Objectives of the strategy
- Increase turnover
- Increase profit
- Increase the level of support they offer, more successful charity events for example
- Increase the flexibility of what they can offer
- Become more well known in the local area
- Open up new Culture Café’s.
Culture Café is a relatively new business that has built itself up over the past 2 years. They already have 4 sites and hope to increase this to 8 sites by 2012. They tender for new contracts regularly and hope to prove themselves as an efficient and effective way of running catering establishments.
- How they are decided.
Tesco have their main aims of increasing their profits and market share. A charity would have different aims like creating a surplus to help their cause, different charities work for different causes like stopping child abuse, reducing poverty in the world or helping to save the environment. All businesses need to have a clear sense of direction which is available to its stakeholders to see. Senior management usually set up the strategy and it is drawn up over a long period of time, for example 5 years. The plan is linked with the values and missions of the company. A mission statement sets out the purpose of the organisation. A values statement is set out to show the core values of an organisation. Tesco’s purpose is to create value for customers to earn their lifetime loyalty. Tesco then make smaller more specific goals to help achieve their main aim. These goals have to be made based on their strategic aim and their values. The aims of a company help the company move with a general sense of direction. The objectives are goals that the company seeks to achieve during the period of the strategic plan. Tesco aim is to make more profit. Their objectives are to increase sales, open new stores and develop the business abroad. In business objectives should be SMART (specific, measureable, achievable, realistic, time related).
There are 3 main factors that influence the objectives a company makes, shareholders, business environment and the business type and ownership. Tesco need to think carefully about the shareholders as this includes everyone who is affected by their business. Tesco may want to increase their profit by increasing their prices and decreasing the cost of purchasing the stock but this would be unfair to the customers and to the suppliers. This also affects how they behave ethically, as this may affect how they are seen as a business. They may be able to source products cheaper, by using a different supplier but if this affects the quality shareholders would not be happy. This means they need to work hard to find low cost products with good quality, and they may have objectives to find suppliers who can offer the same quality but at lower prices.
Culture café is a community minded company and the customers come first. They try to offer a product or service that is suited to the type of site they are running. As Culture café is owned and run by one person this means decisions are quick to make as they do not need to be agreed by other parties. When they make a decision they need to think of how it would affect their stakeholders. Customers and other stake holders play quite a big part in how they make decisions as they always hope to put customers first. Culture café listen to comments made by staff and customers to see how they can change and develop.
The business structure for culture café is very simple because they are a small business. As they grow they see what they need to do and what resources they need and try to respond to the growing needs of the business.
As they are a small company they do not have the same power that Tesco’s have. Tesco are able to make demands on their suppliers as they would be worried to lose Tesco as a customer, Culture Café on the other hand do not have this and may find it hard to find suitable suppliers. This can create problems as they need to ensure that they are buying products at the right price and of good enough quality. To improve their profits they need to make sure that one of their objectives is to keep searching for better suppliers.
C) Please see the attachments at the end of the assignment for this.
D) How work is divided into functional areas and how these areas are dependent upon each other.
These are some functional areas that companies may have, not all companies have all these departments and they may give them different names
Public Relations – Deals with press releases and the public, for example can help to lessen the impact when a company is in trouble and does not want bad press.
Research and Development (R&D) – looks into developing products, creating new products and expanding the range
Human resources/Personnel – deals with people, works with recruitment, staff absences, and issues staff may have, sometimes they may deal with payment of the staff and employment contracts along with finance and legal departments
Finance – Accounts, wages, VAT returns and anything else to do with money.
Marketing and Sales – advertising, promotions and market research
Purchasing and buying – can deal with stock ordering, although in some companies this would be down to a manager involved in the operations, and deciding what products would be stocked.
Legal – deals with employment contracts, and helps the company in legal battles and contracts over property and contracts with suppliers.
Operations -day to day running of the business, for somewhere like Tesco this can include people working in the store including store managers, shelf stackers, check out assistants and delivery drivers.
Administration (sometimes known as communication) - deals with the paper work, they can work with human resources, finance and legal to assist with filing paperwork. It can also include IT, keeping records, dealing with suppliers, complaints and letters.
IT (sometimes known as communication) - may deal with all the technological equipment in the company, can also be related to maintenance as they would deal with technical faults and are likely to work closely with legal, finance, human resources and administration departments.
Customer service – Deals with the customers, this may mean on the shop front or for some companies it may be the reception or even the sales administrators.
Maintenance/Engineering – involves cleaning of the premises, repairs and involvement if a company is expanding a store or opening a new store. They would have to work closely with Health & Safety
Health & Safety – works will all the departments to make sure they are not imposing risk to themselves or others. This can include making sure the IT department keep equipment and wires out of the way to avoid tripping, maintenance to ensure they have put up signs to warn people of dangers and include training staff on how to stay safe.
Logistics – transportation and storage of goods
Property – buying, selling and renting properties. Can also include facilities management where they are in charge of looking after the sites, this would mean they work closely with maintenance and health and safety.
All the various departments have their own roles and responsibilities but they have to work together. Various things that happen in a business may require people from different departments to get involved. For example when Tesco employs a new member of staff in store it requires a lot of work. For starters the store managers need to see that there is a need to employ someone. Then the administration department need to write a job description and advertise. CV’s or application forms are sent in and need to be read and interviews need to be arranged. When someone is offered the job, the personnel department need to take details of personal information about the new member of staff and the accounts department need to organise the wages to be paid. The legal team need to be involved to set up employment contracts. The health and safety department may need to educate the employee on health and safety in the workplace. The new employee now becomes a member of the operations team.
Because all the departments work closely together, companies need to ensure that there is good communication between departments. In some businesses departments will talk to each other face to face, via memos, emails, over the phone, in meetings or a mixture of all.
If there was a fire in a Tesco store, whilst the store was closed there would be a lot of work with a lot of departments getting involved. The health and safety team would need to get involved to keep risks to a minimum and to see why it happened and if it could be prevented in the future. The security department would need to ensure the site is secured and may even be involved in making sure that every person who was supposed to be in the store is out and safe, even though the store was closed there may have been staff stacking shelves overnight or office workers in. The maintenance team would be involved with repairs. The property department may be involved, there role may involve facilities management on the properties they own or the land may have been rented. The operations team would be affected as it may affect their work if the fire was quite bad the store may be closed for quite a while. They may be involved with helping to arrange a new store being built or they may have to work in other Tesco stores nearby. The human resources department would need to organise staff working in other stores and how they are going to be paid during this period if they are to be paid. The finance department would need to look to see how well the store was doing to see if it is viable to rebuild it, and would need to look into the costs of opening a new store, or making staff redundant. Depending on the size and the cause of the fire, the public relations department may need to get involved, the fire may look bad for Tesco and they may need to work with the local media to lessen the impact of any bad publicity. The legal department would have a lot of work to do; they would need to look into employee’s contracts to see if they are required to pay staff during this time, and to possibly make redundancies. They would also need to look into their insurance policies and arrange all the necessary paperwork to make a claim. For example the insurance company are likely to want information about all the stock that was in there, the value of the stock, building and equipment and information from the fire department and police as to the cause of the fire.
Task 4 Explain how the organisational structure and strategic planning help the business to achieve their purpose and aims.
