Unit 1 Business Environment

Introduction

The business environment is a complex blend of internal and external factors that influence a company’s operational conditions. It encompasses various elements such as customers and suppliers, technological advancements, competition, ownership structure, regulations, government policies, and economic, social, and financial trends. It’s important to note that the business environment can vary significantly from one country to another due to differences in government regulations and laws.

Task 1

P1.1 Types of Organizations and Their Purposes

a) Virgin Group Ltd.

Virgin Group Ltd. is a diversified conglomerate with a wide range of goods and services under the Virgin brand, including airlines, financial services, and beverages. The success of the Virgin Group is based on building a strong brand identity from the inception of each business venture. Virgin Group operates with a decentralized organizational structure, comprising approximately 150 small units, each with its own management responsible for the day-to-day operations. Virgin Group engages in various industries, including airlines, rail services, travel packages, and mobile communications, among others.

b) Sainsbury PLC

Sainsbury PLC operates as a retail company, primarily in the grocery and supermarket sector. Its organizational structure is hierarchical, with multiple layers of management overseeing various aspects of the business, including Sainsbury Finance, Sainsbury’s Online, Sainsbury’s Energy, and Sainsbury’s Stores. The company’s purpose is to provide a wide range of services to the community.

c) McDonald’s

McDonald’s is a global fast-food restaurant chain with an extensive network of outlets worldwide. Its organizational structure is hierarchical, with top-level positions held by the chairman, CEO, and COO. The company has various functional divisions such as corporate affairs, marketing, human resources, national operations, finance, strategic planning, and information technology. McDonald’s aims to be customers’ preferred destination for food and beverages, emphasizing a quality customer experience.

d) National Health Services (NHS) England

NHS England’s purpose is to create a conducive environment for health and care services and healthcare professionals to provide the highest quality of care efficiently. The organization operates as a public limited company (PLC) and utilizes public funds to offer services to its customers. Its primary focus is to fulfill customer needs while maintaining low costs.

e) A Corner Shop Near Your Home

Corner shops typically operate as informal, small-scale businesses, often owned by a sole proprietor or a family. They cater to the daily needs of households, and their organizational structure is simple and informal. While there is no predefined structure, they may have a shop owner and a helper. These corner shops play a crucial role in providing convenience to local communities.

P1.2 Stakeholder Objectives for Sainsbury’s PLC

Sainsbury’s PLC has various stakeholders, both internal and external, each with distinct objectives and interests:

Internal Stakeholders:

  1. Employees: Internal stakeholders include Sainsbury’s employees who are motivated and informed about company policies and practices. Sainsbury’s recognizes the importance of considering the cultural and individual needs of its employees in its policies.
  2. Suppliers: Sainsbury’s interacts with suppliers through various means, including oral, written, and web-based communication. It acknowledges that its suppliers come from diverse backgrounds and cultures and aims to address cultural differences in its interactions.
  3. Management Team: The senior management team plays a crucial role in decision-making within the company, shaping the overall strategy for Sainsbury’s.
  4. Shareholders: Shareholders, including both individual shareholders and institutional investors, have a vested interest in the company’s financial performance and long-term growth.
  5. Human Resources: Human resources are concerned with job security and employee attitudes, impacting the company’s workforce and overall performance.
  6. Customers: Customers are a vital stakeholder group, and their preferences and satisfaction influence Sainsbury’s business strategies.

External Stakeholders:

  1. Regulators: Government bodies and regulatory authorities are external stakeholders that oversee various aspects of Sainsbury’s operations, including compliance with laws and regulations.
  2. Analysts and Critics: Analysts and critics provide insights and opinions about Sainsbury’s performance, which can influence other stakeholders’ perceptions.
  3. Local Communities: Sainsbury’s interacts with local communities, and its operations can impact the well-being and social dynamics of these communities.

P1.3 Responsibilities and Strategies of Sainsbury’s PLC

Sainsbury’s PLC has various responsibilities as an organization, and it employs strategies to meet them effectively:

