Business Environment Essay
This report provides an overall analysis on the types of organizations and their functions, performance of Superdry limited, market economies, international trade and how UK businesses are effected by the emerging market like BRIC countries. This report comprises 3 major tasks which includes explanation of the types of organizations and their nature. Organizations are mainly divided into 2 categories they are public organizations run under government e.g. public limited companies (plc) and private organizations operated by the private individual’s e.g. sole trader. People who are interested in the operations of the organizations are known as stakeholders e.g. shareholders, employees, customers, competitors etc. It a responsibility of the organization to fulfill their needs and interest if they want to run the business in its most effective manner. In addition, it is important for large companies like Superdry ltd to have mission vision aims and objective of the business to know why they are existing in the market. A clear understanding of the company and its market provides better knowledge which can be used to operate the business in full potential. The report also highlights on the different type of economic system present in the current economy.
Economic system is concerned with how the economy is going to use the scarce resources to gain maximum satisfaction. They are market, command and mixed economic system. For the countries to gain fast economic growth the government implies economical tools like fiscal and monetary policies to achieve macro-economic objective s like sustainable economic growth, price stability, trade surplus, equal distribution of income etc. Furthermore, report also contains about the benefits and drawbacks of the international trade by taking Superdry as an example. International trade is a good way for business to make high profits by selling their goods at wider market. But this depends on whether the people will buy good as the culture and taste of people may differ. Especially in emerging markets, as they have unstable economic environment which can hinder the flow of functions on firm. The reports also summarizes condition about the debt crises of EU and how it is effecting the UK businesses. As EU plays are big role in UK exports and the economy.
Business environment is the study of how the business is effected by the Economical, Political, Social, Technology by the operation of the business. It is important for business to have a clear understanding of its internal and external environment to take effective decision making and operation. Superdry is a clothing company operating in the UK and international fashion market. The company is well known for its quality and price of the brand. They have been continuously growing ever since they have entered the market. Their aim is to grow in UK and online market and always tried to outperform the competition. There are 2 types of organization in the market i.e. private and public organizations. These organization have unique goals for each. Superdry will have shareholder who must be satisfied at all cost if the company want to run on profit. The report has mentioned about the different type of economic system with characteristics and policies which government can use to balance the economies. Moreover, about the importance of trade internationally, especially in emerging market like BRIC countries. It advisable to conduct research on the market before a firm enter due to different market conditions.
Organization is a group of people collaborating together for achieving particular goal or task (Kokemuller, N. 2014). In a business, organizations are divided in 2 main groups they are public sector organization and private sector organization. Public sector organizations are owned and controlled by government. They are usually nonprofit making organization created to serve the public. While private sector organizations are profit maximizing firms operated under private individuals.
Types of organization:
A sole trader is a business owned and controlled under a single ownership. This is the most common form of any start up business. Here the owners will enjoy all the profits and loss generated by the company. The business is relatively easy to set up as few capital is needed to operate the business. Decisions are taken much faster with no influence of outside persons but only by the owner of the business. The business can keep a good customer relationship as owners can personally keep interaction with customers thus allowing the business adapt to market changes faster. However, sole proprietorship business cannot generate a high profit as much as big companies does.
The owners will have unlimited liability, this means the owner is liable for all the debts of the business, even to the extent of selling his own personal positions as there is no separate legal entity, the owner and business are considered to be one. Lack of creativity and innovation will exist as single owner is making the all the decisions and there is no guarantee that all decisions taken by him will result in profitable for the business. Less members in the business also reduces the amount of capital invested furthermore, this also results in more workload for the owner as he/she only have to deal with business activities. Life span of the business will end with the death of the owner. (The times 100. 1995-2014)
A group of people interact together for achieve particular objective or a goal is known as partnership. In here all the profit and loss made by the business is shared among the partners according to the law of agreement made between them. The agreement should be either verbal or written. Some of the things which includes in agreement are the profit and loss sharing ratio, capital invested, roles and responsibilities of partners, partners private information’s. The business must have at least have 2 members and can add up new members up to 20. Decisions are taken after the consulting with the partners therefore, this will slow the decision making process due to conflicts between them. Resulting slow adaptation to market changes. But in partnership they can invest more capital to the business helping to achieve more growth in future. Partnership allow partners to share skills and workload between them thus making them complete work faster. Partners can bring in new ideas into business allowing it to be more innovative and creative. In partnership there will be at least one partner having unlimited liability and one who is having limited liability. (The times 100. 1995-2014)
iii.Public limited company (plc)
A plc is a large scale operating company issuing shares to the public and is controlled under the shareholders of the business. Before the business becomes a plc it must be registered under the Memorandum of Association specifying the business is public. This type of business is very expensive to set up and many formalities have to be filled before it can gain the license of plc. The shares issued by the company must be at least 50000 pound. Shareholders can enjoy limited liability as it have spate legal entity form its owners. Moreover, as plc is large scale operating company this gives more assurance for the banks and other institutes, that they will pay the loan amount making it easier for the company to borrow loan in big mount and can use that for future expansion of the business.
