The Business Environment
Instructions: You are employed by the British Chambers of Commerce and you work for both the London and Coventry offices. As part of BCC support for SMEs they wish to produce some guidance that will be helpful to members who are considering setting up and/or expanding their business.
Your remit is to research the organisational purposes of businesses, the national environment in which they operate and behave and the global factors that shape national business activities.
The booklet that you produce is intended for use as a reference guide. One of its key purposes is to help partners, directors or senior managers of SMEs to gain a greater understanding of the topics which it covers. Your line manager has already written the contents page for the booklet and expects you to provide detailed information under each of the headings.
Organisational Purposes of Businesses
Identification of the purposes of different types of organisation
Description of the extent to which an organisation meets the objectives of different stakeholders
Explanation of the responsibilities of an organisation and the strategies employed to meet them
Nature of National Environment in which Businesses Operate
Explanation of how economic systems attempt to allocate resources effectively
Assessment of the impact of fiscal and monetary policy on business organisations and their activities
Evaluation of the impact of competition policy and other regulatory mechanisms on the activities of a selected organisation
Behaviour of Organisations in their Market Environment
Explanation of how market structures determine pricing and output decisions of businesses
Illustration of the way in which market forces shape organisational responses*
Judgement on how business and cultural environments shape the behaviour of a selected organisation Including a range of examples
Assessment of the Significance of Global Factors that Shape National Business Activities
Discussion of the significance of international trade to UK business organisations
Analysis of the impact of global factors on UK business organisations
Evaluation of the impact of the European Union policies on UK business organisations
The Business Environment
Small and medium-sized enterprises (SMEs) in the UK has accounted 99.3 % of all the business in the private sector with 99.9 % being SMEs. Any SMEs as a business is affected by its internal and external environment. This paper will review organizational purposes of SMEs in the UK, how the responsibilities and strategies in SMEs meet the objectives of its stakeholders. Also, the paper transcends the national environment in the UK affects SMEs activities. In consort with the national environment, global factors’ effect on SME will be analysed. Lastly, the paper will review how the EU regulations affect SMEs among other countries.
- Organizational Purposes of Small and Medium Sized Enterprises (SME) and Identification of Types of Business Organization.
SMEs can take any business organization as either a sole proprietorship, partnership or a corporation depending on their strategies of activities, policies, and structure. Majorly SMEs have a membership total of fewer than 250 employees (Mullins & Christy, 2010). Employees have a great impact on the type of business organization. SMEs have their organizational purposes. First, SMEs that are sole traders mainly focus on making the highest possible profit by individual effort, keeping the risks as minimal as possible, and satisfying customers with obtainability of their products. Secondly, for SMEs that operate on partnership focus majorly on utilizing resources they have employed to maximize profits and creating a good relationship with clients involved with their business. Additionally, some SME can operate as a private limited company. For the business that operates under this type of business focus on profit and sales maximization. Also, other purposes for these SMEs is to attain uppermost probable growth as well as win a larger market share to survive completion from other private firms.
- Stakeholder’s Satisfaction.
Stakeholders are those parties that are involved in the business organization. Different stakeholders for the different organization have necessities and expectations of the business in consideration on the extent to which respective organizations (Mullins & Christy, 2010). For SMEs, there are direct and indirect stakeholders. Direct stakeholders are parties that affect the daily operation of the business who include customers, employees, managers and the owners (investors). Indirect stakeholders are parties that do not unswervingly affect the functionality of the organization; they include any competitor, the society, the local government and the environment as a whole.
For organizations to meet the expectations of the stakeholders, they must satisfy each stakeholder entirely. First, customers are essential stakeholders for SMEs. Therefore, the organization must be able to provide the customers with the quality product or services at an affordable price as well as offer them with after sales services and build a good relationship with the employees. Secondly, Employees must be provided with a healthy environment where they can work efficiently, provide them with technological support as well as giving the rewards after work well done and training them on the new required skills in the firm. Additionally, indirect stakeholders such as the government and the society also impact on the SME. They must obey the rules and regulations put forth by the government in their formation of their business. As a business entity, SMEs are eligible for tax payment. They should pay their taxes regularly. To the society, SMEs must provide services and goods that are not harmful to the society and the environment as well as maintain corporate social responsibilities (Craig & Campbell, 2005).