  1. Serving the Community: Sainsbury’s primary responsibility is to serve the community by providing essential goods and services. The company focuses on offering a wide range of products that meet the needs of its customers.
  2. Legitimacy and Trust: Sainsbury’s aims to establish legitimacy and gain the trust of its customers and stakeholders through ethical business practices and high-quality products and services.
  3. Financial Control: Maintaining strong financial control is a critical responsibility for Sainsbury’s to ensure the sustainability of its operations and meet its financial obligations.
  4. Recruitment Policy: The company’s recruitment policy is vital in selecting reliable employees who can build relationships with customers and clients, enhancing the overall customer experience.
  5. Human Resources: Human resources play a significant role in the organization by managing employee relations, job security, and attitudes, which contribute to a motivated and productive workforce.
  6. Marketing Strategy: Sainsbury’s marketing strategy focuses on promoting its products effectively, managing various promotional mediums, and connecting with customers to drive sales and brand loyalty.
  7. Corporate Social Responsibility: Sainsbury’s integrates financial, environmental, and social responsibilities by sourcing domestic British products, ensuring supply chain reliability, promoting sustainability, and engaging in business community initiatives.
  8. Accountability: Sainsbury’s demonstrates accountability by setting clear objectives and goals and providing transparency in reporting its performance against these objectives, even if some objectives are not fully achieved.

Task 2

P2.1 Economic Systems and Resource Allocation

Different economic systems attempt to allocate resources effectively in various ways:

  • Command Economy: In a command economy, the government owns and controls most resources and makes decisions about what to produce, how to produce, and for whom to produce. This central planning approach aims to achieve resource allocation based on government priorities and societal needs. For example, Cuba operates as a command economy.
  • Free Enterprise Economy: In a free enterprise economy, resources are allocated based on the principles of supply and demand in the free market. Private individuals or businesses own and control resources, and competition drives resource allocation. For example, the United States operates as a free enterprise economy.
  • Mixed Economy: A mixed economy combines elements of both command and free enterprise systems. Resources are allocated both by the government and through market forces. Many countries, including the UK, have mixed economies.
  • Transitional Economy: Transitional economies are in the process of shifting from command to free enterprise systems. They undergo significant economic reforms and changes in resource allocation mechanisms. For example, post-Soviet countries went through transitional periods.

Resource allocation in free market economies is primarily driven by supply and demand dynamics. In command economies, government authorities make allocation decisions, often with central planning and control. Mixed economies combine elements of both approaches.

P2.2 Impact of Fiscal and Monetary Policy on Sainsbury’s PLC

Fiscal and monetary policies can have significant impacts on the activities of Sainsbury’s PLC in the UK:

  • Fiscal Policy: Fiscal policy involves government decisions regarding taxation and government spending. An increase in government spending, such as investments in infrastructure or social programs, can boost economic activity, leading to increased consumer spending and potentially benefiting Sainsbury’s sales. Conversely, tax increases may reduce consumer disposable income, affecting purchasing power.
  • Monetary Policy: Monetary policy is controlled by the central bank and involves decisions on interest rates and money supply. A reduction in interest rates can lower borrowing costs for consumers, encouraging spending, and potentially benefiting retailers like Sainsbury’s. Conversely, higher interest rates can reduce consumer borrowing and spending.
  • Quantitative Easing: Central banks may use quantitative easing, which involves purchasing financial assets, to stimulate the economy. This can affect inflation rates and consumer sentiment, influencing consumer spending patterns and impacting Sainsbury’s sales.
  • Exchange Rates: Changes in exchange rates can affect Sainsbury’s as it sources products globally. Exchange rate fluctuations can impact the cost of imports, potentially affecting product prices and profit margins.
  • Economic Conditions: Fiscal and monetary policies can impact overall economic conditions, such as inflation, unemployment rates, and economic growth. These conditions can influence consumer behavior and spending habits, directly affecting Sainsbury’s sales and profitability.

P2.3 Impact of Competition Policy and Regulatory Mechanisms

Competition policy and regulatory mechanisms can significantly influence Sainsbury’s PLC activities in the UK:

  • Competition Policy: Competition policy aims to promote fair competition, prevent monopolies, and protect consumer interests. Sainsbury’s operates in a highly competitive retail sector, and competition policy ensures that it competes fairly with other retailers, which benefits consumers by providing choices and competitive prices.
  • Regulatory Mechanisms: Regulatory mechanisms, such as price controls and consumer protection regulations, can impact Sainsbury’s pricing strategies and business practices. For example, regulations may restrict the company from engaging in anti-competitive behavior or setting unfair prices.
  • Market Liberalization: Market liberalization policies can open up previously monopolistic sectors to competition. This can lead to increased competition in areas like energy supply, affecting Sainsbury’s operational costs and energy prices.
  • Mergers and Acquisitions: Regulatory bodies oversee mergers and acquisitions in the retail sector. Sainsbury’s must comply with regulatory approval processes when acquiring other companies or merging with competitors, which can impact its market presence.
  • Accountability: Regulatory bodies hold companies like Sainsbury’s accountable for compliance with various regulations, ensuring that they adhere to ethical business practices and consumer protection standards.