There are some drawback of plc, it is difficult to operate due to more number of shareholders. The company cannot respond to changes in the industry as any decision made by the business is after consulting with shareholders which can slow down business operations. The biggest drawback is that the original owner of the business will lose absolute control over the activities business and the overall profit of the business must be shared among the shareholders which can result in low profit for the original owner. Death of a shareholder cannot will not affect the business operations. (Merchant, P. 2014)
2.Responsibilities of stakeholders in Superdry
Stakeholders are group of people having interest in the activities of the business. They can be either external stakeholders or internal stakeholders. External stakeholders are the people who are outside the business environment, e.g. government, social groups. While internal stakeholders are the people who are inside the business environment. They can be directly affected by the activity of business, e.g. shareholders, employees. (The times 100. 1995-2014) Figure 1 Types of stakeholders
Customers are the most important stakeholders in the business. Without them there is no meaning of doing business. When a customer buys a product service the most common aspect they look for is the quality of the goods/service, reasonable price and customer service. For any business waiting to run in profit, it must satisfy the needs of their customer. (The times 100. 1995-2014) Superdry have given lot of efforts on making their customer satisfied. Better customer service was one main point triggering the success of the company. This includes, fast online delivering, guarantee the quality of products, if any faults occur in the delivering process they will try to solve it as fast as they could. Customers was kept as their first priority, as happy customers will build brand loyalty which in turn create a good image of business and thus increase profit. (SuperdryGroup.plc. 2012)
Suppliers are the people who are delivering raw materials or other production materials to the company. A company must have a good supply chain ensuring a smooth inflow of stock in business. As any delay caused by the suppliers will affect the business production. (The times 100. 1995-2014) Superdry have always tried to keep a good relationship with its supplier and takes seriously its roles and responsibilities and aim to ensure that’s their suppliers and manufacturers are following the local and international legislation and use the best practice for ethical trading. The Superdry also uses ‘hands-on-approach’ being actively engage in checking whether the raw products are delivered from responsible business partner. It’s a good practice as this will ensure that the supplier won’t deliver cheap or faulty goods knowingly or unknowingly. As a result this will help Superdry to maintain good reputation and avoid unnecessary problems. (SuperdryGroup.plc. 2012)
Employees are the most important assets of any business. A well skilled and motivated workforce will help the business to maintain a good performance and increase the profit. They can affect growth of the business since their pay levels and their job security will depend on the profitability of the business. Superdry have kept a good employee loyalty by practicing ethical labour practices respecting the rights of their employees. These include independency creation of association, no forced employment, safe and healthy working environment, no discrimination between employees regarding their gender or religion, fair wages, no physical maltreatment, reasonable working hours, no child labours and given job security as with the agreement made between employer and employees. The company also provides training to its employees to improve their knowledge and skill which in turn can increase the productivity of the business. Healthy workforce will generate more profits and help to sustain its growth in future. (SuperdryGroup.plc. 2012)
Superdry is a company operating in the fashion industry selling their goods internationally. Ever since the company was set up it have outperformed competitions and gained popularity and recognitions throughout UK and internationally. (SuperdryGroup.plc. 2012) The mission of the company was to grow in youth fashion industry of UK and world market by offering premium quality clothing and accessories for both men and women with an affordable price. The company have continued grow its market share throughout UK and internationally by opening new stores and through internet. Since the flotation in London stock exchange in 2010, the business is focusing its strategy on 5 important areas.
