Customers that purchase products in CAFOD’s charity community shops, want products that are good quality and in good condition, for a reasonable price. Seeing as this is one of the ways the organisation makes its money, it is important to the shop that receives regular donations from the local community. This influences CAFOD because it allows them to receive more money, and spend more on their chosen projects.
The suppliers that are involved with CAFOD will be the people who CAFOD buy products from such as, water, food and tools and equipment for people in poverty. They pay for these products from the funds that are received as donations.
The government have a very little part in the voluntary sector, but they make sure that donations are being made to the chosen charity, and that the money is not just being spent on their business alone. Funds that are raised for a specific project, by law, must be given to the project that it is intended for, regardless if the funds are needed for it or not.
Different stakeholders have different point of views within the business organisation. For example, the managers of Tesco’s want products to be at a higher price for profit maximisation, whereas the customers of Tesco’s want products that are cheap, and better than their competitor’s prices. The manager has to work around this and thinks about the risks and benefits of what each stakeholder wants. So as the manager wants higher prices, the risks are that customers will recognise this and then could possibly choose to shop at a different supermarket which has lower prices, or the products can sell really well and maximise their profits. Seeing as customers now are more likely want to buy cheap quality food at low prices, they will most probably decide to shop at another supermarket instead, so the manager might not decide to raise prices of some products, or make some cheaper to lure customers in and then they buy the more expensive items.
Another point of view that managers might have is the pay of the employees. Because the managers want profit maximisation they might pay the workers minimum wage in order to do this, but obviously workers want to be able to be paid as much as possible. So the managers will have to solve this by paying the employees the same amount as the other employees are being paid to work in other supermarket, or the workers will leave that business to work for another, and this will cause problems for the manager because of the shortages of staff.
The local community and the government have some of the same interest as each other. The government want jobs to be available to the local community, and obviously the local community want jobs as well. When Tesco’s build a new building in an area, this opens a lot of opportunity for the local community to be able to work for Tesco’s and then when they make money they will pay taxes to the government. But some problems that the local community might not approve of is the amount of trucks and work machines that will be coming through their town which causes traffic and pollution.
CAFOD stakeholders also have some differences in their organisation. As CAFOD depend on the donations, the people who donate the money would like all of the money to go to the people in need, whereas CAFOD will need to use some of the money to be able to pay for their own problems such as electric bills in stores, rent and things alike. Even though the board of trustees would like to achieve their objective in fighting poverty, they cannot always fund all the money to the charity because they need to pay their own expenses.
Employees that work for CAFOD would like to be able to work in good conditions, so if they are abroad then they expect to be able to live in a reasonable environment. But this is not always easy to provide because in less developed countries they might not have accommodation that is up to the standards that they want. So the manager will have to explain to the employees about the information including how they will be living etc.
Customer stakeholders in Tesco’s are important because the majority on Tesco’s revenue is from the customers. So it is important for them to have an interest in the business. Customers decide to shop at Tesco because they believe that the products they sell are cheap and value for money and value for money is what influences the customers to shop there. The owners of Tesco always want to maximise their profits, so they might do this by raising prices on certain products that have a high demand, cut down on the amount of employees that work in the business, or lowering prices to try and bring in more customers. However, when the customers and managers decision oppose and differences are made, the owner are always going to be the exerting stakeholder between the two because they have more power than customers. Because the owners make the decisions he has to come to a decision about prices, so they will have to balance the two demands so that both stakeholders are happy and not so that one is more overwhelmed than the other. This is where the stakeholders have to work together in order to overcome problems. Customers will want prices to be low and be at a good quality/ value for money, whereas the owners will want to raise the prices of the products so that they can maximise their profits. This is where both stakeholders oppose each other. Therefore, the owner will have to come to a decision to lower prices on some products, and raise the prices on other products. The owner might raise the prices of the products that are high in demand, and lower the prices that are low in demand, or vice versa.
Trade unions and employers associations’ conflict can be solved depending on the problem. Trade unions can protest and go on strike to demand on a change within the business because they are not satisfied with either the pay, or work conditions of the workers. However, the employee associations can resign with the trade unions employees and search for other workers who would are satisfied with the work conditions and pay for the business and agree to work for them. So therefore in this type of situation, the employee association will exert power because if the trade union decide to protest, the employee association will fire the workers and find new workers. Although the employee association will exert in this situation, the trade union can cause a lot of problems for them, such as losing revenue for the business because there are no workers because they are protesting, and it is a long process to employ the right people for the right job.