- Responsibilities and Strategies employed to meet them
SMEs have some responsibilities that they must meet through different strategies. First and foremost, any organization such as an SME has a model structure in which stipulates the path along which the SME will operate upon. It determines how the business runs and how resources are allocated. Hence, laws and policies coupled with a strong managerial and leadership are required. Also, for a sole trader duty allocation is personal. One must plan his pathway to handle his business activities. In the case of an SME being a partnership or a private, task allocation and coordination of tasks are essential. Additionally, with better duty allocation and coordination, operations will run smoothly. In an SME, operations must be technical and objective-oriented.
For SMEs to meet their responsibilities, they must employ different strategies such product diversification, improving on their goods and services offered to customers, market development and penetration, and product promotion to boost sales.
1. National Environments of Businesses
1. Resource allocation by economic systems
Different types of economic systems are used to achieve resource allocation. Resource allocation deals with a country or regions decision regarding the distribution of its total resources to meet the purposes and needs of its citizens. Typically, the government makes the decision regarding resource allocation through the choice of a particular economic system. An economic system is a means through which society attempts to satisfy the needs of its people through production (Sloman & Sutcliffe, 2008). It entails numerous stages such as organizing, motivation, production and circulation of the said resources. The productivity of a company alongside resource allocation are all dependent on the economic system (Jhingan, 2005). There are three economic systems; command economy, free market economy, and mixed economy.
A command economy is one which is highly controlled by the government. It is associated with a communist or socialist political regime. Resource allocation is done by the government, through a central planning process. Land and capital within a command economy are owned collectively.
The free market economy is a stark contrast to the command economy. In this type of economy, the resource allocation is determined freely in the market. This type of economy is characterized by the predominance of supply and demand forces, which influence the flow of resources. The key term here is free. Consumers have a greater choice to purchase what they want; they have freedom of demand. Manufacturers are also free to supply what they like
The third type of economy is the mixed economy. It is essentially a mix between the command economy and free market economy and is as such, characterized by features of each of these types. The decisions about the allocation of resources are made by both the government and the market. Most economies are of this type
b) Impact of Fiscal and Monetary Policy on SMEs and their Activities.
The government of UK stipulates different monetary and fiscal policies to regulate business organizations and the economy at large. First, when the government changes the interest rates, most business activities will be affected. For example, if the government increases the interest rates as a monetary policy consumption levels will decrease, hence, impacting on the sales volume of SMEs. Alternatively, low-interest rates yield more sales for SMEs.
On the other, changes in the exchange rates can also affect the value of an SME in the UK especially when the pound increases in value. As a fiscal policy, low tax rates imposed by the government makes the SMEs enhance their capitalization creating room for quality improvement (Sloman, 2005). Also, research suggests that, if the government increases its spending in a different sector, SMEs will face a reduction of sales and vice versa.
c) Evaluation of the impact of competition policy and other regulatory mechanisms on the activities of SMEs
SMEs face competition from other SMEs, competition, depends on the type of product or service an SME offers. If the products and services are the same, competition will be present. If an individual SME producing a particular product changes the competition policy, it will affect the other SMEs producing the same product either negatively or positively. Other SMEs will be initiated to change their business policies and improve on some activities
The UK government has different regulatory policies which pose on the business environment, as a result, affects the business activities of SMEs. Standardization regulations made by the UK government and the European Union, majorly affect the pricing of goods and services offered by the SMEs. Therefore, for SMEs to realize profits they have to reduce their costs.
Behaviour of Organisations in their Market Environment
- Explanation of how Market Structures determine Pricing And Output Decisions of Businesses
Market structure significantly affects how the SMEs operate. Therefore SMEs must be strategic in coping with the market structures. First, monopoly market structures, where one or two SMEs operate in the whole market. Under this market structure, SMEs set prices irrespective of the effects borne by customers (Capon, 2009). Monopolists are reserved by the demand curve. Additionally, profit maximization is realized by setting the price so that the marginal cost is equal to the marginal revenues.
In an oligopolistic market, SMEs will only consider the consumer demands and the most demanding competitors’ pricing policy. In this type of market, the SMEs will have to set low prices to attract entrants as well as competitors. Lastly, for most SMEs in they operate in a perfectly competitive market, where many SMEs operate in the same industry with ultimate levels of competition. In this market, it is advisable for SMEs to choose the output sales volume and not the pricing strategy. In this market, pricing is controlled by the company with lowest prices.
