2_Analysing the External Environment

2_Analysing the External Environment

1. Political and Legal change

   • Encourage Enterprise
   • Regulation of markets
   • Countries Infrastructure
   • Issues relation to environment
   • International Trade

2. Policies effecting enterprise

   • Aim of government support
     • Reduce the degree of risk
     • Promote Enterprise

3. Keywords:

   • Enterprise- Skill needed to make a new idea work
     • Globalisation- Trend for many markets to become worldwide in scope
       • Privatisation- Process of transferring organisations from state ownership to private sector
         • Infrastructure- refers to physical and organisational structure required to allow both society and an economy to operate effectively
           • Cartels- When 2 or more businesses Collude to control pieces and/or production levels to limit the extent of competition within a market
             • Anti-competitive practices- actions taken by businesses to limit the extent of rivalry that exists within a particular market, or the use of unfair trading activities
               • Domestic market position- Position of economic strength enjoyed by the business which enables it to prevent effective competition being maintained within a market
                 • A merger- Joining together of 2 businesses to form a new, larger enterprise
                   • A Takeover- when 1 business buys a controlling interest in another
                     • Collective bargaining- Process of negotiating the terms of employment between an employer and a group of workers
                       • Trade unions- organisations of workers established to protect and improve the economic position and working conditions of its members
   • Innovation- Successful exploitation of new ideas
   • Regulation- the enforcement of principles or rules that result from the passing of a law or series of laws
   • Financial services- any products which are financial in nature and include those supplied by banks, insurance companies and financial advisors
   • Monopoly- Exists when there is a single supplier within a market

4. Financial support for Enterprise:

   • Enterprise allowance-2 parts
     • Grant=6 months
     • Loan=5 years
   • Funding for Lending
     • Banks + Building societies
     • Lowers interest rates for 4 years
   • Enterprise funding Garentee
     • small/Medium sized businesses
     • Loan up to £1.2 mill
     • Annual sales revenue below £41 mill

5. Non financial support

   • Growth Voucher
     • Finance and cashflow
     • Recruiting and developing staff
     • Improving leadership and management skills
     • Marketing, attracting and keeping customers
     • Making most of digital technology
   • Business, Innovation and Skills
     • Enterprise support

6. Enterprise friendly aspect

   • Reduce number of regulations
   • BIS working with tax authorities in UK
   • supporting innovation through £4.6 bill fund
   • Range of schemes to develop new products and processes
   • Development in young people
     • Young business owners or volunteers
     • encourage use of schemes
       • Enterprise Village

7. European Union's policies

   • support small, medium or start up businesses
   • Monitors implementation of policies
   • Promote sharing of best practices

8. Effects of enterprise policies

   • Influence DM on whether to start or expand an enterprise
   • Effects functional DM as managers seek to;
     • Expand operations
     • Hire additional employees
     • Plan marketing campaigns to promote them

9. Role of Regulators

   • Self-regulation by businesses
   • Privatise monopolies-protect consumer and other businesses
   • High profile industries- Banking and financial services
   • Aim of creating a free and fair competition between businesses

10. Regulation to create free and fair competition

    • Imposing 'Windfall' taxes- Too much power
    • Controlling prices- takes form of limiting price rises to the current rate of inflation, + or - some figure
    • Restricting rates of ROCE invested by business
      • ROCE prevent excessive profit, returns to amount invested by enterprise
      • Prevents charging excessive prices
      • Removes concern w/ control costs= decrease profitability meaning higher prices charged
    • Unbundled access- encourage competition, access to facilities of existing producers

11. Regulation of high-profile industries

    • The Prudential Regulation Authority
    • The financial conduct Authority

12. Regulation of Privatised Utilities

    • Ensure consumers interest are protected
    • Existing monopolies don't charge excessive prices and make excessive profits

13. Self Regulation

    • Government has right to impose legal control if code of conduct deemed ineffective
    • Can be Overseen to ensure it operates properly

14. Impact of regulation

    • Threat- limit prices charged and profits made
    • Provides stable long term environment
    • adverse publicity
    • Functional decision- appoint specialists to reduce the risk of DM
    • strategic- opt to avoid trading in markets that are tightly regulated

15. Infrastructure, opportunities, threats and DM

    • Infrastructure projects- creates opportunities
    • Firms in building industry-expenditure on building new roads, bridges etc
    • Strategic decicions to expand production or engage in joint venturesw/ competitors to deliver on large infrastructure projects

16. Natural Environment

    • Reducing government expenditure and promoting economic growth
    • Policies to protect natural environment= less prominant
    • new regulations easier and cheaper to fololow
    • enforcement taken on companies not abiding by the rules- lessens opportunities and makes more threats for business