Although the government do not own Tesco’s, they have more power over them because Tesco’s pay taxes to the government. The government have some power over the business because they control the rate of taxes; the government can choose to have high tax rates or low tax rates. The government would like to have high tax rates, but they cannot put it too high that businesses think that it is unfair, so they will have to settle with a reasonable price so Tesco’s are happy to pay the taxes, and that the government are satisfied with the amount coming in.
P3
Businesses are organised in different ways depending on their size and purpose. An organisation should be designed so it makes things easier for the business and not be too complicated so that one person has to handle problems of a wide range of staff. Dividing up work in this way means that people are clear about who does what and that all the tasks required are performed.
There are four different types of organisation structure, these are;
- Function –this is a discrete part of an organisation designed to meet specific purpose such as production, marketing or accounts.
- Geographical area- this is working in certain regions of the country, for example, north west, Scotland, west midlands etc.
- Product groups- this is depending on the product they sell, for example a confectionary and sweets manufacture may have separate divisions for chocolate, chewing gum and sweets.
- Type of customers- this is dependent on the type of customer, for example, a shoe company will have sections for kids, and sections for adult size shoes.
CAFOD’s organisational structure is based on geographical purpose. Reasons for this are because they operate all over the world in over 40 countries. CAFOD have a hierarchical structure. This is to give a clear picture of what the relevant sections of the organisation are and who reports to whom. Below is CAFOD’s structure.
Tesco’s organisational structure is based on product groups. This is because they have different departments in their business, for example, clothes department, food department, electrical department and home furnishing. This type of organisational structure benefits Tesco’s the most because they sell different products, and they are such a large businesses with large stores, so this would be easier to set out different products in different sections so it is easy for customers to see where different products are.
Tesco’s have a hierarchical structure for their business. Having this type of structure separates the different functional areas in the business. The main purpose of having functional areas is to ensure that all important business activities are carried out efficiently and it also helps businesses to achieve their aims and objectives. There are several different functional areas, and these are;
Customer services
All businesses must look after their customers or clients. Today customer’s expectations are high, and they expect to be able to contact your business if they have any enquiry, concerns or complaints. When a customer contacts your business, they expect you to answer politely and to be answering any questions the customer needs to ask.
Customer service functions carry out tasks such as:
- Answering customer enquiries about their products or service.
- Providing specialist information and advice to meet customer needs
- Solving customer problems
- Dealing with customer complaints
Marketing
Marketing is about identifying what customers would want, and meeting their needs. Many businesses consider this important because they are said to be marketing led, (marketing led is when researchers find out what customers want/would like something to be, and then the business will make a product for that type of market.)
Marketing functions carry out such tasks as:
- Carrying out market research to obtain feedback on potential and existing products and/or services
- Analysing market research responses and advising senior managers of the result and implications.
- Promoting products and services through a variety of advertising and promotional methods e.g. press, TV, online, direct mail, sponsorship and trade shows or exhibitions.
Sales
The sales function is vital for any business. Most businesses have sales targets as a part of their aims and objectives. Meeting these is the responsibility of the sales staff.
The jobs of the sales staff vary, depending on the type of business it is. If it is just a small local newsagents that sells products such as chocolate, milk, newspapers and so on, they do not need a sales staff because customers could just walk in andchoose what they want and pay and walk out.
Customers expect more help when buying more complex/expensive items such as a television or a car, so therefore they will need trained staff that knows about the product so they can demonstrate and explain to the customers the benefits of it and tell them any other information that the customer might not know about the products.
Tasks that the sales function will carry out are:
- Organising sales promotions
- Responding to customer enquiries
- Selling the product or service to customers, either over the telephone or face to face
- Negotiating discounts or financial terms for business customers.
Finance
Most people consider the finance function to be the most important function in business. This is because all businesses need a regular flow of income, so all the expenses can be paid. Finance staff, record all the money earned and money spent so the manager knows how profit/loss is being made by each product/service provided. In a large business, there are different financial experts and they are: management accountants, financial accountants and credit controllers.
Management accountants- they monitor the departments budgets and current income for sales, prepare the cash flow forecasts and specialise in analysis of a day-to-day financial information and keeping senior managers informed.