Task 3

P3.1 – Market Structures and Pricing Decisions

Sainsbury PLC UK operates in a market dominated by the “big four” retailers, including Tesco, Asda, Morrisons, and Sainsbury’s itself, collectively controlling 70% of the UK’s grocery market. This market structure is characterized as an oligopoly, where a few major players dominate the industry. In an oligopoly, firms compete on various factors, including pricing, product offerings, and other strategies. These companies are interdependent, as their output and pricing decisions significantly impact each other. High barriers to entry in this market make it difficult for new players to enter, which limits competition from smaller businesses.

The intense rivalry among the major retailers has led to price wars as they vie for a larger market share. While these firms do not collude, they engage in fierce competition. Sainsbury PLC, like its competitors, aims to capture a significant portion of the market by offering competitive prices. They often engage in price reductions to attract customers. For example, if Sainsbury lowers prices on certain products, Tesco may respond with similar price reductions on those items. This interdependence is evident in their pricing strategies.

Sainsbury PLC’s pricing decisions are also influenced by customer preferences and market trends. To maintain customer loyalty and market share, Sainsbury’s has strategically reduced prices on thousands of products, catering to the 58% of shoppers who are price-sensitive. This competitive pricing strategy aligns with customer demands and helps retain a substantial customer base.

P3.2 – Market Forces and Sainsbury PLC’s Responses

Several market forces influence Sainsbury PLC’s decisions:

a) Demand and Supply: Sainsbury PLC assesses the demand and supply for its products to determine what to produce and allocate resources efficiently. High-demand products receive more resources and attention.

b) Elasticity of Demand and Supply: Sainsbury PLC considers how changes in prices affect the demand for its products. For instance, during peak demand seasons, price increases may not significantly impact consumer behavior.

c) Economies of Scale: Sainsbury PLC leverages economies of scale to reduce costs, allowing it to offer competitive prices while maintaining profitability.

d) Consumer Expectations: Sainsbury PLC closely monitors and responds to customer preferences and expectations. Adapting its marketing and product offerings based on these expectations helps maintain a competitive edge.

e) Short and Long-Run Experiences: Sainsbury PLC adjusts its strategies depending on whether it’s in the short or long run. Short-term factors may lead to pricing adjustments, while long-term changes could result in overhauling business processes and marketing approaches.

f) Worker Skills and Technology: Sainsbury PLC invests in employee training and technology to remain competitive in a globalized market. This enhances its operational efficiency and customer satisfaction.

P3.3 – Business and Cultural Environments

Sainsbury PLC UK considers both the business and cultural environments in shaping its behavior:

In the business environment, Sainsbury PLC analyzes:

a) Political Factors: Sainsbury PLC places a paramount emphasis on meticulously assessing the intricate political landscape of every country within which it conducts its operations. This multifaceted evaluation encompasses an in-depth scrutiny of political stability and a comprehensive understanding of prevailing government regulations. Sainsbury PLC’s modus operandi is to tailor its strategic initiatives in strict alignment with the prevailing political milieu in each jurisdiction it serves. This adaptive approach ensures that the company remains both compliant and responsive to the nuances of the political systems it encounters, thereby minimizing potential risks and optimizing opportunities within these unique political environments.

b) Economic Factors: The economic considerations that factor prominently into Sainsbury PLC’s decision-making processes encompass a wide spectrum of variables. This includes astute assessments of pertinent economic indicators such as interest rates, Gross Domestic Product (GDP), and inflation rates. Sainsbury PLC recognizes that these economic determinants wield substantial influence over critical aspects of its business, including pricing strategies, overall profitability, and the fluctuating demand for its diverse range of products. By carefully analyzing these economic factors, Sainsbury PLC endeavors to craft responsive and adaptive strategies that can adeptly navigate the ebbs and flows of the global economic landscape.

c) Social Factors: Sainsbury PLC proactively adjusts its operational approach to resonate harmoniously with the social fabric of the diverse societies in which it operates. This entails a nuanced understanding of prevailing social norms, values, and consumer behaviors. By doing so, Sainsbury PLC ensures that its products, marketing campaigns, and corporate initiatives authentically connect with local cultures. This emphasis on cultural sensitivity not only fosters consumer trust but also fortifies the brand’s appeal within the specific societal context. Sainsbury PLC’s commitment to aligning with social factors underscores its dedication to being a responsible and culturally attuned corporate citizen.