Different companies have a different way they organise their structure. There are 4 types of organisational structure. By function, where departments are grouped by the roles they perform, for example human resources, accounts and legal. Geographical, this is where companies have different departments for the area’s they cover; it could cover a country for example UK, France and USA or smaller area’s such as North West, and South East. Some companies group themselves by products, for example Cadburys may have different departments for chocolate bars, sweets and boxes of chocolate. Many companies organise themselves by the type of customers they have, for example they may have one department for dealing with the general public and one for business to business customers. Companies may use a mix of these organisational structures. For example, they may have different departments for the different countries they operate in. In those geographical areas they may also have a few departments for the different range of products they make. There may also be functional departments such as finance, human resources and marketing. Grouping different aspects of the business helps to organise a company. It means that everyone knows what their role and purpose in the business is. This also helps other members of staff to know where they need to go for information; this helps the communication in a company. For example if there is a fault with your computer you know you need to contact the IT department and if there are problems with invoices and finance you know to contact the accounts department.
Companies may also use a matrix structure; this is where a team of specialists from different departments are brought together as a team to complete a specific project. Team members have a sense of responsibility for the team and work together at the same level. Project teams can be created when needed. Setting up a matrix structure may be expensive, and some members may find it difficult to do with their normal tasks and it may be difficult to coordinate specialists from different areas of an organisation.
Many roles that need to be completed may involve more than one department, so they need to communicate between each other and work together. For example if there is a fault with equipment at Tesco the maintenance team will need to be contacted, and also the health and safety department to ensure that there is not a risk to anyone. The finance department will need to be informed so they can allow a budget for repairs and the admin department may need to keep records of any incidences that may have occurred. Depending on the type of fault, it may affect customer service if the fault is within the store, a till for example. If new equipment or parts to repair the problem need to be bought, purchasing and logistics may be involved. Companies have different organisational structures depending on what the company does and what resources they need. Tesco for example buy stock and do not produce things, therefore they are likely to have different departments for different products. Some companies have flat structures and some have tall structures depending on how the business is run. Companies usually start small and grow into bigger businesses and as it grows, the owners and managers will see what it needs to add to the business and this is how they develop their structure. For example a small company with 20 members of staff would not need a human resources department but as the company grows, they may end up employing 300 members of staff and then would see if it needed a human resources department.
Organisations with lots of levels in their hierarchy are called tall structures. Tall structures have a long chain of command; this can affect communication, as it would need to be passed up the organisation through the different levels of management. It can also take a long time for decisions to be made as it needs to be agreed by different people.
Flat organisation structures have only a few levels of hierarchy. Managers can get overwhelmed by too many people reporting to them.
Managers in flat organisational structures have wide spans of control, the means they have a lot of workers they need to manage. If the span of control is too broad this can make it hard for managers to do their job, and manage effectively because they have too many people to look after and too many problems to deal with. If the span of control is too narrow, workers may feel they are being over managed (micromanaged) and they may find it difficult to know who their boss is and where to go when they have a problem. This also works out very expensive for a business to employ so many managers.
Tesco is a large company that operates in 14 different countries. They use a geographical structure for the different countries they operate in and organise themselves in a functional structure. This is very useful for them as it means they get all the tasks done and in such a large company it means that people know where to go when they have problems that need to be dealt with.
As Culture Café is a small company they use the entrepreneurial structure. This is where one person makes all the decisions. Decisions are made quickly as the boss does not need to consult anyone or get anyone’s approval. The managing director of Culture Café makes all the decisions but sometimes consults with the operations director to help him when it is needed. The owner takes on a lot of responsibility, as he is solely in charge of the company and cannot afford to employ people to be in charge of different departments. They hope to expand the company enough and employ region managers to help with the workload.
The aims of an organisation depend on the type of business they are. The aims of a charity would be to help their cause as much as they can, and a company like Tesco would mainly be aiming to make profit. Companies may have slightly different aims in the way that they grow, for example Tesco aim to hold the largest market share whereas Marks and Spenser’s aim to be the best quality supermarket. A business needs to have a clear sense of direction. The aims of a business can be broken down into smaller aims and objectives. Strategic planning is very important in giving the company direction. A strategic plan is drawn up for a relatively long period of time, for example 5 years. Developing a strategic plan will involve managers and directors working together to create the plan. The plan is shaped by the mission and values of the organisation. A mission statement sets out clearly the purpose of the organisation. A values statement sets out the values and core beliefs of the business. A business’s aims sets out in broad terms what the organisation seeks to achieve through its strategic plan. The aims of an organisation can be broken down into more specific objectives. For example Tesco aim to increase their market share. Their objectives include beating their competitors in price comparisons, and to increase the amount of stores they have.
A company needs to cascade their objectives. This means to pass them down to the different departments and members of staff so they can have their own objectives and work towards the overall goal. This means that everyone is the company is helping to achieve the goals. Cascading the information can take a long time to get the information to everyone and start working towards the goal. If Tesco wanted to increase sales by 5%, but didn’t pass this information along to each of their stores to try to increase their sales it would make it more difficult for Tesco to achieve their goal.
When a company plans their aims and objectives, it is called strategic planning. They need to look at all their goals and values in order to do this. The performance is measured early on to see how well they are doing in achieving the goals. The objectives need to be made SMART; this is an acronym that stands for Specific, Measureable, Achievable, Realistic, and Time-Related. For example, if Tesco wanted to come across as a friendlier company to increase their customers they could use a SMART objective like this.
Raise awareness how eco-friendly Tesco’s are
S Improve how they are viewed by the public
M Surveys and questionnaires one now and one at the end
A Yes, advertising and giving advice how customers can be more eco friendly
R Yes, with a good marketing campaign
T Within 6 months, improve the results from the surveys
Task 5 Describe the influence of two contrasting economic environments on business activities within a selected organisation.
The business environment refers to the outside influences on the business; these include government action, economy, and change in law and things that their competitors are doing.
The state of the economy has a big impact on business. When the economy is bad, and during a recession a company may be looking for objectives just to survive through the bad times, reducing staff and trying to keep prices low to encourage people to spend. When the economy is booming businesses may have expansion strategies.
A recession is when there is a period of decline in the economy, house prices go down, people lose their jobs, it can be difficult to borrow money and generally things are tight for everyone. Business can suffer a lot during a recession and even big businesses like Woolworths can close down when times are hard. Although a lot of businesses suffer during the recession, there are some that are able to do quite well during these times. For example, low priced stores like Aldi’s and 99p stores can do well as people are trying to save money on their purchases. Pawnbrokers and book makers can do well because people can become desperate to raise money in times like this. Debt collection agencies and bailiffs also find recession’s busy and do well.
There are a lot of companies who struggle through these periods. Banks struggle as they cannot afford to keep lending money to people and businesses, and a lot of companies that rely on borrowing money struggle to survive. Public sector companies struggle, as the government has to make cuts, the government have less tax income, and have to pay more out in state benefits and they also spent a huge amount of money bailing out the banks. Small businesses and start-up businesses will suffer a lot and will find it very difficult to borrow money if they need to. Shops that sell expensive high quality products will suffer as people do not have the disposable income to be able to afford luxuries. Businesses in the leisure industry will suffer, for example gyms, beauticians, pubs, cinemas and theatres. The service industry had been growing up until the recession and these businesses will also struggle. The service industry includes cleaning companies, hairdressing, book keeping, image consultants, and life coaches. These are usually luxury items that people stop using first when things get hard. Any business in the housing industry will also suffer, as people lose their jobs and banks are unable to loan money a lot of people are trying to sell their houses with only a small number of people able to buy. This puts houses prices down and this affects estate agents as they are not selling properties, it also has an effect on mortgage brokers, insurance companies, solicitors who draw up contracts for property sales and many other companies. Because no one is buying houses it also means that building firms would not be able to sell the houses they build which means they are not building new houses as much, this then also affects people who supply building materials. The housing industry is a big part of economy and it can have a knock on effect on many other types of businesses, some that may not even be considered to be related to the industry.
