’s money, labor and natural resources in the most efficient way possible.
3. The economic plan sets the priorities for producing all the goods and services. These include quotas and price controls on all goods.
4. The government owns the monopoly business in industries deemed necessary to the goals of the economy, which usually includes finance, utilities, and automotive.
5. The gov’t creates laws, regulates the society, and directs to enforce the economic plan. Businesses follow the plan’s production and hiring targets.
Advantages of Command Economy
? The command economy mobilizes economic resources quickly, powerfully, and on a large scale.
? They execute massive projects, create industrial power, and meet social goals.
? They aren’t slowed by lawsuits from individuals or environment impact statements.
? Command economies often transform societies to conform to the government’s vision.
? They often use violence to enforce their rules and regulations.
? The before elder is kicked out or assassinated, and the new gov’t nationalizes private companies.
? All workers are assigned new jobs according to how the gov’t wants them to work.
Disadvantage of Command Economy
? rapid mobilization means command economies mow down other societal needs.
? workers are often told what jobs they must fulfill.
? They often develop a shadow economy, or black market, to buy and sell the things the command economy isn’t producing.
? The efforts can weaken support for the central planning authority.
? Command economies often result in overproduction of one good and not enough of another.
? It’s difficult for central planners to get up-to-date info about consumer’s needs.
? Prices are set by the central plan, and they can’t be used to measure or control demand.
T 2.2 Assess the impact fiscal and monetary policy on business organizations and their activities.
Monetary and fiscal policies affect businesses directly and indirectly, it is important for business owners to understand and monitor changes in government policies. Fiscal and monetary
policies are tools used by the government to stabilize the ebb and flow of the economy.
In a 2012 survey by the National Federation of Independent Business, business owners
revealed that two of their main concerns were the economy and fiscal policies.
What is the Fiscal Policy?
Fiscal policy is the means by which a government adjusts its spending levels and tax rates to
monitor and influence a nation’s economy. It is the sister strategy to monetary policy through
which a central bank influences a nation’s money supply. The fiscal policy reflects the priorities of individual lawmakers. They focus on the needs of their constituencies. These local needs
overrule national economic priorities. As a result, fiscal policy is hotly debated, whether at the
federal, state, county or municipal level.
There are two types of fiscal policy. The first and most widely used is expansionary. It stimulates economic growth. It’s most critical to the contraction phase of the business cycle. That’s when
voters are clamoring for relief from a recession.
The second type, contractionary fiscal policy, is rarely used. That’s because its goal is to slow
economic growth. Why would ever want to do that? One reason only, and that’s to stamp out
inflation. That’s because the long term impact of inflation can damage the standard of living as much as a recession.
How to impact fiscal policy on business organization?
Fiscal policy refers to economic decisions and actions of a government used to control and
stabilize a country’s economy. In the UK, Federal Reserve Board sets monetary policy.
Decisions on federal interest rates and tax policy are core policies that ultimately affect
8. Costs of Borrowing
A main component of U.S. fiscal policy is the setting of federal funds rates. These are the rates
the government charges banks for the money they use to make residential and commercial
loans. Typically, banks pass on increases or decreases in rates to customers. If the government raises borrowing rates to combat inflation, businesses usually experience higher borrowing
costs. If the government lowers rate to encourage economic growth, businesses can usually get lower cost financing.
9. Consumer Spending
Consumer spending is a major driving force behind economic success. Government fiscal policy is often used to encourage or stabilize consumer spending for a healthy economy. If the
government sets policies of easing loan rates and investing in bonds and financial securities to
jump start the economy, this can ultimately result in consumer confidence and spending. In
general, if the economy is growing and consumers have money, businesses of all sizes benefit.
10. Tax Policies
A major way in which businesses are affected by fiscal policy is in tax rates. Over time, the U.K. government constantly establishes tax policies that raise or lower business taxes. If policies
reduce tax burden, earnings after taxes grow. This increased profit allows greater opportunities
to reinvest into business growth or to pay out dividends to company owners.