This includes roll-out of standalone stores in UK and Europe, developing online offer (20% internet growth annually), expanding the international business, extending product range and developing an infrastructure that delivers profitable growth and operational efficiency. They are achieving this by building brand awareness by proving currency websites and franchise roll-outs. (SuperdryGroup.plc. 2012) The group has also had goals of providing better working environment to its employees and have given lot of care to improve their performance. Furthermore, by giving best customer service and offering quality product with reasonable price. (SuperdryGroup.plc. 2012) The group have gained 313.8 million profit in 2012 while 237.9 million in 2011. That’s a growth of 31.9% in the revenue of the company. (SuperdryGroup.plc. 2012)
An economic system is production and allocation of good and service inside the economy by using it scarce resources to gain maximum satisfaction in the economy. They can achieve this by answering 3 fundamental question arising inside the economy they are, what to produce? How to produce? For who to produce? There are basically 3 main types of economic system found in the economy. (Griffin, D. 2014). They are;
Figure 2 Types of economic system
Command/planned economic system
Command economic system is where the government decide how to allocate resources inside the economy. The 3 fundamental questions in the economy are answered by the state itself. In the modern world, only very few countries like china, North Korea follow this economic system. (Griffin, D. 2014). This economic system is proven to be beneficial as it help to stabilize the development of the economy. All resources in the economy will be fully utilize, thus resulting full employment. The goal of this system is to provide the basic goods to the people and improve their overall standard of living and reducing the occurrence of disturbances in the economy. It balanced economy between rich and poor. Most of the production firms are run under government thus allowing sale of good at lower price which can be affordable to everyone.
The government will be more efficient at mobilizing economies resources in a large scale and can carry out big projects much easily to increase the growth rate of the economy. In addition, this also eliminates the existence of self-interest and welfare generating population which can hinder the stability of the economy. However, this system uses strict rules and regulation to control the economy, resulting loss of freedom of individuals. Private individuals are discourage to start new businesses thus reducing competition in the market. Low competition will demoralize firms to become more innovative and creative in their production. People will not get many choices, whatever the government produce they must buy, resulting inefficient allocation of resources. Moreover as the firm is nonprofit making organization, they won’t try to reduce their cost by applying latest production methods, again resulting productive inefficiency in the economy.
Mixed economic system
In here both the government and the market will decide how to allocate resources in the economy. The 3 fundamental questions are answered by both government and market itself. This mean the economic system will comprise ownership of both private and public sector enterprises. Thus overcoming the draw backs of planned and market economic system. There are many countries following this system e.g. Maldives, Sri Lanka etc. (Griffin, D. 2014). The mixed economy will allow the resources to be fully utilize at its optimum level. Even though private sector play’s major role in the usage and production and provision of goods and service, the government will monitor their movement checking whether the private companies are following ethical practices in production or not.
Private firms are encourage to become more innovate and creative at their work providing low price goods due to competitive market. Producers and consumers will have sovereignty of choosing between goods which are more appealing to them. However there may be chances of occurring unethical markets supplying harmful good to the economy. Government then can apply stick rules and regulations to control those unethical practices. Unequal distribution of income may occur as people who own the firms will become wealthier than people who are working under them. In here, the government plays role only by proving goods which are under provided by the private firms, usually unprofitable businesses like providing street light facilities, or building roads etc.
Market economic system
In market economic system free market allocates resources in the economy. The three fundamental questions are answered by the market itself. In here the role of government is limited and the resources are utilized in its maximum potential. This is most common form of economic system followed by many countries in the world including India, UK and Kenya. (Griffin, D. 2014). In this economic system most of the firms are owned by private individuals. They are is existence of high competition among firm on achieving biggest market. People are having many choices for goods and service. All the firms are trying to reduce their cost as much as they can and provide the goods which are demanded by the consumers if they want to survive in the market, which in turn increases the innovation and creativity of firms. Higher competition will cut down inefficient firms in the economy. Thus resulting best utilization of resources.
However, as firms want to reduce their cost of production they may adapt capital intensive method of production which can reduce the employment level. Relatedly affecting the standard living of people and can widen the gap between the poor and rich. Which is not a good sight for any developing economy as it may drag down its growth rate. Cut down of firms can result in waste of resources as they are now unemployed and unused. In here government plays role only when it’s necessary. Like with the provision of important sectors like military, banking sector etc., which must be run under the state. They also will create laws which must be followed by the firms if they want to operate in the market.