Tesco have managed to do quite well in the recession. Part of this is because of their excellent relationship marketing but also because they sell a range of products from cheaper low priced items to finest quality ranges. Many people who shopped in slightly more expensive stores have switched to Tesco’s when they found money was tight and this has helped make up the numbers for the people who have switched from Tesco’s to cheaper places like Iceland’s, Aldi and Netto’s. They have also managed to increase their sales in the non-food departments as Tesco are known for low prices and good quality, many people have bought more clothes from Tesco’s and less from shops like Marks and Spencer’s and Next.
The recession that started in 2008 was caused by many different factors. It is very difficult to pinpoint exactly what caused the economic downturn and most of the information you hear about how and why this happened is mainly a matter of opinion. Here are some of the things that have affected the economy:
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Banks, they were lending a lot of money and to people who couldn’t afford to pay it back and they bought assets whose value they did not properly understand. American banks in particular lent money to people for home mortgages that proved unable to repay their obligations. These loans were often and sold onto other banks, many of which still do not know what they are worth. As a result, banks are unwilling to lend even to each other as they are unable to measure the risk of doing so. Banks are also less willing to lend to individuals and other companies because they are fearful that doing so might leave them with too little equity to withstand future possible asset write-downs Even through the recession banks declared record profits and gave out huge bonus’s to staff even though the rest of the country were struggling financially.
- Bankers were greedy and their massive bonus’s helped to push house prices up especially in and around London. They were also short sighted when they were planning investments and looked to see what would get them a return quickly.
- Women’s equality – Although not to blame for the recession, when women started working more and earning more money this meant that many household’s had higher incomes which helped to push up house prices.
- Consumerism and materialism, people wanting lots of nice things and buying them on credit when they could not afford to.
- Estate agents – They work on commission and the higher the value of property they sell the more money they make, this encouraged them to push the house prices up.
- The government and naïve and inadequate politicians. The government did not regulate the banks properly, when banks were hugely over charging customers on bank charges and had to repay this, this was a big problem for banks, if the government had of regulated them properly they would not have been over charging for so long and would not of had the massive unexpected payments that to make. They also allowed them to lend a lot of money to people who could not necessarily afford to repay the money back. The government were also spending money unwisely and they did not plan a contingency for bad times. They believed that had cured the boom and bust pattern and that some banks were too big to fail.
Traditionally a person or a couple could buy a house for 2.5 to 3 times their annual salary. This meant the loan could be repaid back comfortably. A deposit of at least 5% of the value of the house would also be needed. With different factors pushing house prices up it would be very difficult for most people to be able to obtain a mortgage. House prices have increased a considerable amount but income hasn’t increased as much. People can no longer afford to buy property. 60 years ago a man would go to work and earn £10,000 a year and buy a house for £25,000. Today the average income is £22,800 a year, but this average is high because there are a lot of people earning very high amounts for example £150,000 a year. Most people earn around £14,000. Even a couple both working earning this would be unable to buy a house for 3 times their annual salary, as depending on the area it is very difficult to buy anything for under £100,000 and in some areas double that. Banks started lending people 10 times their income and allowing them to put little or no deposit down, this was a problem because it meant it would be very difficult for people to make the repayments. Because of this, people are spending a large proportion of their income on repaying their mortgage they are then not able to afford to spend in other areas or they are buying things on credit, which they also cannot afford to repay. This is why the increase of house prices has played a part in causing the recession.
It can be very difficult for a business to survive through the recession, but a company can try to reduce the impact it has on them by planning for difficult times and having a contingency plan. Companies should try to reduce the amount of credit they owe, keep costs down and try to have money set aside for emergencies and down periods. Companies can try to reduce the cost of products, and many companies may even compromise on quality to achieve this. They can also look into sales and promotions to keep customers buying from them. If a company manages to survive through the recession they can usually do really well when the economy picks up. Tesco have also put a lot of work into encouraging customers to spend in store, from adverts about their value range, double Club card points and lots of offers and promotions in store.
A stable generally has low and low . It especially refers to an economy with a stable population; that is, there are fewer pressures to create jobs for a larger workforce, but at the same time, there is enough growth for the economy to financially support as they age and need more care. A stable economy means it is easier to make forecasts about demand of products and the likelihood of loans being repaid.
Inflation is where the average price for things increases. In the UK, average prices are measured by the government using a measure known as the Consumer Price Index (CPI) and the Retail Price Index (RPI) Inflation can be bad for business because it creates uncertainty. The rise in cost will affect the cost of buying stock, running the business and staff wages. The rising costs can affect the profit; a business can decide to keep their prices constant and see a fall in profits or raise prices and possibly lose out to competitors. Inflation creates uncertainty and makes it difficult to make predictions about the economic future and business.
The Consumer Price Index (CPI) is the consumer prices index. It is the measure adopted by the Government for its UK inflation target. It measures all the goods and services available to a consumer. The Retail Price Index (RPI) is also used by the government to measure inflation. It measures the cost of items consumers buy, for example when you go into Tesco and buy products like milk, bread and clothes.
Economic growth is when more goods are being produced and sold and incomes are rising. When incomes rise people spend more money, which increases work load and therefore creates more jobs. Money creates money.
In a recession the availability of credit is low. This is not good as it may mean many businesses may go out of business as they cannot get the loans they need. The government encouraged banks to lend but banks still do not want to lend money. Because they are not lending money many businesses are going bust, banks then see this and think that the economy is still bad and people cannot afford to repay loans and therefore they still do not want to lend money out. At the moment interest rates are 0.5% and mortgage lending is only a third of the level it was 3 years ago. The average deposit is 24%, the highest figures since 2002. Many banks are asking people for 40% deposits and very high fee’s to obtain a mortgage, whereas 5 years ago banks would lend 100% of the mortgage with no fees. Tesco have expanded into the banking and insurance industry and have probably found that during this recession they have had a decrease of sales in this area as they are also unlikely to want to lend money to people.
When inflation goes up the cost of living also goes up. The price of commodities can have a huge impact on the price of things consumers buy every day. For example the cost of wheat has doubled in the last 5 years. There are a lot of foods that have wheat in the recipe, for example bread and cakes but even products like oven chips can list wheat in the ingredients, and this has meant the price of food in general has risen. There have been many factors that have affected the price of wheat. Kazakhstan is a big importer of wheat, and they decided to impose a tariff to curb sales, this affected the cost of wheat. In 2008 Australia had the biggest drought they had had in 100 years; this halved their winter crop of wheat and meant there was not enough supply to meet demand which pushed prices up. Drought and water shortages also affected the crops, and bad weather in Ukraine also can hurt production. Demand for alternative energy sources has led farmers to sow less wheat and convert land to crops such as corn, sugarcane and rapeseed that can be turned into biofuels. Ethanol, diesel and other liquid fuels can be made from processing plant material. But this means there is less land for growing food crops. Wheat prices may come down as high prices convince farmers to devote more land to the crop, but this takes time. Growing demand for wheat is another factor that has affected the price of wheat.