Overall levels of unemployment are often a factor in government fiscal decisions.
If unemployment is relatively high, the government is more likely to implement or maintain low
interest rates and other growth oriented fiscal policies. The motive is to encourage business
expansion and additional hiring. In some industries, companies base decisions on future human resources needs on current fiscal policy. If the government wants to curb overheated economic expansion with tighter fiscal policies, some companies immediately respond by curbing further
What is ‘Monetary Policy’?
Monetary policy consists of the actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates. Monetary policy is maintained through actions such as modifying the interest rate, buying or selling government bonds, and changing the amount of money banks are required to keep in the vault.
Monetary policy is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.
Two Types and six tools in Monetary Policy
Central banks use contractionary monetary policy to reduce inflation. They have many tools to do this. The most common are raising interest rates and selling securities through open market operations.
They use expansionary monetary policy to lower unemployment and avoid recession. They lower interest rates, buy securities from member banks and use other tools to increase liquidity.
The Fed has six major tools.
1. First, it sets a reserve requirement, which tells banks how much of their money they must have on reserve each night.
2. The Fed requires that banks keep 10 percent of deposits on reserve. That way, they have enough cash on hand to meet most demands for redemption. When the Fed wants to restrict liquidity, it raises the reserve requirement.
3. The Fed’s third tool is its discount rate. That’s how it charges banks to borrow funds from the Fed’s fourth tool.
4. The discount window is the fourth tool. The OMC usually sets the discount rate a
half-point higher than the Fed funds rate. That’s because the Fed prefer banks to borrow from each other.
5. Fifth, the Fed uses open market operations to buy and sell treasuries and other securities from its member banks. This changes the reserve amount that banks have on hand without changing the reserve requirement.
6. Sixth, many central banks including the Fed use inflation targeting.
How does monetary policy effect on business organization?
The effects of monetary policy on business are manifold. Though in a direct sense it affects only domestic business enterprises, foreign business entity who has an interest and stake in domestic market also gets affected to an extent. for simplicity, I am explaining few major points impact on domestic business units.
? By changing say interest rate, Monetary policy can affect the amount of liquidity in the system. Say RBI increases Repo Rate. The borrowing cost of commercial banks will now go up and they will pass the same to their borrowers. Generally, an industry needs loan from Banks to expand its business or any kind of investment. Now since loan has become costlier, it will negatively affect their investment decision.
? Continuing from above scenario of increased Repo: Apart from this direct effect on business entity, there is also another effect which plays through consumers. The people who are working in different business industries are also consumers of different goods in market. If a business industry shuns its investment decision, it means it is not generating extra employment which could have been there if the business had hired people for its new investment or increase the salary of existing ones for their increased effort.
? Also stocks can be traded as goods by consumers on exchange. As mentioned in the previous point, monetary policy can affect one’s income and hence demand for various goods, so stock price can also vary based on the demand and thus market capitalization of a business can change.
? Long-term interest rates reflect, in part, what people in financial markets expect the Fed to do in the future. For instance, if they think the Fed isn’t focused on containing inflation, they’ll be concerned that inflation might move up over the next few years. So they’ll add a risk premium to long-term rates, which will make them higher. In other words, the markets’ expectations about monetary policy tomorrow have a substantial impact on long-term interest rates today.
? These policies induced changes in real interest rates affect the economy.
Changes in real interest rates affect the public’s demand for goods and services mainly by altering borrowing costs, the availability of bank loans, the wealth of households, and foreign exchange rates. In addition, lower real rates and a healthy economy may increase banks’ willingness to lend to businesses and households. This may increase spending, especially by smaller borrowers who have few sources of credit other than banks.
The increase in aggregate demand for the economy’s output through these different channels leads firms to raise production and employment, which in turn increases business spending on capital goods even further by making greater demands on existing factory capacity. It also boosts consumption further because of the income gains that result from the higher level of economic output.
? Monetary policy affect inflation.