d) Technical Factors: In the pursuit of excellence, Sainsbury PLC enthusiastically embraces cutting-edge technological advancements. These innovations are harnessed to enhance multiple facets of its operations. From bolstering product quality to streamlining processes and reducing costs, technology plays a pivotal role in Sainsbury PLC’s pursuit of operational efficiency. Additionally, the company leverages technology to elevate customer experiences, ensuring that it remains at the forefront of technological integration within the retail sector. This commitment to technological prowess underscores Sainsbury PLC’s dedication to providing exceptional products and services to its discerning clientele.

e) Short and Long-Term Experiences: Sainsbury PLC’s strategic framework is dynamic and flexible, allowing it to tailor its initiatives to suit both short-term exigencies and long-term aspirations. The company recognizes that business climates can vary significantly over different time horizons. Accordingly, Sainsbury PLC deploys short-term strategies to respond adeptly to immediate challenges and opportunities, all while simultaneously nurturing long-term growth strategies that are designed to fortify its competitive standing and ensure sustainability in the ever-evolving global marketplace.

f) Worker Skills and Technology: Globalization has catalyzed a paradigm shift in the demands placed upon the workforce. Sainsbury PLC is acutely aware of the imperative to invest substantially in enhancing the skills and know-how of its employees. By providing ongoing training and professional development opportunities, Sainsbury PLC empowers its workforce to excel in a globalized environment. Concurrently, the company diligently incorporates state-of-the-art technology and advanced techniques into its business processes. This approach enhances operational efficiency, allowing Sainsbury PLC to remain on the vanguard of technological integration and innovation within the retail sector. Through these concerted efforts, Sainsbury PLC stands well-equipped to thrive in the global business landscape.

Incorporating the cultural dimension, Sainsbury PLC considers the unique characteristics and values of the UK and other regions it serves, shaping its marketing and business practices accordingly.

Task 4

P4.1 – Significance of International Trade

International trade plays a vital role in the success of Sainsbury PLC UK. Modern manufacturing methods, improved international business practices, and efficient transportation systems have facilitated global trade. For Sainsbury PLC UK, international trade offers several key benefits:

  • Expanded Market: International trade allows Sainsbury PLC to operate in multiple countries, providing access to a larger customer base and revenue streams.
  • Economies of Scale: Through international trade, Sainsbury PLC can achieve economies of scale by sourcing products from regions where production costs are lower, thus reducing expenses.
  • Diversification: Engaging in international trade diversifies Sainsbury PLC’s business risk. It is not solely dependent on the economic conditions of a single market.
  • Competitive Advantage: Sainsbury PLC can leverage its expertise and brand recognition to gain a competitive advantage in new markets, often outperforming local competitors.
  • Profitability: International trade contributes significantly to the profitability of Sainsbury PLC UK, as it taps into the potential of global markets.

P4.2 – Impact of Global Factors

Global factors significantly influence Sainsbury PLC UK’s operations:

  • Global Competitiveness: Sainsbury PLC must contend with global competitors like Walmart. High levels of competition can pose challenges to the company’s global operations.
  • Tax and Tariffs: Varying tax and tariff rates across global markets affect Sainsbury PLC’s cost structure and pricing strategies.
  • Global Business Environment: Sainsbury PLC must navigate the global business environment, including political, economic, social, technological, environmental, and legal factors (PESTEL), which can impact its strategies and operations.
  • Exchange Rates: Fluctuations in exchange rates can affect Sainsbury PLC’s international profits, as changes in currency values impact the conversion of revenues.

P4.3 – EU Policies and Sainsbury PLC UK

EU policies have a significant impact on Sainsbury PLC UK’s business activities, both within and outside the UK:

  • Regional Strategy: EU regional policies may influence Sainsbury PLC’s expansion and investment decisions in various regions of the EU.
  • Employment Strategy: EU employment policies affect Sainsbury PLC’s human resource management practices and labor-related costs.
  • International Strategy: When operating in EU member countries, Sainsbury PLC must comply with EU international trade policies and regulations.
  • Education and Training Strategy: EU education policies can affect Sainsbury PLC’s workforce development programs.
  • Inflation Strategy: EU monetary policies, including inflation control, can impact Sainsbury PLC’s pricing decisions and cost management.
  • Taxation Strategy: Sainsbury PLC must adhere to EU taxation policies, which can influence its overall financial strategy.
  • Ascertaining the ‘Laws of the Game’ Strategy: Sainsbury PLC must align its business practices with EU regulations to ensure compliance with the laws governing EU member nations.

Sainsbury PLC UK benefits from EU membership by gaining access to a larger market and benefiting from harmonized regulations within the EU. However, it must also adhere to EU policies and standards, which can shape its business decisions.

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