Inflation is not a good thing for Tesco’s, when the cost of their supplies increase, they have to increase their prices which is bad when they have such fierce price wars with their competitors. It also means that as their staff are now struggling with the higher cost of living want a pay rise. It means that it is all relative for most consumers but companies struggle to be able to increase wages all the time as this makes up a big percentage of their outgoings.
The demand for a product can be affected by the price, when the demand goes up the price goes up and there needs to be more supply. This means the price may go up, which may mean that the demand goes down so the supply goes down which in turn means the price goes up, which can create a circle of meaning that the low prices increase the demand. A product where the demand changes because of the price has an elastic demand, it changes a lot. Some products, mainly ones that are more essential, can have an inelastic demand; this means the demand generally stays the same. For example if the cost of milk rose then most people would still buy milk as it is essential. Products that have an elastic demand are more sensitive to price change. Branding can help a company have an inelastic demand, as people are prepared to spend the extra money on the trusted brand.
Global Interaction
There are many brands that are well known across the world, McDonalds, Starbucks, Apple iPhone, and Cadbury’s dairy milk. Because of new technology such as phones, internet and email this has made it easier for companies to work around the world. Huge economies such as China and India are now part of the global market and their ability to produce large quantities of products at very low costs have made it difficult for British-based competitors producing similar items.
Interdependence means the linking together and mutual dependence of a system on each other. Interdependence takes part of different levels for example, at a local level Tesco may order supplies of fruit and veg from areas local to the store, at a national level Tesco may order their meat supplies from places in Britain and at an international level Tesco would order many products from abroad, including banana’s, rice and tea. Large businesses rely on global supply chains. Cocoa is grown in places like Ghana; it is then sold to a processor to process the cocoa. The cocoa is then sold to chocolate manufacturers like Cadburys. Cadburys then mix the cocoa with milk, milk powder and other things to make chocolate. This means that the raw material may go through different levels of production in different countries before it is sold in the shops, Cadburys may even make the chocolate in the UK and then sell in other countries possibly even the countries where the raw material was sourced from.
A multinational company owns at least 50% of shares in at least one other business abroad and the overseas business that is part or fully owned is then called a subsidiary. Creating a foreign subsidiary can be from either opening a new store or factory in other country, for example Tesco have now opened stores in 14 other countries, or through acquiring an existing business abroad. Some companies will go into a joint venture with a company in another country and share ownership of the business. There are many benefits of doing this because it means the new business, for example if Tesco opened in a new country and decided to make it a joint venture, they would have knowledge of the business they are in, but could team up with people who understand the local cultures, business and economy.
Foreign Direct Investment (FDI) refers to an investment in a foreign company where the investor holds at least 10% of the shares in a company. A good example of FDI is where rich foreign investors have bought most of the shares in the main Premier League football clubs in the UK. One of the problems with multinational enterprise is that companies do not have particular loyalty to any country and will move their work around to where it is cheapest. For example many companies now have call centres in India because the labour costs are lower. It can be difficult for the government to regulate foreign companies that are working in the country because many of these wealthy companies can quickly set up new locations within months and will move the business to another country. When companies are working within different countries it may be difficult to keep working towards the overall aims of the company as there may be differences in the laws they need to abide by. A lot of companies that run businesses abroad as well as here need to think carefully about public relations and how they are seen as a company. For example, if BT opens their call centre in India they need to abide by the laws in India, but they also need to have the standards as high as they would in the UK. If it is common for children as young as 13 to work in India, BT would find themselves under a lot of pressure if they decided to allow 13 year olds to work in their call centres.
Task 6 Select one business in your local area and another in a foreign country; produce an article describing how the political, legal, social and economic business environments affect each of the selected businesses.
I have chosen to look at Tesco’s and the differences in how these environments affect the stores in China and England
Political factors
Politics plays a part in how a business is run. Politics affects everyone in life as it is involves running the country and works in different levels. At national level, the UK is governed by the political party that has the most MP’s in parliament. MP’s work on a local level and voted for by the public at a general election. Each party has a leader, and the party that has gained the most seats in parliament, their leader becomes the Prime Minister who is in charge of the country. The Prime Minister appoints the Cabinet of senior Ministers in charge of key areas of government, for example education, health and industry.
At an international level, Britain is a member of the European Union. This means that we need to work with the EU and have certain laws we as a country must abide to according to the EU. For example because we are part of the EU we must let emigrants from within the EU to enter freely into the UK to live and work.
At a local level, we have our MP who can help in the local area and who also works within the government. There are also elected councillors who make decisions about local issues.
There are many decisions that have to be made in politics and can have massive effects on people and businesses at local or national levels. These decisions may favour some groups but not others. For example decisions may be about taxation, planning permission, licensing laws and grants available to people. These decisions would affect different businesses in different ways, for example if the council decided to cut business grants this would mean many small local and start-up businesses would suffer. Licensing laws may affect pubs, restaurants and other businesses in the area, it may mean they are unable to play music unless they pay for a license which would affect profits and companies would need to consider how important the license is to their business. Restraints on planning permission may affect a lot of businesses, but mainly developers who may be unable to build or develop land that is not being used.
Political parties have a manifesto (plan) that is made public. If and when they are elected they work to put their manifesto into action. This year there was a general election. Before the general election Gordon Brown was prime minister and he was head of the Labour party. Everyone votes for their local MP who represents a different party. Labour, Conservative and Liberal Democrats at the biggest parties but there are also smaller parties like the Green party and the BNP. Every MP that is elected gains a seat in parliament, a party needs to gain over half the seats available to win the election. The conservatives got the higher number of seats but they did not get more than half the seats. This meant that 2 parties had to join together to make a coalition government. The liberal democrats, who gained the least amount of seats out of the 3 main parties, joined together with the Conservatives. This means that the head of the Conservatives, David Cameron, is the Prime Minister, and Nick Clegg, the head of the Liberal Democrats, is the deputy Prime Minister. They have had to compromise on some of their objectives in their manifesto to be able to work together.
The Conservatives are trying very hard to bring us out of the recession and they are making cuts in a lot of areas. They feel the previous government was over spending, which had put the country into a lot of debt. They have looked into where the money is being spent and are trying to prioritise. Many people will not be happy with the cuts and many of these changes may affect businesses, especially small local businesses. One of the cuts they have made is the £250 child trust fund that every baby born in the UK receives for when they turn 18. They have saved money here to be able to make sure much needed services like the NHS are able to receive the money they need.
In January 2011 VAT is going to rise from 17.5% to 20%. This is not good news for businesses as it means they will have to charge their customers more or take the fall themselves. Many people do not mind the increase as they know the country is in debt and they understand that they need to increase the level of income the government receives. But many people feel that this will mean people spend less and therefore less money is going into the economy.
The government receive money through Taxation, this can be tax from earnings, savings and other income, VAT from everything we buy and local councils receive money from residents paying council tax and money from the government. The government can use taxation to discourage various activities or to encourage others. For example the tax on tobacco is very high to discourage people from smoking. There is also talk in the news about increasing the tax on very unhealthy foods and to impose rules on pricing of alcohol. There are products that you do not need to pay VAT on, many foods like milk, eggs, bread and vegetables do not have VAT added on, and neither do children’s clothes.