17. Environmental opportunities and DM

    • Opportunities for businesses that supply equipment to allow firms to comply w/ relevant legislation eg filters to reduce air pollution
    • Creating renewable energy sources=allow government to meet targets to reduce emissions
    • Renewable energy sources= threat to other energy suppliers particularly ones using fossil fuels

18. International trade

    • Organises trade fairs oversees to promote UK exports to potential buyers
    • Behind 'Open to Export' initiative - Brings exporting businesses together to provide mutual help and relevant training
    • Provider financial support for exporters
    • UKTI and other agencies work to assist business and enterprise- ensure exporters receive support from UK government

19. Greater freedom of trade

    • World Trade Organisation- Promotes international trade
    • Lowering trade barriers
    • Lowering tariffs on imported goods
    • Encourage political decisions-aimed at freeing trade and promoting economic growth

20. Impact of Increased trade

    • Reduction of barriers to international trade = opportunities
    • Increased sales and benefit from economies of scale in supplying these new and extended market
    • Expansion of businesses- low cost locations
    • Produce new products to meet country's demand
    • Cost of investment
    • Increase brand reputation as number of jobs created in different countries
    • Fewer controls on business activity
    • Foreign competitors pose threat in UK markets

21. The Legal Environment

    • Competition
      • Law relating to competition
        • Protect businesses and consumers from anti-competitive practices
        • Free and fair competition brings benefits
        • The competition act 1998, Enterprise act 2002, Enterprise and regulatory reform act 2013
        • Cartel activity
        • Abuse of a dominant market position; Imposing unfair selling prices etc
        • Other anti-competitive prices-agreement w/ suppliers not to sell below certain prices
      • Mergers and Takeovers
        • Potential to provide high market power
        • Reduction in competition within a market
        • Competition authorities decide whether to prohibit a merge or takeover
        • Assessed by Competition and markets authority
          • If business exceeds given size- £70 mill
          • Newly merged business controls 25% or more of its market
    • The employment of labour
      • Laws relating to the labour market. (2 categories)
        • Relate to individual employees
        • those that are collective and apply to groups of employees eg trade unions
      • Individual Labour law
        • Working time regulations- 48 hrs per week
        • National minimum wage-18/21 year old = £5.13, penalties increased for businesses that do not pay NMW
        • Employment equality regulations- unlawful to discriminate on age if under age of 65, over 65? employer must give 6 months notice about retirement, barring from training/promotion and making redundant due to age = illegal
        • Equalities act = cant discriminate against; Age, disability, race, gender, marriage, religion, pregnancy, sex, sexual orientation
        • Enterprise and regulatory reform act- limited maximum payment for unfair dismissal to £74,200 or 1 years gross pay
      • Collective labour law = group of laws apply to operation of industrial relations and collective bargaining also activities of trade unions
        • Employers + employees negotiate on variety of matters eg pay, overtime, working hrs and conditions etc
        • Employment act- no longer obliged to negotiate with unions
        • Trade unions act- secret ballet of employees= legal requirement before industrial action was lawful
        • Trade union reform and employment rights act- unions obliged to give employers 7 days notice before taking action
        • Employment relations act- trade union exceeds 50% of employees, can demand union recognition + introduce collective bargaining
      • Unfair dismissal
        • Where a job no longer exists=redundancy
        • Gross misconduct- theft from employer/behaving violently at work
        • Failing to carry out duties in a 'satisfactory manner'
        • another substantial reason- ending of a temporary contract
      • Health and Safety Legislation
        • discourage dangerous practices
        • Protect workforce
        • Prevent accidents occuring
        • Health + safety at work act- employers obligated to safeguard all employees
    • Environmental issues
      • Large Media interest
      • If guilty of pollution=adverse publicity
      • Costs of polluting the environment- costs created for other groups in society
        • External Costs eg,air pollution, rising sea water etc
        • Private or internal costs eg, fuel costs, wages and salaries
        • Environment protection act- requires business to minimise pollution as a whole
        • The Environment act- Protection and provision of restoring contaminated land and abandoned mines
        • Government encourages 'Greener' methods of production-through provision of grants
          • Carbon Trust- grants to firms that invest in energy saving technology and sustainable methods of production
      • EU and international environmental laws
        • impact activities of business; climate change, air/water/land pollution, waste management, noise pollution and protection of nature/species/biodiversity
        • International agreements-negotiations lead by united nations
      • Legal environment and decision making
        • Type of business and corporate objectives
        • Nature of the legal change
        • Provoke decisions at functional levels- eg equality act- focused on by HR department
        • Environmental impact- main impact on Operations department- reduce pollution methods etc
        • UK and EU policies=more strategic-substantial lessening of competition+make it easier for those affected by anti-competitive practices to seek legal redress