2.Fiscal and monetary policy
Fiscal and monetary policies are tools used by government to stabilize the economic conditions of the country. This includes achieving macro-economic objectives like full/higher employment, low inflation, surplus balance of payments, sustainable economic growth and higher standard of living. (Kenny, T. 2014) Fiscal policy is by changing government spending and taxes bring maximum welfare to the economy. Whereas monetary policy influence the spending of saving of people by varying the interest rate concerning with the current situation of economy. (Kenny, T. 2014)
Figure 3 Trade Cycle
As shown in the figure 3, when the economy is in recession, they will experience high rate of unemployment, low inflation or deflation, low GDP (Gross Domestic Product), unsustainable economic growth, low income and wealth of economy and lower standard of living. As economy is in recession the government can use expansionary fiscal policy. That is increasing government spending and reducing the tax rate of economy to increase the real income of the people (Kenny, T. 2014). Reduction in income tax will encourage people to spent more thus increasing the demand. The government can also give subsides to firms in order to overcome the high cost and use it for innovation of the product leading to higher efficiency and employment in the economy. Higher demand motivates producers to produce and supply more goods to the economy, which in turn increasing the employment and overall GDP inside the economy.
Moreover, government can use monetary policy to reduce the interest rate supporting producers to take on more loans to improve the efficiency of production and so on. Lower interest rate will suppress people to save more and spent less. It also will cause to equalize balance of payment as import will reduce while exports increase. Opposite conditions apply when the economy is in boom period. People are tend have more income thus increasing the aggregate demand. At this stage the inflation is tend to be very high, negative balance of payments will occur as imports are more than the exports. So to stop the economy form over heating government will apply the theory of contractionary fiscal policy.
That is spending less and taking more money form the economy (Kenny, T. 2014). Higher tax rate will cause people to spend less on the goods and service. Thus controlling high demand and price of the economy. The government can also apply the concept of monetary policy to increase the interest rate to further tighten the level of pay. Higher interest rate will encourage people to save more and spent less, in addition this will also attracts foreign investors to invest in the economy. Nonetheless, high interest rate can cause people to import more since the value of currency is increased. Before government practice these theories they must be aware of the multipliers in the economy. Incorrect usage of the policies sometimes results in collapsed economy.
3.Effects of fiscal and monetary policies on Superdry
Changes in the fiscal and monetary policies can have a massive effect on the overall performance of the Superdry, as it is related with the spending power of both consumers and producers. First of all, for an instance if the government apply expansionary fiscal policy this will help business to gain more benefit. Here, the government will increase its spending and reduce the tax rate. Which in turn can increase the spending power of people thus leading to higher demand for the Superdry product. Lower corporation tax rate will also allow Superdry to enjoy higher net earnings and spend more on future development of the company. Nevertheless, contractionary fiscal policy will have a whole negative effect on the company. As contractionary fiscal policy will reduce the income of the economy by reducing government spending and increasing tax. Thus leading to lower demand for the company product. Additionally, profit of Superdry will be reduced due to new tax increments, effecting the future development and performance of the company.
Secondly, as Superdry is online and internationally operating company, changes in the monetary policy can affect its international trade. Higher interest rate can cause the currency value to appreciate causing the Superdry product to be more expensive, making it be less competitive in the world market. The demand for Superdry product will reduce if the price is high. The price of share likely to increase in the stock market due to higher interest rate. Likewise, high interest rate can make it expensive for Superdry to borrow loan form banks in huge amounts, thus causing to slow down the future development of the company. Nonetheless, low interest rate depreciate currency value which can then make Superdry products to be more price advantages due to low price. The company will be able to take on loans as interest are low. Also lower interest rate will reduce the Superdry share price.
