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Business

environment

Lecture 01

Business
environment

Lecture 01

Aim of the unit


The aim of this unit is to provide learners
with an understanding of different
organizations, the influence of
stakeholders and the relationship between
businesses and the local, national and
global environments.

Unit abstract
Organizations have a variety of purposes
that depend on why they were established.
Some operate for profit, whilst others do
not. Organizations structure themselves
and operate in ways that allow their
objectives to be met. Every organization
has a range of stakeholders whose
interests need to be satisfied, but
stakeholders have competing interests that
may be hard to reconcile.

Unit abstract
Businesses operate in an environment
shaped by the government, competitors,
consumers, suppliers, and international
factors. Learners will understand that some
influences on the business environment are
direct and clear, for example taxation policies
on corporate activities. Other influences are
less clear, perhaps coming from the
international arena and sometimes with
only an slanting impact on the national
business environment.

Unit abstract
It is within this business environment that
organizations function and have to determine
strategies and a modus operandi(a particular way or
method of doing something.) that allow them to
meet their organizational purposes in ways that
comply with the relevant legal and regulatory
frameworks. In addition, business markets take
various forms and the structure of a market enables
an understanding of how organizations behave. In
this unit learners will consider how different market
structures shape the pricing and output decisions of
businesses, as well as other aspects of their
behaviour.

1Understand the organizational purposes of


businesses

Categories of organization: legal structure;


type eg private company, public company,
government, voluntary organization, cooperative, charitable; sector(primary,
secondary tertiary) Purposes: mission; vision;
aims; objectives; goals; values; profits;
market share; growth; return on capital
employed (ROCE); sales; service level;
customer satisfaction; corporate
responsibility; ethical issues

1Understand the organizational purposes of


businesses

Stakeholders: owners; customers; suppliers;


employees; debtors; creditors; financial
institutions (banks, mortgage lenders, credit
factors); environmental groups; government
agencies (central government, local
authorities); trade unions

1Understand the organizational purposes of


businesses

Responsibilities of organizations: stakeholder


interests; conflict of expectations; powerinfluence matrix; satisfying stakeholder
objectives; legal responsibilities eg consumer
legislation, employee legislation, equal
opportunities and anti-discriminatory
legislation, environmental legislation, health
and safety legislation; ethical issues eg
environment, fair trade, global warming,
contract compliance eg Banking Code

2.Understand the nature of the national


environment in which businesses operate

Economic systems: the allocation of rare


resources; effective use of resources; type of
economic system eg command, free
enterprise, mixed, transitional

2.Understand the nature of the national


environment in which businesses operate

The UK economy: size (gross domestic


product, gross national product); structure;
population; labour force; growth; inflation;
balance of payments; balance of trade;
exchange rates; trading partners; public
finances (revenues, expenditure); taxation;
government borrowing; business behaviour
eg investment, objectives, risk awareness;
cost of capital; consumer behaviour;
tendency to save; propensity to spend; tastes
and preferences

2.Understand the nature of the national


environment in which businesses operate
Government policy: economic goals; fiscal policy: control
of aggregate demand; central and local government
spending; Public Sector Net Borrowing (PSNB) and
Public Sector Net Cash Requirement (PSNCR); euro
convergence criteria, monetary policy; interest rates;
quantitative easing; private finance initiative (PFI);
competition policy (up-to-date legislation including
Competition Act 1998, Enterprise Act 2002); Competition
Commission, Office of Fair Trading; Directorate General
for Competition); European Commission); sector
regulators eg Of gem, Ofwat, Civil Aviation Authority;
Companies Acts; regional policy; industrial policy;
enterprise strategy; training and skills policy

3Understand the behaviour of organizations in


their market environment
Market types: perfect competition, monopoly,
monopolistic competition, oligopoly, duopoly;
competitive advantage, strategies adopted by firms;
regulation of competition

3Understand the behaviour of organizations in


their market environment
Market forces and organizational responses: supply and
demand, elasticity of demand; elasticity of supply;
customer perceptions and actions, pricing decisions;
cost and output decisions; economies of scale, the short
run; the long run, multi-national and transnational
corporations; joint ventures, outsourcing; core markets;
labour market trends; employee skills, technology;
innovation; research and development; core
competencies; business environment (political,
economic, social, technical, legal, environmental);
cultural environment

4Be able to assess the significance of the global factors


that shape national business activities

Global factors: international trade and the UK economy; market


opportunities; global growth; protectionism; World Trade Organization
(WTO); emerging markets (BRIC economies Brazil, Russia, India,
China); EU membership; EU business regulations and their incorporation
in to UK law; EU policies eg agriculture (CAP), business, competition,
growth, employment, education, economics and finance, employment,
environment, science and technology, regional); labour movement;
workforce skills; exchange rates; trading blocs (eg monetary
unions, common markets; customs unions, free trade areas); labour
costs; trade duties; levies; tariffs; customs dues; taxation regimes;
international competitiveness; international business environment
(political, economic, social, technical, legal, environmental); investment
incentives; cost of capital; commodity prices; intellectual property;
climate change eg Kyoto Protocol, Rio Earth Summit; third world poverty;
the group of 20 (G-20); global financial
stability

What is organization
An organization is a social arrangement
which pursues collective goals, which
controls its own performance and which
has a boundary separating it from its
environment.