Wages and prices will begin to rise at faster rates if monetary policy stimulates aggregate demand enough to push labor and capital markets beyond their long run capacities. In fact, a monetary policy that persistently attempts to keep short term real rates low will lead eventually to higher inflation and higher nominal interest rates, with no permanent increases in the growth of output or decreases in unemployment. As noted earlier, in the long run, output and employment cannot be set by monetary policy. Policy also affects inflation directly through people’s expectations about future inflation. For example, suppose the Fed eases monetary policy. If consumers and businesspeople figure that will mean higher inflation in the future, they’ll ask for bigger increases in wages and prices. That in itself will raise inflation without big changes in employment and output.
T 2.3 Evaluate the impact of industrial policy, welfare policy other regulatory mechanisms on the activities of a UK organization of your choice.
Competition policy of UK: Competition policy means those policies which are formulated to prevent and reduce monopoly power of businesses in the economy. There are two types of behaviors adopted by the businesses collusive behavior and Abuse of market power. Competition policy is working to reduce these behavioral practices. Competition policies are used to improve the competitive environment so that consumers can fulfil their needs. Competition law of UK is affected by both British and European elements. Five competition policies are helping in improving the competitive process includes:
UK government prohibits those agreements and practices which restricts free trading and competition between business entities. UK government remove the cartels. Cartels are agreement between buyer and seller to control prices or exclude entry of new competitors in the market. Cartels are removed because it gives rise to oligopolistic industry.
Removal of predatory prices is the strategy used in UK. Predatory pricing is a risky pricing strategy where prizing of a product or service is set very low by the companies to drive competitors out of the markets or create barriers to entry for new entrants.
Provisions are made for removal of Price gouging is another strategy used by UK government. Price gouging means where seller increases the prices of goods and services in such a higher level than they actually have and exploit consumers.
Removal of the strategy of refusal to deal is another plan implemented under the competition policy of UK. Sometimes the refusal to deal may consider unlawful anti-competitive practices which results reduction in competition in market.
UK government go for supervising the mergers and amalgamations including joint ventures, because these transactions are considered to threaten the competition in the market.
Greenery, JhonLewis partnership, Stemcor Swire and Palmer and Harvey are some of the largest companies of UK which are affected with the competition policy norms. Due to these norms competitive environment increases and prices of the products are under the control. These provisions also remove market denomination.
Competition policies and regulations are required to be considered by the organizations that operate business in UK market place. As per the regulation, Walmart supermarket is required to consider Office of Fair Trading for the purpose of protecting the consumers and other competitive forces in Britain. Further, the policy also ensures that market work well for consumers by ensuring fair competition and trading. Walmart supermarket has been considering this act and this assists in managing all the business entities in adequate and legal manner. Further, Competition Commission is also followed up by Walmart supermarket which is a public body and which assists in managing investment for mergers and other strategic purposes.
Considering such act assist the business entity to facilitate healthy competition among all the same companies. On the other hand, norms defined by the European Commission are also followed since it upholds treaties to manage day to day business activities. Hence, healthy competition is being managed in retail industry of UK and as result; all the competitors are working in ethical way. Walmart supermarket seems to follow Civil Aviation Authority where in the business entity needs to consider all aspects of civil aviation so that aspects related to transportation processes can be properly managed. These rules and regulations are strictly affecting Walmart super market in many ways. Firm needs to comply with these rules very strictly and if it will not do so then strict action can be taken against it for non-compliance with rules and regulations.
? De- regulation:
It is the competition policy that is being adopted to reduce monopoly from the market. Merger and acquisitions are regulated by these kinds of policies aiming to reduce the monopoly from the market.
Privatization is the policy adopted to develop the economy. This economy supports the transfer of ownership.
? Laws on anti- competitive behavior:
This competition policy is developed to introduce fair deals in the market. There are certain legislations that are introduced to ensure that price fixing and other type of unethical practices could get reduced from the market. Breaching the law in UK by the companies leads them to pay 10% of the world turnover and imprisonment to the senior executives.