Taxation. In England there are many different taxation policies that affect businesses. Here are some of the taxes that we have in England
Income Tax – This is tax on money that people earn, employer’s need to ensure that their staffs are earning enough and if income tax is high they may need to pay their staff more. There is also a national minimum wage that employers have to pay their staff.
Corporation Tax- this is the tax on businesses profits.
National Insurance – This is a tax that covers pensions, sickness and unemployment benefits.
VAT (value added tax) this is tax added on the cost of a lot of products and it means that businesses have to charge more for products to cover the cost of VAT.
Customs Duty – a tax on imports and exports of goods and services.
Tax credits and child benefit – this can affect businesses as it affects their staff. There are changes in child benefit, meaning some higher earning families may lose this, if some of Tesco’s employee’s earn above this amount, they may get a new job that pays less as they may work out better off. Tesco may lose employees or have to increase wages.
The government provides incentives such as grants to help new businesses and they also need to ensure businesses act fairly to allow other businesses to compete. The Competition Commission or the Restrictive Practices Court can investigate and take action against companies that appear to be abusing their position. The government can help businesses by changing laws and legislation to make it easier or harder for businesses. For example there are many grants and low interest loans from the councils and government to improve businesses and to help start-up businesses. This helps to encourage business and to help businesses to grow.
In the voluntary sector, the government may give grants and tax relief to help support them. There are also grants provided by the National Lottery Commission to help activities that benefit the wider community.
A grant is money that is given that does not have to be paid back. Although many start-up businesses can also get help with money that does need to be paid back within certain conditions with little or no interest, for example a Princes Trust Grant. The government can also help companies to employ an apprentice as it means a young untrained person will gain qualifications and training. The government sometimes give loans to businesses for specific reasons and there is usually a very low interest rate on these. These are all ways that the government can help encourage people to start-up their own business, and to help them grow and to encourage them to have a positive impact on the community.
Legal Factors
If companies do not abide by the law they may face fines and even directors may face imprisonment. Company law provides that businesses are set up and ran correctly, there may be paperwork that needs to filled in, and there may need to be reports on how accounts are presented. The most important piece of legislation is the Company Act that covers a range of important matters. Limited liability is a legal protection that limits how much a shareholder in a company can lose, should the company become bankrupt. There are also laws to prevent companies copying business names, slogans and branding.
Contract law sets out the rules when drawing up contracts. Contracts are usually set up to confirm agreements between a business and outside parties or employees. Contracts are set up between suppliers, consumers, sellers of land and buildings and when work is outsourced. Contracts are set up when a customer buys from a company, for example when you purchase something from Tesco’s you automatically are setting up a contract. This contract is covered by the Sale of Goods Act which says the product must be of satisfactory quality, fit for purpose, and as described. When buying a service you are entitled to expect that the service is carried out with reasonable care and skills, within a reasonable time and at a reasonable charge. There is also The Consumer Credit Act which covers credit agreements, including loans, credit cards, overdrafts, and store cards. Anyone giving out credit much be licensed and they must give information out about the total charge for credit, the APR (annual percentage rate) and the price at which the goods could be bought for cash. Other consumer protection laws which affect business activity include the Trades Description Act, the Weights and Measures Act and the General Product Safety Regulations.
Employees are also protected at work and employers need to update themselves continually on changes in legislation relating to employees to ensure they are not breaking the law. Employment law sets out how many hours’ staff can work, how much holiday and sick pay they are entitled to, and how many breaks they are entitled to. A member of staff usually receives a contract of employment when they start with the company.
In England you do not have to work more than 48 hours a week (on average, the average is worked out over 17 weeks) you can sign a form to voluntarily choose to work more than this. This can affect companies like Tesco because they have to be careful to stick to the employment laws, allowing enough breaks, making sure there are the correct facilities. Tesco may need to ensure they have enough members of staff so that staff are not working more than they should be and taking adequate breaks.
In China they also have employment laws; this can make it very difficult for staff to have their employment terminated. This can be difficult for employers as they may have staff that are not working as well as they should be but may not be able to terminate their employment. In England although there is a national minimum wages, companies can choose to pay people hourly or a salary, a set wage paid every week or month (although if it works out staff are not receiving minimum wage on average the salary must be increased) in china all staff are paid per hour and this means that all companies need to keep records of the hours staff have worked and calculate each member of staff’s wage. During a member of staff’s first year at a company they do not have to have any paid vacation, this is good for businesses as it means they do not have to pay staff when they are not at work, in England a company like Tesco’s have to pay statutory sick pay and a certain amount of holiday pay which costs them a lot of money as they may need to pay other staff to work while you are being paid when you’re not at work.
There are also laws governing how businesses can compete with each other, there are laws against restrictive business practices to reduce competition for example Tesco could not agree with Asda to set their prices. There are also laws to prevent businesses dominating a particular market. For example, when Safeway’s was sold to Morrison’s, Morrison’s had to sell some of their stores to other supermarkets as there are limits to how many stores they can have in any one area.
Tesco need to make sure they have a good understanding of the laws in the countries they operate in. They need to make sure that they abide by the laws, as there may be consequences. They also need to understand that not only are the laws different, the whole legal system may be different the consequences would also differ. For example in China there are 68 crimes that are punishable by death, including white collar crimes such as tax fraud, and anti-social crimes such as hooliganism and even gambling. Tesco need to ensure they understand how the laws work as they need to make sure they do not break the law. China also executes more people than the rest of the world put together.
In both England and China, Tesco needs to understand how laws affect them, for example the differences in the smoking laws. They may need to provide staff with designated smoking areas, they may need to enforce the laws by not allowing staff and customers to smoke in store otherwise they may risk fines.
With 320 million smokers, smoking is the closest thing China has to a national pastime. Lighting up in the Forbidden City, on a subway train or other very public places can risk a small fine, perhaps 60 cents to $1.20, but generally the 1996 ban on smoking in public places is ignored. Shanghai Municipality expanded smoking bans from hospitals to kindergartens, schools, libraries and stadiums, effective 1 March 2010, and had attempted to ban smoking in restaurants for the 2010 World Expo, but restaurants do not stick to the ban and it is not enforced.
Smoking became banned in indoor public places in England, including workplaces, bars, clubs and restaurants, from 1 July 2007. Some places, such as certain smoking hotel rooms, nursing homes, prisons, submarines, offshore oil rigs, and stages/television sets (if needed for the performance) are excluded. Palaces were also excluded, although members of the House of Commons and the House of Lords agreed to ban all smoking in the Palace of Westminster. The on-the-spot fine for smoking in a workplace is £50, £30 if one pays within 15 days, while a business that allows it can be fined £2,500 Smoking will be allowed to continue anywhere outdoors. However, a confidential government briefing obtained by The Independent on Sunday newspaper reveals that provisions are in place for extending the ban to outdoor areas
Social Factors
Society changes a lot over time, and there are big differences country to country and even in different regions of a country. The demographics, population, households and families, education, work attitudes, religions, attitudes to male and female roles and ethics play a part in how a society is structured.
The there is a high population there is a big demand for goods, services and jobs. In China there is a large population but due to rules set out with how many children can be born, in future years the population may decrease which will have an effect on the demand for goods and services.