- Illustration of the way in which Market Forces shape SMEs’ Responses
Market forces such as demand and supply, consumer’s perceptions and economies of scale significantly impact organizational responses. Corporate responses have defined the reactions that SMEs undertake due to different conditions in the economy. It is evident that the success of any SMEs depends on how the organization reacts to the challenges posed by the economy. First, supply and demand forces affect decision making in SMEs in increasing output or decreasing output. Additionally, customer’s perception and actions decision to improve the quality of services or product. The economies of scale and the cost of out are also responsible for decision making on SMEs.
- Business and Cultural Environments that shape the behaviour of SMEs
Business and cultural environment affect how the SMEs operate. The business environment is analysed by PEST analysis.
- Political factors: The UK political status is more stable, and the government makes it easy to the SMEs to perform efficiently through understanding regulations.
- Economic Factors: The economic parameters in the UK such as GDP, employment rate, interest rate and inflation rate are in a good position which makes SMEs business activities swift.
- Social Factors: Customer behaviours, perceptions, and expectations are indomitable by the social norm. The society has provided a better environment for SMEs to operate.
- Technological factors. SMEs currently are adjusting to the new type of technology so that they can face the competitive nature of their markets.
Apart from the PEST analysis, cultural factors are essential in an organization. Every SMEs must incorporate values and norms of the culture in the UK. Therefore, it is vital to note that the behaviour of the organization is affected by the cultural and business environment.
Significance of Global Factors that Shape National Business Activities
- Importance of International Trade to UK Business Organisations
International trade has prospered in the recent years due to the modernization of production, advanced transnational companies, and better transportation systems. SMEs have benefited from the international trade through its diverse client outreach via the Internet. With the EU free trading allowance SMEs can expand their markets outside the US.
- Analysis of the Impact of Global Factors on UK Business Organisations
Even though SMEs mostly operate inside the country, global factors are issues to them. SMEs affected primarily by the tariffs and taxes as well as the exchange rates globally. In the tariffs and tax in the global market are high, SMEs will find it hard to operate on the international trade amongst the EU countries. Exchange rates affect the revenue levels of the SMEs in the UK (Morrison, 2006).
- Impact of the European Union Policies on UK Business Organisations
An SME in the UK must follow the rules and regulations stipulated by the EU. Therefore, it is evident that the EU directly affects SMEs in the UK as many businesses under the EU is concerned with the EU monetary and fiscal policies. European Money Union id one of the policies that SMEs in the UK must adhere to and follow to the later. For international business in the EU, businesses must transact by using Euro (€) (Worthington & Britton, 2006).
SMEs as business organizations have important purposes and goals that must be achieved. These goals must be accomplished with an efficient internal and external environment. It is evident that the business environment, either internally or externally, primarily impact on its operations. SMEs as a small business must consider these factors so that they perform effectively in any market. Since SMEs mostly operate in perfectly competitive markets they have to formulate strategies that will enable them to succeed in any economy. Lastly international and EU regulations have an impact on the operations of SMEs in the UK.
List of References
Brammer, S., Hoejmose, S. & Marchant, K., 2012. Environmental Management in SMEs in the UK: Practices, Pressures and Perceived Benefits. Business Strategy and the Environment, 21(7), pp. 423-434.
Capon, C., 2009. Understanding the Business Environment. 3rd ed. New York: Prentice Hall.
Craig, T. & Campbell, D., 2005. Organisations and the Business Environment. 2nd ed. London: Elsevier.
Martins, E. & Terblanche, F., 2003. Building Organisational Culture that Stimulates Creativity and Innovation.. European Journal of Innovation Management, 6(1), pp. 64-74.
Michaelas, N. C. F. &. P. P. (. .. ,. 1., 1999. Financial Policy and Capital structure Choice in UK SMEs: Empirical evidence from company panel data. Small Business Economics, 12(2), pp. 113-130..
Morrison, J., 2006. International Business Environment: Global and Local Marketplace in a Changing World. Hampshire: Palgrave Macmillan.
Mullin, L. J. & Christy, G., 2010. Management & Organisational Behaviour. 9th ed. New York: Financial Times Prentice Hall.
Sloman, J., 2005. The Economic Environment of Business. New York: Pearson Education..
Worthington, I. & Britton, C., 2006. The Business Environment. 5th ed. New York: Financial Times Prentice Hall.