Financial accountants- A Financial Accountant is responsible for the control of the financial management of a business as well as advising and being involved in the strategic direction and administration of that business.
Accountants extract and interpret information from the financial records for a wide range of interested parties throughout that organisation – shareholders, potential investors, bankers, employees, trade creditors and government departments.
Credit controllers – They monitor overdue payments and take action to recover bad depts.
Human resources
All businesses should look after their staff, and make sure they are well trained and committed to the aims of the business; this will help towards the business success. The human resources function is responsible for recruiting new employees and make sure that each area has an employee that is suitable for the job. This is important because if you get someone that cannot do the job properly, that area will fail.
Human resources functions include:
- Advertising job vacancies.
- Notifying staff of promotion opportunities
- Receiving and recording all job applications, arranging interviews and notifying candidates of the result.
- Sending a contract of employment and other essential information to new staff.
- Checking health and safety and keeping accident records.
- Monitoring the terms and condition of employment, including wages rates.
- Maintaining staff records.
Production
Production refers to the manufacture or assembly of goods. Production staff must ensure that goods are produced on time and are the right quality. Quality requirements can vary differently depending on the product.
Today, many production processes are automated. This means that it is done by machines or robots, and it will allow them to manufacture products faster, at a better quality, and do jobs that are too dangerous for humans.
The production function also includes all of the following aspects:
- Production planning – this involves deciding what will be made, when it will be made, and what machinery will be used to make it.
- Production control – this means consistently checking progress to make sure that production plans are met, and taking actions if mistakes or problems occurs. This could be because of machinery break down, or material shortages.
- Machine utilisation control – this is concerned about minimising problems, by keeping machinery and equipment in good working order, in a good condition, and making sure they are updated. This can be prevented by making sure that no machine is overloading on work, or overused. Making sure that all machines have a routine check can prevent machinery from breaking down/ malfunctioning and if this happens, the products the machines are producing can be damaged, and this would be a decrease of their profit levels if goods are damaged.
- Staff utilisation control – this is making sure that all staff members are working efficiently and effectively and working towards their aims and objectives.
- Final quality checks – they make sure that product is of the correct standard. This can be done in several ways. They can be examined by hand or passed through machine to check if the size is correct.
Product functions can involve tasks such as:
- Ordering stocks of raw materials from their suppliers.
- Storing and checking the stocks of their materials.
- Planning production schedules to maximise machinery capacity and staff levels.
- Producing or assembling the finished products.
- Checking the quality of the product through the final quality checks.
- Packing and storing the final products before distributing.
- Carrying out repairs to machinery and equipment required.
Below is Tesco’s organisational chart, and it shows the different functional areas in the business.
Organisational structure refers to the way that an organization arranges people and jobs so that its work can be performed and its goals can be met. In an organization of any size or complexity, employees responsibilities are defined by what they do, who they report to, and for managers, who reports to them. Over time these roles are assigned to positions in the organization rather than to specific individuals.
Both Tesco and CAFOD have a hierarchical structure, so this means that different functions are separated into different sections/departments. The advantages are of having a hierarchical structure are workers know what sections they are working in and what their job roles are, they know who to report to if they have problems, lower ranks can get promoted so that encourages them to work harder.
The line of control is where individuals are responsible to a line manager or supervisor. The senior colleague will be responsible for making more important decisions. The span of control is the number of people that individuals are responsible for in an organization. The wider the span of control, the greater the number of people for who the individual is responsible for. So in Tesco’s case, the store manager reports to the store director, the personnel, ambient, fish, non food, training, stock controller, security and customer manager’s report to the store manager, and the people under the managers report to their managers. Having managers for each sector benefits CAFOD and Tesco because it cuts down the amount of work that a person has to do, this means that the company would run more efficiently because they have more people to deal with different situations in the department, rather than one person having to deal with all the problems from all sectors.
Another benefit of having line managers is that aims and objectives are specific and easy to work towards; this is because the departments are split up into different functions.
If CAFOD and Tesco were to have a different structure, for example a matrix, I believe that there could be a conflict between the line managers and projects can be difficult to monitor.
Also, costs can be increased due to more managers needed for projects, and also the project teams that come along with it.
P6 + M3
Business people need to know about the changes that are taking place as a result of; political decisions made by the government, changes in law, and the changes that take place in society overtime.