? Import tariff reduction:
It helps the businesses to import the products and services on lower price rates as taxes get reduced to help the companies to grow in the market.
? Market Liberalization:
Market liberalizations are the competitive policy in which industries facing monopoly are being managed.
Monopoly is being faced by the supermarkets of UK. Due to some of the big firms like Wakmart industry was feeling dominated. Small retailers available in the market were getting affected because these firms are regulating the businesses since 2012. Monopoly started getting reduced after emergence of Aldi and Lidl. With the help of OFT monopoly got reduced which helped other retailer in the market. ?
Task 3: Analyze the behavior of organizations and the market environment.
T 3.1 Explain how market structures determine the pricing and output decision using examples.
There are different kinds of markets in different economies/sectors/goods. Accordingly, there are different kinds of output and pricing decisions which take place. Usually, output and pricing decisions are interdependent except for the case of perfectly competitive markets. In perfectly competitive markets, a single firm is so small compared to the market that it cannot affect the prices. In that case, it must take the price as given, and then decide the quantity to be supplied. Price in this market is equal to the marginal cost of production. In monopoly, however, things are different. The monopolist can change the prices, as it is the sole provider of the good and thus has the market power. But here also, if the price increases quantity demanded decreases. Therefore, the monopolist must take under consideration both the positive and negative effects of increase in prices. In another market oligopoly, pricing is a bit more complicated and it depends upon the strategic interaction among the firms. Market structure is the number of buyers and sellers in a market.
There are several different market structures in which organizations can operate. The type of structure will influence a company’s behavior and the level of profits it can generate. The structure of a market refers to the number of businesses in a market, their market shares and other features which affect the level of competition in the market. Structures are classified in term of the presence or absence of competition. When there is no competition, the market is said to be concentrated. A scale from perfect competition to monopoly can be found below.
? Perfect Competition: It is the market where there are large number of buyers and large number of sellers selling similar products. In this market all the organizations remain equally capable and no organization dominates the industry for long period of time. Similar products are produced by all the organizations having very less variation in the quality and price of the products. Perfect competition could be seen majorly in agricultural firms. Reason behind it is that agricultural products cannot be differentiated by the buyers and are of standard nature. Brand value does not much impact on the sale of agricultural products. Reason behind no company dominate the industry is because entry and exit of the company is free in perfect competition.
? Monopoly: It is the market in which there is a single seller selling the product and large number of buyers. In monopoly market top players of the industry restricts the entry of other companies. Industries selling differentiated products get affected due to the monopoly in the market. Price of the products and services are decided by the firm leading in the market in which prices are kept slightly lower than the average cost of the new entries so that entries could get restricted in the market. Organizations which patent their product fall in this industry because by patenting the product they restrict the entry of the other firms in the same industry. Example for the company falling in monopoly market is Linux as it owns UNIX and has the copyright on that which restricts other software developing companies to avail similar product in the market.
? Oligopoly: The market in which very few firms dominate the industry is oligopoly. Partial competition occurs in this type of market because there are very few sellers and very few buyers of the product. Coming to the grocery market of UK there are very few organizations like ASDA, Sainsbury and TESCO that dominates the industry. There are certain small scale organizations that provide same products and services but the companies having strong value in the market are not letting these companies grow. Oligopoly is a situation where few firms are in the competition in the market for a particular good. In this competition consumer is not fully aware about the product. Every seller has some specification in the product. Aircraft manufacturing, wireless communication, media and banking are some of the example of oligopoly market competition. There are no barriers in entry but it is difficult for new entrant to enter in the market. A sudden change in prices and outcome decisions of one business affect its rivals. In oligopoly competition enterprises are interdependent on each other so each organization formulates its own pricing policy taking consideration in the pricing policies of the existing competitors. In oligopoly market structure, the sellers have the ability to set the price. The set the prices at a higher level and output at a lower level. The structure basically helps to achieve economies of scale.