In England the population is growing because people are living longer and the population of elderly people is growing. Tesco’s now employ more older people who have maybe had hard physical jobs in their career and would like to have a slower paced simpler job like serving customers or stacking shelves. This has helped Tesco’s because they can employ older people, who are hardworking and loyal, part time. Many older employees are harder working then maybe young people. But there may also be issues with health & safety as older people may sustain more serious injuries if they have an accident. It has also meant that Tesco’s have had to stock more products aimed at older people, and made sure that their online shopping websites and clear and precise so that older people are able to use the site.
In England when people become old and may struggle with health it is very normal for them to be put into a nursing home. This is not common practice in China. In China families look after the older generation. Due to growing population laws have been changed to limit families from having more than one child. This may mean when families grow older there may be pressures on them as there are fewer children to look after the older members of the family. This may affect Tesco’s because they need to understand how the family units work in this country and staff may need to take time off to care for family members. Tesco also need to consider how this affects the growth of their business and the type of products they need to stock, for example they would not be selling as many baby products as there is not as many babies being born.
Tesco need to consider the cultures, religions and traditions of the countries they have stores in. People may want to shop in different ways, buy different products and there are also different laws they need to abide by. There is not a religion in China, but a philosophy known as Buddhism or Taoism. There are many special days and holidays in their culture that they celebrate, Tesco need to be aware of these days because stores may be closed or possibly open but many staff may not want to work during these days. In the same way nearly all shops are closed on Christmas Day in the UK.
England is a traditionally a Christian country, although now it is a very diverse country. Because of this though, there are laws that prevent many large stores from opening on Sundays. Stores are only allowed to open for 6 hours a day on Sundays and this means stores like Tesco’s are only open from 10am to 4pm on Sundays. Tesco need to research the countries they operate in to see how religions and culture may affect their opening hours and the availability of staff.
Different countries also have different work attitudes, for example in Britain we have a ‘long hours culture’ compared to many other European countries such as France and Italy, however hours worked in Britain are lower than in many South East Asian countries.
A company like Tesco’s whether they are in the UK or in China need to understand cultures traditions and society in the area they are working in. This helps them to plan store layouts, stock and many other factors in running a successful business. Companies even need to look within the local area’s they operate in and not just the country. For example some parts of England Tesco sell more kosher and halal food, and therefore need to stock more of these products, and in some areas they may not sell any halal or kosher foods, this is because the demographics of certain areas differ from region to region.
Tesco’s need to keep themselves up to date with the ways in which society changes, this will help them to grow and keep with the changes. For example 60 years ago the yogurt market did not exist and yogurt was only found in health food shops. In 1963 the Swiss company Ski launched in the UK and revolutionised the yogurt, many other companies then followed them and now yogurts are a big business with 7 out of 10 people regularly eating yogurts. They managed to see the changes in society, for example when healthy eating and low fat foods were a concern for everyone the yogurt industry managed to produce lower fat healthier yogurts for the consumers. Tesco need to ensure that they can spot the changes in the way we think and the way we live and make sure that they are able to make changes to accommodate their customers.
Task 7 Explain the points of view of different stakeholders seeking to influence the aims and objectives of two contrasting organisations
Culture Café
Customers at Culture Café are mainly seeking to find well priced tea, cake and sandwiches in a community area. Many groups in the local communities use Culture Café’s for meeting up, groups can include craft groups, mum and tots groups and over 50’s groups. They expect to be able to have good quality drinks and snacks that are priced low and to be provided with a comfortable place to meet with friends. Customers expect good customer service and food to be prepared quickly. Unlike customers who would be going into places like Starbucks, they are not expecting a very plush expensive setting, but a comfortable but basic location.
Culture Café have customers who come into the sites and purchase food and drinks, but they also have clients. Their clients are the people they work with in running sites. For example they run the library café, and the client is the library. They need to ensure they provide the service that the library expects from them and the library also want Culture Café to do well to encourage a long relationship. It would be difficult for the library if Culture Café wanted to end the contract as they would need to find another company to take over the contract and this would be timely and expensive.
Culture café is a very community minded company that works to help make improvements and provide a service to the local community. They welcome feedback from customers and people in the local community. Customers would be hoping to involve more local groups in the business and to improve the quality and lower the prices and improve on customer service. Customers usually expect this from any business. More specifically to Culture Café customers expect that are making a difference in the local community. Local community projects usually end up with political factors being involved, for example many people may feel that they want more help in areas such as youth work and many other people may feel that more help is needed with elderly people. This can mean that a lot is expected from the company and they have to decide where they can best help, this may mean that some stakeholders are unhappy and this could affect business sales. Most of the customers who visit Culture Café are unaware of the aims and objectives of the company and are just looking for a well-priced place to have a drink or a snack. One of the aims of Culture Café is to become better well known in the local area and to continue to help groups in the local community.
Culture café is a small business that is still relatively new and trying to grow their business. Most of their suppliers are big companies and do not necessarily have a relationship with the business. This means they are unlikely to want to help them, for example giving discounts, and coming to compromises on things like minimum orders and deliveries. Some of their suppliers who run smaller companies are more invested in how well the company does as it may mean bigger orders for them in the future. This means they are likely to be more helpful in arranging deliveries and giving discounts.
The owner of Culture Café wants the business to succeed and to have a positive impact on the local community; he is not interested in making huge profits but aims to increase profit to pay himself a good wage and to help the local area. The Operations Director is mainly there for advising and offering support to the business, his aims are for the company to do well and to be able to take the role on full time in the future when the business has grown.
Marks and Spencer’s
Mark and Spencer’s customers are concerned with the quality of the products they buy and how they have been sourced. Most of the customers who shop in M&S are willing to pay extra to know the quality is good and the products have been sourced in a fairer way, for example they stock many products that are fair trade, free range and they do not allow their products to be made by companies abroad that would use child labour. This means that M&S have to work hard to ensure they meet the demands of their customers. Customers still expect a fair price from M&S, and if they increased their prices they may lose out on a lot of sales from customers who can no longer afford to buy the more luxurious products from them. Customers at M&S have affected the way they do business and affected the company’s aims and objectives. There has been a big increase over the last couple of decades over how food products are sourced and customers are becoming more and more aware of how environmentally friendly and ethical they are. Many of M&S’s customers are concerned with these issues, more than say customers at Asda’s. This meant that when people started to take an interest in how their food was sourced, M&S would risk losing a lot of custom if they did not make changes to the way they run their business and their aims and objectives. This meant they worked hard to provide their customers with the quality and ethos they wanted.
This also affected their suppliers as they may have had to change a lot of their suppliers to more ethical ones. In 2001 M&S stopped selling eggs from caged hens, they now only sell free range eggs, suppliers may have had to change the eggs they sell to keep M&S as a customer or lose out on one of their big customers, which may have had a huge impact on their profits. M&S is a big company and many suppliers may rely on them for business, this means they are likely to work by the conditions set out by M&S in order to keep them happy, as opposed to making M&S work to their conditions.
M&S shareholders and owners are mainly driven by profit; this means they need to keep customers happy to encourage them to continue shopping there. They need to ensure they are able to sell quality ethical products at a reasonable price and still make profit. Most companies work to appear to be a caring ethical company that puts its customers and other stakeholders before profits, but in reality they are looking to make a profit. Even a charity is mainly aiming to create a surplus to help their cause, and will work in a way that means they can create the maximum surplus possible. This is what the shareholders are interested in, and will work to keep their customers happy and to keep returning to their stores. This means that they create aims and objectives with the customers view in mind.