CATEGORIES OF ORGANISATION

A business is always owned by someone.


This can just be one person, or thousands.
So a business can have a number of different
types of ownership depending on the aims
and objectives of the owners.

CATEGORIES OF ORGANISATION

Most businesses aim to make profit for their


owners. Profits may not be the major
objective, but in order to survive a business
will need make a profit in the long term.
Some organizations however will be not-forprofit, such as charities or government-run
corporations.

LEGAL STRUCTURE FOR A NEW BUSINESS

Creating a new business is an exciting


undertaking for any personal financial
advisor. One of the first tasks that is needed
to address this is to determine the best legal
structure for the new business. Selecting the
appropriate business structure will help
determine the best way to treat income and
assets.

LEGAL STRUCTURE FOR A NEW BUSINESS

Choosing an inappropriate business structure


could result in personal risk for the
company's losses and subject the
organization to unnecessary taxes.

MAJOR TYPES OF COMPANIES

Privately owned companies do not sell their


company securities to the public, and are
owned within a set amount of individuals
privately. The majority of these ownerships
are held by families, including Appliance
Traders Ltd., National Baking Company Ltd.,
and Shoppers Fair Supermarket.

MAJOR TYPES OF COMPANIES

Publicly owned companies are those that


trade their securities publicly, so anyone can
buy stock in the company, as a way to
finance the business. Examples of these
are :- National Commercial Bank
Ltd,Seprod Ltd. and Jamaica Money Market
Brokers Ltd.

GOVERNMENT

The part of the economy concerned


with providing basic government services. The
composition of the public sector varies by country,
but in most countries the public sector includes
such services as the police, military, public roads,
public transit, primary education and healthcare for
the poor. The public sector might provide services
that non-payer cannot be excluded from (such as
street lighting), services which benefit all of society
rather than just the individual who uses the service
(such as public education), and services that
encourage equal opportunity.

Use public sector in a sentence

Companies within the public sector can be


one of two types - either funded directly by
the government or publicly owned where a
majority of the company's shares are owned
by the government.

VOLUNTARY ORGANISATION

A voluntary association is a group or


organization that people may join or leave
freely, that is free of external control, and
whose purpose, goals, and methods are up
to the members to determine. Sociologically,
voluntary associations are often seen as vital
to the functioning of equality, specially by
providing a way for individuals to become
involved in public life beyond the privacy of
home and family

CO-OPERATIVE

In many ways a cooperative is like any other


business; but in several important ways it's
unique and different. A cooperative business
belongs to the people who use it
people who have organized to provide
themselves with the goods and services they
need.

CO-OPERATIVE

These member-owners share equally in the


control of their cooperative. They meet at
regular intervals, hear detailed reports, and
elect directors from among themselves. The
directors, in turn, hire management to handle
the day-to-day affairs of the cooperative in a
way that services the members' interests.

CO-OPERATIVE

Members invest in shares in the business to


provide capital for a strong and efficient
operation. All net savings (profits)
left after bills are paid and money is set aside
for operations and improvements, are
returned to co-op members

CHARITABLE

Charitable organizations are a kind of business


that fits within the nonprofit organization (NPO)
category. In general, this type of entity is
sometimes referred to as a charity or foundation,
which can be run publicly or privately. Some
charities may be centered around religious,
educational or other public interest activities that
are charitable in nature. Depending upon the
location of the charity, the legal definition of
what constitutes a charitable organization may
vary according to its country of origin.

SECTORS OF THE ECONOMY

Producers create goods and services to satisfy


consumers needs and wants. Producers can be
grouped into different sectors of the economy
according to whether they are involved with
the extraction of raw materials
(primary), transforming raw materials into semifinished goods or finished goods (secondary) or
the provision of services(tertiary). Each sector is
interdependent

SECTORS OF THE ECONOMY

PRIMARY SECTOR: The primary sector of the


economy can be classified as the "extractive"
industry. These include the industries that produce
or extract raw materials. Farmers are an example
of primary
sector workers, as food items are collected as raw
materials, such as wheat and milk, are taken from
the farm and made into other products such as
bread and cheese. Other industries include the
mining industries, such as coal, iron ore or oil,
which extract the raw materials from the ground
that will be converted into other useful items.

SECTORS OF THE ECONOMY

SECONDARY SECTOR:
The secondary sector of the economy is comprised
of the manufacturing industries. The manufacturing
industries take raw materials and produce products.
For example, the steel can be used to manufacture
cars. Carpenters take wood and make homes,
furniture. Not all manufacturing companies
manufacture a complete product. Semimanufacturing companies produce parts to be used
in other products that have several stages of
production, such as automobiles.

SECTORS OF THE ECONOMY

TERTIARY SECTOR
The tertiary sector involves the supplying of
services to consumers and businesses. This
sector
provides services to the general population and
business, including retail, sales, transportation
and restaurants. The types of workers in this
sector include restaurant bartenders,
accountants and pilots..