? Duopoly: The market in which two companies dominates the industry is known as duopoly. In the market structure, the existence of existence of price leadership by the large firm of the two companies. In this case, the smaller one follows the price leader of the large firms. Competition between two organizations only exists. Competition is held between the organizations either on the basis of the quality and quantity of the product in the same prices. There are only two giant firms working under duopoly competition. In this each selling identical products having fifty percent of total market. These two firms may agree on a certain price or they can divide their market share. They can go for merge themselves into one unit and form monopoly. They can also try to differentiate their products in features. If sellers in duopoly market will produce perfect substitutes to the customers, then they will engage in price competition. If goods of producer having differentiation in their product, then each business company have a close watch on the pricing and output policy of rivalry firm. Classical model of edge worth, Spatial equilibrium model, Stake berg’s model, Modern game theory model are used for determination of price and outcome decisions in duopoly competition. One of the best examples for duopoly is Pizza Hut and Dominos. Both the firms are delivering similar products to the market i.e. pizza for which they compete on the quantity as well as quality of the product. Larger market share is covered by both the players present in the industry. In the same industry market share of other small companies have least effect on the top leading companies.
T 3.2 Illustrate the way in which market forces shape organizational responses using a range of examples.
There are various market forces that affect organizational responses in various ways. Mainly, supply, demand, and marketing to consumers etc. is the factors of market force. The amount of goods which are available for sale in the market is called supply. Market cannot provide more products than its supply to the customers. On the other hand, demand refers to the amount of goods or services desired by the customers in the market. At first, it is very common for a new product. By this way, supply and demand have a negative relationship. Almost all organizations expect to reach a point where supply and demand are equal. That point is called equilibrium. Equilibrium is regarded as the ideal point in the market. In addition, both supply and demand are also measured by price. Marketing strategy can change the equilibrium point of the company in its supply and demand. It is marketing activities that can increase the demand for the products and thus a shift in equilibrium. At this point demand and supply meet customers’ need.
? Demand and supply forces in UK:
Demand and Supply are the two market forces which are required to set the prices of commodities. Demand and supply is an economic model with helps in determining prices of commodity in the economy. Demand means a desire, willingness and ability to buy a good or service. Demand refers total demand of consumers in the market. Supply means quantity of goods or service which producers are willing to sell at a possible market price. Supply can refer total output of all the producers in the market. A sudden change in demand and supply forces gives shape to the organizational responses.
? Demand and change in Demand forces:
utility for a product affects the demand of commodity. Utility mean usefulness and satisfaction that is received by the consumption of good or service. Changes in demand occur due to the following reasons:
? Change in price of commodity.
? Change in the number of consumers who demand the commodity.
? Change in the income level of consumers.
? Change in the taste and preference of consumers.
? Change in the expectations of the consumers.
? Changes in the prices of substitute goods.
For example, change in the prices of tea shift the demand curve of all the producers of Tea industry. In increase in the prices of tea demand for the tea will decrease and if there in decrease in price of tea demand of tea increases. There is a negative relationship between demand of a commodity and its prices.
Prices of related and substitute goods also effect on demand. There is a positive relationship between Change in the demand of commodity and change in the prices of substitute goods. For example: Tea and coffee are the substitute goods. When there is decrease in price of coffee, demand of tea will also decrease and if prices of coffee increases demand of tea also increase in the market. In case of complimentary goods like bread and butter there is inverse relationship between the price of one and demand of other. If the price of bread increases the demand of butter will automatically decrease.
There is a positive relationship between quantity supply of a commodity and it price. Generally, producers offer more for sale at the higher prices and less at low prices of goods or services.
Change in supply of commodity also occurs due to other factors like change in technology, prices of other goods, future prices and economical changes of commodity, subsidies and taxes imposed by government, change in the number of suppliers in the market. Apart from Prices of the commodity, if there is change in other factors the supply of commodity changes.
For example, if there is a change in new technology producers can produce more goods and supply more in the market this results shift of supply curve.