Political Factors
Because Tesco falls into the private sector, the government tries to create an environment in which businesses can compete with each other on level terms, regardless of their size. The main political factor that affects Tesco’s is taxes. Taxes are official payments that are made to the government; this is to help them raise revenue. The following taxes affect businesses:
- Corporation Tax - Tax on company profits
- Income Tax – Tax on the incomes of the self-employed and other income earners.
- National Insurance – A compulsory deduction to pay for the pensions, sickness and unemployment benefits.
- VAT (Valued added tax) – Tax on the value added to products by businesses.
- Customs duty – Tax on imports and exports of goods and service.
The taxes that affect Tesco’s are –Corporation tax, VAT, and possibly Customs duty tax. Corporation tax will take away a certain percentage of Tesco’s profit; in the UK it is about 21-28% of their profits. This affects the following stake holders- Owners and the government.
It affects the owners because a percentage of their profits are being taken away, and it affects the government because this is where the tax money is being paid to.
VAT is a tax you pay when you buy goods or services from a VAT-registered business in the EU, including within the UK. You don't have to pay VAT at all on some goods and services, and sometimes you only pay a reduced rate. You pay VAT on most goods and services in the UK at the standard rate. The standard rate of VAT in the UK is 17.5 per cent, but will rise to 20% in January 2011. Vat tax affects the following stakeholders: customers and owners.
It affects the customers because they have to pay added value to their products, and affects the owners because they have to reduce the price of their products so prices stay the same.
In the voluntary sector, government support involves various cash grants such as those provided by the national lottery commission for activities that benefit the wider community, and tax relief on the premises owned by the organizations.
Because CAFOD is a voluntary business, they do not pay Corporation tax or Customs duty, but there may be VAT on products in store. This benefits them because they don’t have to worry about the majority of their money being taken away by taxes.
Government grants and money provided by other sources affect the board of directors and the people that the charity supplies to. This is because it gives CAFOD a larger sum of money to be able to use on their projects, or can be used to look after their staff.
Legal Factors
Businesses must operate within a framework of the law. Failure to do so can lead to fines and even imprisonment of directors. Businesses therefore give high priority to make sure they comply with the laws. There are 3 main types of law;
- Company – This is how businesses are set up and run.
- Contract – This is the contracts that businesses make with employees, consumers and suppliers and so on.
- Competition - This is how businesses deal with employees, consumers, suppliers and so on, and how businesses are allowed to compete with each other.
Company law is the most important type of law. This shows us how stakeholders such as employers, customers, directors and other shareholders interact with each other. The most important piece of legislation is the Company Act, covering a range of important matters. This is legal protection that limits how much a shareholder in a company can lose, should the company become bankrupt. Similar, there are laws about businesses names. So you cannot use a name already used by an existing business. Laws set out the steps required to registering a private or public company, and how the company should reports to its shareholders.
Tesco’s is a PLC this means that anyone can buy their stock on the stock exchange. Being a successful business, Tesco will have many shareholders, and because of company law, Tesco must report to their shareholders about their current status within the business if they are doing well or not. This influences Tesco’s staff because it will mean that they have an objective to please their shareholders, so this will motivate them to work harder in order to do that, and being successful can also bring in more shareholders.
CAFOD don’t have shareholders because they are mostly dependant on money donated from local people and from government and some other resources, so this means that they do not need to report to anyone, but CAFOD publish a statement to the public, of how much money they receive, and what they spend it on.
Contract law is legally binding agreements between two or more parties, who promise to give and receive something from each other. Business form contracts with all from of individuals, groups and bodies outside the business such as; sellers of land and building, suppliers of equipment, suppliers of stock and so on.
Contract law can be illustrated by examining two of the main types of contract affecting business – contract with consumers, and contract with employees.
Consumer protection
The most frequent contract that a business makes is for the sales of goods. This is covered by the sales of goods act, which says that goods must be:
- Of ‘satisfactory quality’, which means free from significant faults except defaults which are brought to your attention by the seller.
- ‘Fit for purpose’, including any particular purpose mentioned by you to the seller.
- ‘As described’, on the package, or as describer verbally by the seller.
The law also protects consumers when buying a service. You are entitled to certain standards, and if standards are not met, the customer is entitled to a full refund or in store credit. A service should be carried out;
- With reasonable care and skills.
- Within a reasonable time.
- At a reasonable charge.