Task 8 Compare the challenges to selected business activities within a selected organisation, in two contrasting economic environments.
Marks and Spenser’s is a company with a strong brand that represents quality and tries to work ethically. Many of their products are more expensive but most of their customer’s feel that is the extra cost are worth it for the quality of their products, whether their products are food items or clothing.
When the economy is good, many people have more spare money to spend and are happy to spend extra on the quality. Marks and Spenser’s can do really well in these times and they need to focus on meeting the demands of their customers and growing their business. Some of the challenges they may face in a growing economy is ensuring they have enough staff, enough stock and are able to make the most of this period by growing their business. During this time many companies are growing and need more staff, this may mean there may be staff shortages as there are lots of jobs and many people are paying staff well. So M&S may find it slightly harder to ensure they have enough staff especially during busier periods such as weekends and in the run up to Christmas. M&S opened a Simply Food store in Knightswood which created around 70 jobs in the local area.
During a recession it may be very difficult for a company like M&S to survive. Many people are struggling financially and may have to give up a lot of their luxury items. A company like Tesco’s or Aldi’s can do well in these times, and many customers who previously shopped in places like M&S now switch to places like Tesco’s. This can mean a company like M&S is focusing on surviving through the recession as opposed to trying to grow the business.
M&S need to cut their running costs down to improve their profits as their sales turnover will have fallen. At the beginning of 2009 M&S had to close down 27 stores, meaning a loss of 1230 jobs. This was due to their sales being down 7.1% in the run up to Christmas.
M&S also lowered many of their prices to encourage customers to continue to shop in there. They are also not raising their prices with the VAT rise in January 2011. This is because they understand that many of their customers may not be able to afford to continue shopping there if the prices rose and they decided they would be better off to take the loss themselves as opposed to losing many of their customers.
M&S has also introduced electronic tagging and, prompted by increased levels of shoplifting in the recession, is now electronically protecting products in 50 of its branches. An M&S spokesman said ‘Sadly, like many other retailers, we have seen an increase in the theft of some high-value products.’ Shoplifting has increased during the recession and this is because many people are financially struggling and this has made many people more likely to steal or buy stolen goods.
Companies have to work harder to attract customers during the recession. Customers do not want to part with their money as much as they did before so companies need to work harder with promotions and advertising to encourage customers to part with their money.
When the economy is booming M&S can focus their advertising on the luxury of their products and encourage potential customers to indulge themselves. This type of advertising would not work when the economy is bad because many people do not have spare money for luxuries and are trying to reduce their outgoings. This means that M&S need to change the way that they market their business, they need to show that they still have the same quality they always had, but it’s more affordable and more necessary for customers to purchase their products.
At the moment the economy isn’t very good but it is getting better, M&S have closed many stores down in the last few years. They choose stores that are not performing as well as others but they are now opening new stores and expanding into different areas. This is because they can see the economy is getting better and they are making the most of the current situation, for example interest rates are still low and this would be beneficial to them if they need to take out loans or mortgages to help them to grow the business. M&S have opened their first store in Egypt in 2010 and in 2009 they opened their first store in 8 years in Spain. M&S found it difficult through the recession but now feel more confident about the success of their business and are working on expanding and growing the business.
Task 9. Analyse how political, legal and social factors have impacted on the two contrasting organisations.
Tesco’s in China and in the UK.
Tesco is a UK based company that has expanded into other countries, including China. As a UK based company they understand the politics, legal system and society in the UK and this enables them to work so well here. Expanding their business into other countries can be very difficult and one of the factors is the differences sometimes major differences in the way society works in other countries. This means that Tesco stores in the UK are very different to the stores abroad which are often branded and named for each territory.
There may be many changes within each country. For example in the UK and in a lot of the world we are in a recession and many people are losing their homes, jobs and struggling financially; however in Malaysia the economy is booming and growing at a fast rate. Factors like this can affect Tesco, it may mean they need different strategies for different countries and deal with the different issues these environments can cause. It can also be very good for a company like Tesco because it means there overall sales turnovers will not be too badly affected as not all countries will be struggling at the same time. When the recession hit in the UK Tesco’s had to produce more value products and they increased their promotions and offers to encourage customers into the store. They also launched new discount brands such as Oakland and Spring Force. When the economy is booming Tesco need to look at how they can expand and grow their company.
China is one of the world’s oldest civilisations and prior to the 19th century it possessed one of the most advanced societies and economies in the world, but through successive dynasties it then missed the industrial revolution and began to decline In the 19th and 20th century, imperialism, internal weakness and civil wars damaged the country and its economy, and led to the overthrow of imperial rule.
In the 1950’s changes in economic policies transformed the country to a technological, industrialised developed economy and started to grow rapidly. China has a complicated political system. China is still considered a communist country although there have been big changes since the 1970’s. They have become more market-orientated. A company like Tesco may find it hard to navigate themselves when operating in a country like China, it may be difficult for them to be respected and to understand the laws and politics and for them to know how they need to make changes in the way they run their company. Many UK companies expanding abroad will seek to overcome this by creating joint ventures with smaller companies in their target territory or by a simple takeover of an existing company with potential to expand.
Currently in the news there are issues concerning the Noble Prize being awarded to an imprisoned Chinese dissident Liu Xiaobo. Chinese officials have advised the award ceremony to be boycotted and anyone who attends is seen to be going against them. Serbia's initial announcement that it would avoid the ceremony drew sharp criticism from officials in the EU, which the country aspires to join. This can make it very difficult in business because companies that buy from China and operate in China do not want to upset Chinese officials as this could make it difficult for them, but they also do not want their customers in the UK to think that they agree with the Chinese announcements. Many customers may not want to shop in the stores in China if they feel they are going against them. Many people in China feel this is a ‘slap in the face’ and are very unhappy about the situation. It is widely reported that in many of the developing trade nations there is a higher amount of corruption amongst its officials and companies with a strong reputation for ethics may struggle to fit in either with such a regime or fit in around it.
Tesco also need to think about how they would be viewed by customers in the UK if they did not give staff in other countries the same benefits they have in this country. For example in China they do not have to pay staff holiday for the first year they are employed, but the people in the UK would see this are unfair treatment and may not be happy with how they treat their staff abroad. This may affect their sales in the UK and may attract attention from pressure groups. Tesco need to ensure that their employees are looked after and the standards are as high as they would be in the UK to avoid criticism, even if this means they are working above what is required of them.
Task 10 Evaluate the influence different stakeholders exert in one organisation.
Marks & Spenser’s
Customers have a big influence on how the company runs. This is because if they lose customers they will have to shut down as a company as they would not be getting enough sales. M&S is known as a more ethical high quality supermarket, although companies like Tesco’s and Asda try to be more ethical, M&S know that it is very important to them that they make this a high priority. Although many people are concerned with the ethics from where the products they buy come from, and how they are sourced, many people within the higher income bracket are generally more concerned about these issues. As many people within the higher income bracket are regular customers of M&S it is important that M&S meet the demands of their customers and make a big effort to change how they run their business. For example M&S no longer sell any eggs from caged hens and do not work with any companies that may be involved with child labour, for example for manufacturing clothes. M&S also understand that many of their customers are willing to spend extra on free range eggs and organic meat, whereas Tesco have many customers who would not be able to spend more for these items and therefore they need to offer a range of these products to meet the demands of customers.