For example, if producers of widgets go from the market the number of producers will decrease which also decreases the quantity supplied in the market. Technology also shapes the organizational responses through the change in demand and supply. Innovation brings technology and technology brings product differentiation. If new products will manufacture and supplied to the market, then it also affects the demand of the existing goods of the market.
Task 4: Be able to assess the significance of the Global Factors that shape National business activities.
T 4.1 You have been selected by the trustees of your local youth group to make a presentation to young entrepreneurs in the area on the importance of international trade to the local economy. Key to this is a discussion on the significance of international trade to UK business organization.
International trade is the exchange of capital, products and services across borders. Advantages of international trade include greater utilization of resources, importing products that cannot be produced locally, and increasing the variety of choice to consumers. However, international trade may be associated with disadvantages as well such as loss of local jobs and high level of dependency on foreign markets.
Significance of international trade to UK business organizations can be explained by referring to the concept of comparative advantage. According to the concept trade between two countries can be made in a mutually beneficial manner, if each country has comparative advantage to manufacture products to be traded.
Countries are interdependent, which means they rely on each other to support their economies. They need other countries to buy their exports to have money to buy resources that are not produced in their country. Also it is so that countries can specialize in producing a good or service and know that the goods that they do not have can be imported from other countries that specialize in that good.
Countries have a lot of expenses (health services, military, wages etc.) and taxes rarely cover all of these, so they need to borrow to offset the deficit. Also if a country wants to prosper, they need money to improve life conditions of their inhabitants. When the life conditions improve, the citizen will be able to pay the money back in a virtuous circle.
There are many things that are important about international trade, economic integration and global markets. Without international trade, businesses wouldn’t be as profitable and economies would suffer. Trading globally gives consumers and countries the opportunity to be exposed to goods and services not available in their own countries. Almost every kind of product can be found on the international market: food, clothes, spare parts, oil, jewelry, wine, stocks, currencies and water. Services are also traded: tourism, banking, consulting and transportation. A product that is sold to the global market is an export, and a product that is bought from the global market is an import. Imports and exports are accounted for in a country’s current account in the balance of payments.
Below are some reasons as to why such things as international trade are so important to UK businesses.
? Broadens Horizons and Markets
If a company based in the UK was to only sell and trade their products domestically, never marketing or pushing their product to consumers in other countries, the country would completely limit its potential. They may always gain a steady trade from UK consumers, but they wouldn’t be able to grow as much as if the company traded with eight other countries, for example.
This is why international trade is so important for companies and the economy – it increases traffic, customer figures and sales.
? Production Costs
By trading in other countries, the company also opens itself up to lower production costs. For example, a TV manufacturer in Australia may discover that its product could be created for substantially less in a factory in Greece. This not only saves the company money, but it helps the consumer as the TV can be sold for less. Furthermore, Greece’s economy is helped thanks to the TV company paying the factory to create its product.
If it wasn’t for other countries, we wouldn’t be able to get our hands on many of the materials we need to make products we use every day – especially in the food industry. Colder countries, such as the UK, rely on hotter countries for fruits such as bananas and mangoes, and those hotter countries rely on places such as the UK for such items as potatoes.
? Maximum utilization of resources.
International trade helps a country to utilize its resources to the maximum limit. If a country does not take up imports, then its resource unexploited. Thus it helps to eliminate the wastage of resource.
? Benefit to consumer.
Imports and exports of different counties provide opportunities to the consumer to buy and consume those goods which can’t be produced in their own country. Then therefore get diversity in choice.
Without international trade or economic integration of food trade, all countries would have a very scarce choice.
T 4.2 Analyze the impact of global factors on UK business organization.
There are various global factors that have a great impact on the UK business organizations. Companies doing trade international should understand the global factors which they could directly affect the business processing. Trading in the international market helps the business to provide opportunities to the business to enter into the new market. Dealing in the global market helps in enhancing the economy of the country and developing positive relationship with other countries. New market opportunities can be developed by trading in the global market. Dealing in the global market helps in enhancing the availability of the resources which creates the opportunity to trade in various markets and grow.