The second major contract that businesses make with customers is for selling goods on credit. Types of credit are;
- Bank loan
- Overdraft
- Credit cards
- Store cards
The consumer credit card act sets outs that those giving credit must be licensed, and that advertisements and offers of credit must set out the true cost to the borrower. The business giving credit must give information about the;
- Total charge for credit
- Annual percentage rate (APR)
- Price at which goods could be bought for cash
Employment law- employees are also protected at work and employers need to update themselves continually on changes in legislation relating to employees. A contract of employment should include details such as:
- Names of employer and employees
- Job title and job description
- Date employment started, the place of work and the address of the employer
- Amount of pay and how it will be paid
- Hours of work
- Holiday pay entitlement
- Notice period required
Competition law- this is the law about how businesses can compete with each other, such as;
- Laws against restrictive business practices to reduce competition
- Monopoly and merger legislation to stop businesses from dominating a particular market
- Laws against resale price maintenance, stopping a manufacturer from controlling the price at which a retailer can sell their goods.
These laws affect Tesco because it can alter the way that they wanted to operate. These laws are put in play to make sure that all their customers are paying for what the customer is expected to get, and also so they do not form a monopoly which can put other organisations out of business. And Tesco must ensure that they pay legal wages and provides the right conditions for staff and trading which cut into possible profit.
These laws also affect CAFOD because they must make sure that their employees are safe, well treated, and work in a suitable environment. This is especially important with employers working abroad. They must make sure that they are a suitable living space, and have basic essentials such as food and water. Also CAFOD must make sure that when selling products in store, that they are a good condition, and at a reasonable price. This is because a customer would not want to buy clothing that is ripped or unable to use, or buy a product where they can get it cheaper at a different store.
Social Factors
Overtime there are many changes that take place in society which are relevant for business organisations, such as in;
- Population issues
- Changes in structure
- Household and families
- Education
- Attitudes to work
- Religions
- Attitudes to male and females roles
- Ethics.
Demographic issues
When the population of a country is growing, there is an increase in;
- Demand for goods and services
- The numbers of people making themselves available for work
If the population increases, this will affect Tesco’s because this will increase the number of sales of products within the stores. Also affecting Tesco’s is if there is an increase of the number of people making themselves for work. This affects them because Tesco’s will have a large number of employees to choose from, but if there is not a lot of people available for work then Tesco’s will have to keep their current employers.
Population also affects CAFOD because if there is more people that are living in poverty, this means that more money has to be spent to be able to keep up with the areas that they work in, whereas if there was a decrease in the number of people in poverty, this means that more money can be saved or spent more on an area.
Education is an important factor to both CAFOD and Tesco, but can affect them in different ways. Education affects Tesco because with a good education, can lead to a good job, which means they will have a good source of income. With money they will be able to buy better brand products, and possibly more products will be bought than an average customer will be expected to buy. But if education was not at a high standard, this means that the job quality will be low, and so will their income. This leads to purchasing of a lower quality brand, or a lower average of products bought. This affects Tesco because if customers are spending more money, this generates more profit, and is the opposite when less money is spent. The lower the income, the less money spent which means profit is not at the highest potential.
For CAFOD, education is very important. CAFOD try to produce education for the countries they try to help, because they believe it can lead to a brighter future for the children and the economy. Providing education could lead to possible job careers, and a way out of poverty. For example, in Africa, CAFOD provide small schooling facilities, such as a place to learn, pen and pencils, paper and tables and chairs. Being able to learn broadens the job opportunities because of the educational background they will have. So instead of having to work on farms and helping families collect water, the education will allow them to have paid jobs, so they can possibly afford to buy the essentials they need, rather than having to travel long distances to collect them.
Household and families is another social factor that can affect Tesco and CAFOD. Having a large household will mean that the families will need to be able to provide food for all members of the house. This means that more money will be spent than families with a small household. For instance, if a household has two members in, this means that they will only have to buy a small amount of food per week, for them to be able to live on. Comparing this to a large household, such as four or more, the amount of food that is needed to be purchased, will be significantly more. This affects Tesco because if a family has a larger household, then more money will be spent in stores, so therefore generate more profit, opposed to a small household, less products will be purchased, so this does not make as much profit.