1.Effects of international trade on Superdry
International trade is the exchange of capital, goods and service across borders of different nations. Super group business aims itself to establish its presence in wide range of geographical boundary’s through combination of building of stores, concessions, franchises, licenses and the internet. Spain, Greece, Hong Kong, South Korea, Swaziland are some countries which Superdry operates internationally. There are many advantages and disadvantages of international trading for Superdry. (Chand, S. 2014), (SuperdryGroup.plc. 2012) Superdry can gain many benefits by marketing its products internationally. This includes expanding their market by selling its products to a wider range of people in different nations. If the lifecycle of the Superdry products in the current market are in saturation stage, the company can market its product into a new market before the life of the product is decline. This will help the business to sustain its growth and profit for a longer period. Additionally, this allows the company to use the foreign resources and diversify its risks among the countries. For an instance, if one of Superdry branch makes loses this can be covered up by the profit made by another branch in another country.
Thus gaining competitive advantage over its competitors. However there are some drawbacks which Superdry had to face in trading internationally. The most influential factor was the cultural and traditional change of people. Different countries adapt different life style due to culture, tradition, religion, climate etc. it was expensive and time consuming for Superdry to conduct research on each market. Furthermore, the company had to adjust with the law system which can be hard as laws will differ in each country. Some governments don’t support the foreign firms and use higher tax rates and strict rules to protect domestic firms and dive away the foreign firms. The Group overseas performance has achieved a significance growth in the year 2011. After the acquisition of SuperGroup with Europe BVBA (Besloten Vennootschap met Beperkte AansprakelikheidP) the SuperGroup have gain 83% of international growth due to the assistance, knowledge and experience given by them. (SuperdryGroup.plc. 2012)
2.UK business in emerging markets
Emerging markets are developing economies which are having some of the features of developed counties like fast economic growth in GDP, strong financial and physical infrastructure. According to World Bank the BRIC countries are known to be world’s fastest emerging markets. They are Brazil, Russia, India and China. UK is considered to as developed country. (Kuepper, J. 2014). According to corporate council magazine; UK has ranked itself as the work 6th largest economy and trading nation and second in exporting service. For a UK business to enter these emerging markets are tend be far risky. As the economic condition of these countries are unstable. Changes in political and legal environment can disrupt the smooth functioning of the firm. For an instance a UK firm entering to Indian market have to deal with different traditions and culture. So to understand the market firms have to conduct market research which is both expensive and time consuming. There will be existence of some laws which can prevent UK firms to operate as their government first priority would be to protect and support the domestic producers rather than foreign investors.
By applying high entry barriers and tax will discourage firms to operate in the market. High competition can also be a risky factor as Indian firm knows better about the changes in their market and how should they reach to it. Even though there are risk operating in emerging markets, there are many benefits which business can enjoy. UK is known to be more technically advanced. Therefore they can use advanced technology as their competitive advantage to produce high quality good at lower price. Which can then be used to drive off inefficient firms thus reducing competition. The firms also will be able to use the country’s resources and enjoy the low price rate to buy raw materials. Furthermore, these countries are having high rate of unemployment as the countries can’t make as many jobs equivalent to number of unemployed. Thus creating large supply of cheap labour. So there are room for government to support UK firms to operate in market to create job opportunities by giving more subsidies, reducing the tax rate and other trade barriers.
3.European Union effects on UK firms
European economic and monetary union, commonly known as European Union (EU) is a group of European counties joining together to form a common market. There are currently 28 member countries in EU. Some the features of the EU are free transfer of goods, labour, capital and service among them, and following one currency, i.e., euro. The aims of the EU is to create efficiency, achieve higher economic growth, freedom, equity, application of rules and regulations made for protecting human right and dignity. (Amandeo, K. 2014) In the 2008 the EU have faced with a high debt crisis which had led to European Union economies to collapse. Due to the inefficient use of the fiscal and monetary policy the government have faced with a high debt which they are unable to pay. The year 2008 Greece have faced with a heavy debt. As they didn’t had proper structure for government spending and taxation. They continuously went on spending on public and reduced it tax rate.
Finally resulting a budget deficit. Furthermore, the interest rate was very low encouraging people to spent more and save less. Thus increasing the inflation and causing a negative balance of payment. In order for the government to overcome the budget and trade deficit they went on taking loan form the ECB (European Central Bank) leading to credit crunch. Low economic performance and interest rate have made lenders to think that they will not get their money asking them to demand for higher interest rate.