Global factors ensure that company could grow globally which helps in growing the business and building brand image in the market. Companies could attain competitive advantage by indulging in the global market. Global factors also include protectionism which is the policy developed to support fair trade between the countries which are indulged in the export and import practices. Global factors include World Trade Organization which regulates the international trade and ensures that fair trade in the international market between the countries.
? Trading blocs throughout the world:
A trading bloc is an intergovernmental agreement or a trade pact in which the countries who have agreed to participate either minimize the trade barriers or completely eliminate them to have a smooth trade. UK is a member of the European Union (EU) which is called a free-trade association where countries who are a part of it, discuss the agreement with the EU.
? UK membership of EU:
UK joined the European Union in 1992, and became one of the 12 founding members, after previously joining the European Economic Community (EEC) in 1976. It has become the most powerful trading bloc in the world and has a GDP exceeding that of the United States. It is also the largest explorer and the second largest importer. In 2008, it is estimated that the GDP of the EU was accounted for over 22 % in terms of the world’s economic output.
? Enlargement of EU:
Enlargement of EU is also known as the process of expanding the European Union by welcoming new states. EU started with just six states and more famously known as the “Inner Six” in 1952. Since then, it has grown in stature and expanded to over 27 members with most recently being Bulgaria and Romania. For 2013, Croatia is scheduled to be appointed.
? Importance of Global Market:
Importance of global market and to maintain is very significant to UK because for over decades, UK has been trading with USA, Germany, the Netherlands, France and the Republic of Ireland. Across most of the sectors analyzed, the 11 key markets accounted for at least a third of total UK exports. Within this group of markets and sectors, between 2002 and 2007, the UK had diversified its exports away from its historically more important trading partners such as the USA, Germany and Japan towards the eight emerging markets.
? Emerging Markets:
Among the high growth markets there are those that are at a more advanced stage in their development, such as Korea, Singapore, Taiwan and Turkey, and those that are growing faster from a lower level of GDP per capita, such as China, India, Indonesia and Vietnam. Middle Eastern high growth markets (Qatar, Saudi Arabia and the UAE) already have relatively high levels of GDP per capita. There are also several countries emerging as a new wave of high growth markets; Bangladesh, Egypt, Nigeria and the Philippines are expected to record average growth rates above 7 per cent per annum between now and 2050, creating more long-term opportunities.
? Change in climatic conditions:
Change in the climatic conditions of the countries is affect the production, supply and sale of goods and services. Demand and consumption of a good is depending on the prevailing climatic conditions. Companies do expenditure on new technologies to bring good products for consumers. Climate change can reduce the demand of those goods and thereafter companies will incur loss.
? Change in International trade duties:
All the import and export of goods and services between countries are done with import and export duties. When one company purchase any raw material or good from other country than it has to pay import duty and when company sale its good and provide services to other country then it has to pay export duty. If import and export duties are increases than prices of the product will rises and it reduces trade between countries and companies will lose its customers.
? Global Financial Stability:
Companies requires finance whenever they go for doing business in other country. For fulfilling their demand companies use international financial institutions and regional trade agreements to decrease tariff rates. If financial conditions of country are stable and good, companies would be encouraging to invest their money for developing the business. In unstable financial conditions are risky for doing business.
? Impact of government Policies:
government policies of countries have major effect on their balance in trade. Government policies regarding subsidization of exports, restriction on imports etc. Effects the international trade and that’s why, many companies prefer to supply their product in BRIC nation because policies of BRIC members are liberal.
T 4.3 For an organization or organizations of your choice, evaluate at least two European Union policies and explain the impact of these polices on your chosen organization(s).