CAFOD will have problems when dealing with different household and families. Reasons being is that if CAFOD were to help a certain family, for example, providing money for them to live, other families around that area may become jealous, and confused in why they are just helping that one family, when they are in the same position. So CAFOD have tried to cut down on the individual assistance, and broaden their help by helping communities. But there are also more problems that come with that. These problems are household or families, with large amounts of members within it. Usually in less developed countries, there will be a large amount of members; this is because they will have more help in work, around the community. For example, more help around farms and crops, and more supplies being able to be brought back because of the extra assistance. This affects CAFOD because this means that they will have to provide more, such as buildings, food, water and education, so that leads to needing more money to be provided, to be able to afford the expenditures .
Recommendation
Dear Mr Baker,
To give you a better understanding of the implications of my decision, I will inform you of what company we should use to distribute your product, and to distinguish why I have made this decision.
I personally think that we should use a company within the voluntary sector, such as CAFOD, because they have more experience with helping certain areas in developing countries. Although, working with a company that is in private sector may be better as they generate more money than a voluntary sector would, but might not know exactly what to do or how to distribute certain products.
I believe that it would be appropriate to trust in a voluntary company, as they are most reliable and they have most probably committed more help in charitable organisations than a company in the private sector would have. CAFOD as you know is a charity based organisation means that they work with developing countries on a regular basis. This means that they have experience in distributing and helping people in developed countries, such as providing water wells, building and basic survival needs.
Tesco’s I believe will not be a suitable company to distribute our products, reasons being is because they are a private business and they have their own products to sell, so I believe that they will not be fully committed as a charitable organisation would.
So in conclusion, I believe that choosing CAFOD will benefit us and the developing country more than picking a private company like Tesco’s because of the commitment and time issues, and also because CAFOD is based for charity so that is their main focus, to help people, whereas a private company would have to think about selling their own products first so keep their business alive, and then think about distributing your products.
Yours sincerely,
Luke Cohen
P5+M2+D2
The business environment consists of a range of major influences that are outside a business. These include political, social and legal changes that affect business. The economy is made up of millions of individual decision makers who buy and sell goods, borrow and lend money, raise taxes and change interest rates. From the business point of view, the most important of these decision makers are the customers, and suppliers.
Stability
Business people like stable economic conditions. Stability exists when business people can make forecasts for the short and medium term about likely demand for their products in the near future. Stability involves being able to make deals secure in the knowledge that people you supply to on credit will pay you back at the price agreed. When you borrow money, you expect the repayments to be for the agreed amounts. For example, if a business was to borrow £5,000 from a provider, they will be expected to pay back the same amount or more with interest rates.
When an economy is stable, such as the UK, it means that it has business confidence, this means that businesses are doing well. Unlike Nigeria, their economy is very unstable, and businesses are not doing well, and could mean that there are not very many sales, or there are not many new businesses.
Recession
The definition for Recession is- when for two quarters (six months in a row) in a row, the value of all the goods sold in the economy falls.
Recession occurs when people involved in business become more cautious and;
- Customers cut back on spending, and start to save more
- Manufacturers and sellers cut back on their orders produce fewer goods and start to cut back costs in general.
Recently the recession affected the UK; this also affected shell in the UK and Nigeria because the taxes have risen, so this would cause shell to raise their prices.
Growth
The opposite of recession is a period of economic growth. This occurs when more goods are being produced and consumed, and incomes are rising. When people have more money, they will buy more goods; this is known as their disposable income. This will lead to producers making more goods, which can then lead to employers being hired and invest in new machinery. Growth is associated with the ripple effect.
This affects shell as they will need to produce more oil and be able to provide for their customers. This affects Nigeria because this means that more oil barrels will have to be made and shipped over to the country where it is needed. If more barrels of oil are needed to be extracted, this would mean they would need to employ more workers, which can partially help boost the economy.
The ripple effect
The ripple effect is where something in the economy affects another thing. The ripple effect can be demonstrated by throwing a pebble in the pond and the ripples coming off it. Below is brief description of how the ripple effects work.
- Customers have less disposable income
- Producers and sellers cut back their stock
- Producers and sellers cut back production
- Producers and sellers cut back costs including employment
- As more people lose work, income falls, leading to further cutbacks in customers spending.
Inflation
Inflation occurs when there is a general rise in the price of goods in the whole economy. Not every price will be rising but the averages in prices will. In the UK, the averages of prices are measured by the government using the Consumer Price Index (CPI).
Availability and cost of credit
The cost of credit is the rate of interest. It is expressed as a percentage. For example, if a business was to borrow £1,000 for a year at a 10 % interest rate, they would be expected to pay back £1,100 because 10% of £1,000 is £100.