Shareholders are concerned by profits; they encourage the company to make decisions based on what will create the most amount of profit. This may mean that they wish to make the customers happy by meeting their demands to encourage them to spend more, but sometimes the choices they want the company to make, may not make all the customers happy. Shareholders exert a lot of influence into how the company runs because companies want those buying shares in the company, and do not want share prices to fall. If M&S was not making profits and acting against the wishes of shareholders many may wish to sell their shares and people may not want to buy shares in M&S. Shareholders can elect the directors who run the company and the directors who are making decisions want to keep them happy so they can keep their jobs. If a lot of shareholders wanted to sell their shares the share price would fall.
Suppliers generally do not exert much influence over a company like M&S as they would find it easy to switch to another supplier if there was a problem. M&S may not need to meet supplier’s demands, as having M&S as a customer would bring in a lot of revenue for most suppliers. For many companies that supply to M&S, they need to work hard to keep them happy and M&S would have a big influence on how they run their business as they would not want to lose the custom. There would be many different companies that supply M&S. Although in most cases M&S would probably find it easy to find replacement suppliers for these companies, there may times when this is not the case. For example M&S only sell free range eggs in there stores, it may be difficult to find a supplier that is able to cope with the level of demand that they require. When this happens M&S need to treat the suppliers well and create a good relationship so they do not risk losing the company as a supplier. This may affect how they choose to run their business. For example in Tesco’s, they had an agreement with a farmer to supply potatoes for them, at the last minute Tesco backed out of the deal as they had found a cheaper supplier, leaving a farmer with a lot of stock and no one to buy it. Tesco were able to do this because the supplier was relying on their business and Tesco did not mind losing him as a supplier. M&S may not be able to do this, because they are seen as an ethical company and this would not bode well with customers and pressure groups. M&S may also not be able to do this with some suppliers who they rely on, such as free range egg suppliers. M&S need to think more carefully about their suppliers then for example Tesco’s, as they need to ensure that the quality and ethics are at a high standard. Shareholders may be more concerned with profits than ethics and feel that M&S should find cheaper suppliers and not be as concerned over the relationships they have built with suppliers.
Ultimately most companies are influenced by the customers more than anyone else as it’s the customers that keep them in business. Having good relationships with other people they are involved with, for example suppliers helps them to run the company smoothly. Companies need to ensure that they have thought about how their actions affect their stakeholders in different ways, and used that knowledge and information to make the best decision for the business. Sometimes the best decision doesn’t always generate the most amount of profit, for example it would reduce costs to use child labour therefore increasing profits, but as many different stakeholders would be unhappy with this decision it is not best for business.
In theory customers are looking for quality items at a good price, and shareholders are looking to make as much profit as possible. This means that they should have different views of how the company should run and their demands would differ. However many shareholders should see that in order to make profit they need to keep their customers happy. A lot of the time stakeholder’s in the company wants the company to do well, so they all share a common interest. For example shareholders, employees, suppliers, owners, customers and local authorities all gain if the company does well. There may however be decisions that need to be made that different stakeholders disagree with, for example changing suppliers. Customers may be concerned that the quality is not as good and existing suppliers would lose business, but shareholders and owners may be happy as the supplier may be cheaper than previous ones. Issues like this may make M&S wary of using a new supplier.
Task 11. Evaluate how future changes in economic, political, legal and social factors, may impact on the strategy of a specified organisation.
In the UK Tesco need to understand how the politics in the country affects them. For example before the election Labour were in government and believed in growing the economy and spending money. This was good for Tesco’s as growth was encouraged and there was a lot of help for businesses. After the election we now have a coalition government with Conservatives and Liberal Democrat’s. There have been many changes in government and they are trying to bring the country out of debt by making cuts and watching spending. Although they still encourage growth, they are aware of the boom and bust cycle and want to help prevent this by encouraging the economy to stay stable. This may mean that as the economy grows the government may try to slow reckless growth down; this could be by managing interest rates and discouraging banks from making irresponsible loans. As Tesco works in banking and insurance as well as groceries this may make it harder for them to grow this side of the business, and if lending is still quite difficult many people may not have enough money for buying luxury items and spending a lot of money.
Although there are many predictions on what will happen in the economy, for example interest rates, growth, spending habits, house prices etc., they are not always accurate. The recession in 2007 was not predicted, many people, including government banks and other officials had said it would not happen, and that the boom and bust cycle was over. Companies can still plan for changes in the economy, and have a contingency plan for when predictions are incorrect. It is important in business to plan for the unexpected as there are many problems they could face if they do not do this. If a business is able to cope well in any environment they are able to adapt and change where needed. I believe there is a still a boom and bust cycle and companies need to plan for both the recessions and the periods of high growth and take advantage of both economies.
There are a lot of changes that happen in politics and the law, on a local, national and international level. Companies need to make sure they keep up to date on politics to see how it may affect them. Changes in government, policy and law can all effect on how they run. For example when the laws changed regarding smoking, Tesco’s had to ensure the rules were enforced in their stores and offices and they had to provide smoking areas for staff. If Tesco can keep up to date with changes in politics and laws they will be able to plan and prepare for any changes that may affect them.
Society generally evolves and adapts as opposed to sudden changes that Tesco would need to deal with. But they still need to be aware of the changes that are happening to ensure they keep themselves up to date. In the UK we are choosing convenience more and more and in the future there may be many new ideas and products that help consumers and Tesco need to be aware of these changes to ensure they are stocking the right products and initiating new methods to help improve their service.
With a wide range of people moving into the UK from abroad this can have a big influence on society. In some areas where there are a high proportion of people from one area it affects what products are sold in stores nearby. For example in Luton there are many halal products stocked, in areas in London there are a lot of kosher products sold and in Milton Keynes there is a lot of polish food in Tesco stores. If another country joins the EU and therefore has the right to move to the UK freely, there may be another influx of people moving into the UK and this may affect the types of products that are being sold in that area.
There are currently laws that help companies to compete fairly, and to prevent some companies from making it too difficult for other companies to compete. For example there are restrictions on how many Tesco supermarkets there can be in one area. There is also talk that the government are still concerned with how much Tesco’s are growing and plan to restrict their growth in the UK. If plans are made to discourage Tesco’s from growing further than they may wish to grow their business outside of the UK and focus more on expanding into new countries and growing in the countries they currently operate in. Tesco’s currently rely on the UK market as this is their main source of income; this could help Tesco’s to make profits from abroad.
BTEC Business Level 3 Book 1 Pages 9-11
http://www.beds.ac.uk/knowledgehub/innovation/businessgrowthplan/bgpcasestudies/vendesent
http://www.tescoplc.com/plc/about_us/strategy
http://www.tescoplc.com/plc/about_us/strategy/international/
http://www.tesco.com/recruitment/html/careers/compInfo/values.htm
http://idlepenpusher.blogspot.com/2009/01/causes-of-credit-crunch-recession.html
http://financial-dictionary.thefreedictionary.com/Mature+Economy
BTEC Business Level 3 Book 1 Page 27
BTEC Business Level 3 book 1 Page 32
http://www.dailymail.co.uk/news/article-1107564/Not-M-S-safe-recession-forces-closure-27-stores.html
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