European Union is a political and economic partnership between 28 European countries. EU works for improvement in economic conditions of member countries and avoiding war with each other. EU allows free flow of goods and services between member countries and become a single market. Brexit means UK leaves the European Union. It is the decision of people of Britain that Britain has to leave EU through referendum voting process. The main reason of Brigit is that Britain remains backward in some issues due the restrictions imposed by EU. Britain blames that EU made strict rules and regulations related with trade which is not benefited to UK’s economy. When the voting was conducted 58% of total voting was in the favor that Britain should leave the EU for its betterment. This voting has major impact on economy of UK. The value of the pound was down. UK lost its top AAA credit rating. The cost of the government loan was higher. Prices of the Stocks were down. It may bring other drastic changes in the economy of UK. Business policy of European Union governs the free movement of goods, services, people and capital among the member countries to achieve the objective of the single market. When any risky situation arises related with public, health, environment or consumer protection then EU restricts the supply of these elements. So, there is a great opportunity to do business in EU and when UK will not remain its member it cannot take advantage of this business policy. Food security for the population, climate change and management of natural resources keeping the rural economy alive these all are the part of agriculture policy of EU. UK will have to draw its own agriculture policy. Only a little population comes under agriculture sector and UK imports food product from other countries to fulfil its requirements. UK’s Tax policy also changes because taxation regimes are provided by the EU to its member country. UK is a developed nation it imports and export goods and services on the concept of competitive advantage, so to set new international link with other countries. UK will have to prepare new policies. EU member countries are strictly following rules and regulations of labor law .UK must change its policies regarding labor laws.
UK leaves EU because UK has to invoke an agreement name article 50 of the Lisbon treaty which wants two sides to agree on the terms of split. The Laws of EU are applicable on UK until UK ceases its membership. UK will continue abide by Treaties and agreements of EU but it could not take part in decision making. The citizens of UK working with EU after leaving EU, UK impose restriction on those who have working in EU and then the citizens will change their employment. For the individuals who are working with EU UK will have to make policies for them and save their rights. UK receives more benefits as a member of EU because it makes around 40% of international trade of its total trade with EU countries.
1. Employment Policy:
Government plays a major part in trying to stimulate employment. For example, the present government is keen to encourage business efficiency so that the UK businesses are competitive in international markets and therefore create jobs. For those who have difficulty finding work, the government has created what is termed as “The New Deal”, offering people the opportunity of developing training and experience on government funded and sponsored employment programmers. Apparently, European Union is a combination of several policies that delivers wide range of advantages to the customers; however, on the other hand, this could this could also lead to consider numerous policies for business management. One of the chief benefits of European Union is that Walmart supermarket has to administer only a single rule in spite of other 27 rules of export. The policies under European Union can also assist the supermarket to augment the skills of the employees; thus more revenue can be accomplished. Similarly, considering the policies of European Union can assist Walmart supermarket to face less issues from legal concerns. Moreover, with the help of EU policies, several organizations can enter in new market with maximum amount of benefit. The policy is also beneficial for Walmart Supermarket as the business can enter into competitive market place without facing many restrictions because European Union allows easy entry and exist process in retail industry.
2. Inflation Policy:
The government seeks to make sure that there are no sudden general rises in prices. They do this through the Monetary Policy Committee (MPC) of the Bank of England which sets interest rates. Interest rates are put up if there is a danger of people borrowing and spending too much, thus pushing prices up. Raising interest rates makes it more expensive for businesses to borrow money. It also makes it more expensive for consumers to borrow money. They then have to spend less, which helps to force down the prices. The European Union is considered as the largest market in the entire world and this reflects that all the concerned of EU can freely conduct business and trade practices throughout other member states. Hence, this can augment the business scope of Walmart supermarket due to significant assistance by IKs membership in the UK. Thus, Walmart supermarket can acquire benefits like reduced or abolished selling tax and freedom from other restrictive fiscal measures. As a result, the retail entity will be able to generate higher profits and it can also operate more freely without facing intervention from government norms and regulations. Another important aspect of EU membership is that it helps the companies from other areas of the world to oblige the regulations and policies of respective European nations. EU policies have also developed a liberalization of policies and hence many products which were prohibited from being traded can now be freely traded across different EU nations. Thus, on the basis of this discussion, it can be stated that Walmart supermarket have to oblige different policies and norms for adequate business operations.