Interest rates are determined by an independent body called the Monetary Policy Committee. This is made up of people who have a good understanding of the economy.
Labour
For most businesses, the wage bills makes up the majority of their costs. Businesses need to employ labour with the skills required for the job at an affordable wage rate. In a period of growth, it is more difficult to recruit enough labour with the right type of skills.
It is important to recruit the right staff because it allows them to do their jobs properly, and at a high standard.
Changes in government policy
The government has a major responsibility for managing the economy of a country. Good management should ensure that:
- There is stability and growth
- Inflation is low
- There is available credit and low interest rates
- Businesses have access to suitable supplies of labour.
The main guidelines that the government uses to manage the economy are taxation, and spending.
Through monetary policy the government can also change the quantity of money available.
Monetary policy is related to the money available in the economy. The government can change the quantity of money available or the cost of borrowing money (interest rates) as a result of advice from the Monetary Policy Committee.
Fiscal policy involves changes in the government spending and government taxation. For example, in a recession, the government might decide to lower taxes to give businesses a chance to make profit and also gives more time to pay their bills.
The influences the economical environment has on business activities for shell in the UK and Nigeria are; growth, recession and labour. If the economy is in a growth period, this means that more people will have more money to spend, so as they have more money to spend, this affects shell because money can be spent on petrol, and also energy at homes such as heating and electricity.. The recession is just the opposite of growth. If there is a recession this means that people will start to save money, so they might walk to places or use public transport to save spending on petrol, might cut down on their heating and electricity also.
Labour is important to shell as they are a multinational business, meaning they operate all over the world, so they would be expected to have a lot of employers. In the UK, Shell have employed over 8500 people, and has an overall of 101,000 employees in more than 90 countries. Shell has over 900 stations service half a million people a day, so hiring and recruiting employees is a must. Hiring the correct employees is very important, as it will allow them to do their jobs. In Nigeria, education is very important, as the educational standards compared to the UK are low. Education in Nigeria is very low, so the amount of employees available is low, so shell must make sure that they employ the correct staff, which can make it more expensive as they would have to invest more time into finding the correct staff.
The economy is never predictable, but businesses can prepare/predict and forecast for what could happen. This way Shell can respond quickly if there was a downturn or upturn in Nigeria’s on the UK economy.
For the United Kingdom, possible future changes in the economical political factors could be a repeat of the 2008 credit crunch. This affected business and people all over the UK as more and more people started saving money, cutting down on spending and luxury items and businesses holding back on orders and not taking many risks. If the UK government was to be in recession, this would mean that more people would resort to public transport instead of using Shells petrol, so what shell could maybe do is to do offers, such as purchase a certain amount of petrol and get £5 off your next purchase.
Recently, there has been talk that the government want to invest more in electric powered car; this is because it is more economically friendly. The government have said that they will pay £5000 towards electrical cars, which means the price of these cars are far from cheap, around £20,000. The introduction to these electric cars could lead to a huge drop in the amount of people buying petrol, so they will need to act quickly on this, such as making electrical stops where cars can charge up their cars. If the world changes to electrical cars, this can affect shell because they could take this opportunity to provide electricity for the cars, maybe having stations where electricity can be transferred to the cars for a small fee. But this will also affect them because of the natural resources that they will need to gather, because of the new development of using electricity, instead of oil and gas.
For Nigeria, possible future changes in the economical political factors could be related to the high number of poverty in the area, or a disagreement with the government and another party. This could break out into a civil war between the two sides of the government, or it could be that people are desperate and feel that they need to be violent to be able to survive. This can affect shell as they will need to change their strategy, in order to ensure that their workers are safe, so they might need to consider if it is suitable for their employees to work in the conditions facing the civil war, or will they need to move to a different location in order for them to continue their job. Legal factors affecting the strategy of Shell would be the increase in tax, if the government is not stable, which Nigeria’s government is not, then taxes could either go up or down. This may be difficult for Shell because it will be harder for them to predict forecast figures. Possible social factors affecting Shell could be the number of diseases and illnesses there are in Nigeria, HIV or aids being one of the most common. This can affect Shell if their staff were ill it could spread throughout the business, so Shell will need to take precautions such as regular medical checks to be sure that the staff’s general health is safe for them and other members to work in.