Further worsening the situation. In 2010 including Greece, Portugal, Ireland, Italy have gone through speculative attacks making the economy to become unstable, increasing unemployment, unstable price effecting the economic and social wealth and efficiency of the economy. This have massively effected the UK economic condition as EU is the main exporter for UK firms. Unstable and low economic performance of EU have led to cut down on UK exports. Thus leading to lower production and high cost. They have reduced number of employment for overcoming the cost. Leading to lower income and wealth in economy. Spending causing the demand for UK firms to reduce. Some of the firms may go out of business as the profit made is not enough to cover up the cost of the business.
Conclusion and recommendation
After a close evaluation about the organization it can be said that private and public sector organizations exist in the market for varied purposes. Like how public organizations are created to offer goods and service which are under provided by the market mechanism. After analyzing the condition of Superdry ltd, I have found that Superdry have given a lot of effort to satisfy its stakeholders of the company. For example, creating a strong communication, often conducted meetings, information’s are shared openly to all she shareholders, follow rules and regulation of the community and government and taking care of employer needs and emotions. Furthermore, the company has developed its own strategies on how to achieve their mission, vision, objective and goals of the business. Without knowing these the company will not have a clear direction on how to operate. In each economy follow a unique system to use the resources in it optimum way to get fast economic growth and welfare.
There are isn’t any pure market or command economic system existing in the current market. It is best for the country to know the current condition of the market and accordingly react to it. International trade can be beneficial factor for a growing company like Superdry to expand their business and gain economies of scale. Nonetheless, company must face with the different trade barriers like competition, government law which can be a big downturn for business. Moreover counties like India and China who are still emerging the economic conditions are far too unstable. For a UK company to enter these emerging market they must clearly know the PEST (political, economical, social, technological) conditions clearly. Without a risk there cannot be any profit. Finally, the current condition of the EU are tend to be very sensitive. There is a possibility that the economy may collapse. However, there are chances that by redesigning the policy structures the country can cope up.
AMANDEO, K. (2014). What is European Union? [Online]. Available from: http://useconomy.about.com/od/worldeconomy/p/european_union.htm. [Accessed: 25.03.2014] AMANDEO, K. (2014). What is Eurozone debt crisis? [Online]. Available from: http://useconomy.about.com/od/Europe/p/Eurozone-Crisis.htm. [Accessed: 26.03.2014] CHAND, S. (2014). The meaning and definition of foreign trade or international trade exchange [Online]. Available from: http://www.yourarticlelibrary.com/foreign-trade/the-meaning-and-definition-of-foreign-trade-or-international-trade-explained/5972/. [Accessed: 22.03.2014] GRIFFIN, D. (2014). Economic system types [Online]. Available form: http://smallbusiness.chron.com/economic-system-types-1129.html. [Accessed: 12.03.2014] KENNY, T. (2014) The difference between fiscal policy and monetary policy [Online] Available from: http://bonds.about.com/od/Issues-in-the-News/a/The-Difference-Between-Fiscal-Policy-And-Monetary-Policy.htm. [Accessed: 15.03.2014] KOKEMULLER, N. (2014). What is the meaning of business organizations? [Online]. Available from: http://smallbusiness.chron.com/meaning-business-organization-41925.html. [Accessed: 08.03.2014] KUEPPER, J. (2014). What are emerging markets? [Online]. Available from: http://internationalinvest.about.com/od/gettingstarted/a/What-Are-Emerging-Ma
rkets.htm. [Accessed: 23.03.2014] MERCHANT, P. (2014). Features of public limited company [Online]. Available from: http://smallbusiness.chron.com/features-public-limited-company-18143.html [Accessed: 10.03.2014] SUPERDRY GROUP. PLC. (2012). Annual report 2012 [Online]. Available from: http://www.supergroup.co.uk/investors/reports-and-publications/annual-report-2012. [Assessed: 11.03.2014] THE TIMES 100. (1995-2014). Engaging with stakeholders [Online]. Available from: http://businesscasestudies.co.uk/primark/engaging-with-stakeholders/what-is-a-stakeholder.html#axzz2xACZ7d4t. [Accessed: 09.03.2014] THE TIMES 100. (1995-2014). The types of business organizations [Online]. Available from: http://businesscasestudies.co.uk/business-theory/strategy/types-of-business-organisations.html#axzz2whhOgm5l. [Accessed: 08.03.2014]