Introduction to Business Environment
Business environment is composed of two words ‘Business’ and ‘Environment’. In economic sense ‘Business’ means human activities like production, purchase or extraction or sales of products or services that are performed to earn money. Meanwhile ‘Environment’ means the aspect of surroundings. Business environment is the set of conditions institutional, political, economical, legal or social that is uncontrollable and affects the functions of the organization. Business environment consists of two components: external environment and internal environment. Internal environment includes of 5 M’s like management, money, machinery, material and man. On the other hand, External environment consists of demo-graphical factors, socio-cultural factors, political factors, geo-physical factors, government and legal factors.
Executive Summary
The assignment is organized with four parts: Introduction, executive summary, assignment and conclusion. Introduction is the brief of this assignment. Executive summary is to explain the detail of the contents. In this assignment, business environment is what we have learned by doing this assignment. Now, we can discuss the environment of business what kinds of things and what are the importance. Assignment
Task1 Understand the organizational purpose of business 1.1 Identify the purpose of different types of organization

An organization is an arrangement of people, pursing common goals, achieving results and standards of performance.
There are many different types of organizations that are set up to serve a number to different purposes and to meet a variety of needs. They come in all forms, shapes and sizes. All businesses try to achieve their objectives, are accountable to stakeholders, need to be managed, have to meet legal requirements and have a formal structure.

Any business involves people and resources to do of two things. These are: a. To make (produce) items or goods to be sold: e.g. shirt factory, shoe factory, furniture maker, jeans factory, computer manufacture, boat builder and dairy farmer; b. To provide services to be sold: e.g. banks, building societies, dentists, police, hospitals and insurance companies.
All organizations are affected by the environment (both nationally and internationally) and by the government of the day. They react and interact to each other and to professional bodies such as those of accountants and solicitors.
Thus the nature and types of organization will be constantly changing and developing in reaction to environmental changes; a business that starts as a sole trader may develop into a partnership, then a limited company, then become part of a group of companies, then be taken into state ownership and then, following a change of government, be privatized and returned to the status of a company.
Sole traders
Sole traders are single individuals carrying on a business on their own. Such businesses are usually small, although large ones with some managerial delegation do exist. The sole trader earns the profit or covers the losses of his or her venture.
The mission of a sole trader is to provide a service for a client and charge for that service. As with definition, a sole trader is usually a person who works under the listing of a business they legally own, control and 'provide' for - they pay their own gains tax (No matter how much), and own, and are the company as its registered. This can also be known as self employed. They are, however, responsible for any debts which may happen, and cannot rely on the financial protection of being employed.
Partnership
A partnership is two or more persons associated for the purpose of a business or profession. It is one stage beyond the sole trader and often arises from the need to introduce more capital or to combine skills. Like a sole trader, the partners exert considerable influence over the business and are fully liable to outside parties in the event of financial failure.
Partnership missions provide opportunities to live out God’s call for fellowship with new friends down the street and around the world. It is an investment in our partners, ourselves and the church sending us as we explore how God is at work through our partners.

There are multiple ways to experience partnership missions: * Choose a project * Join another team * Explore a relationship with a people group
Companies
Companies or corporations are distinct artificial ‘persons’ created in order to separate legal responsibility for the affairs of a business from the personal affairs of the individuals who own or operate it. Since a company exists only to establish legal responsibilities, it can only be created, operated and dissolved in accordance with the legal rules governing it (e.g. the Companies Acts in the UK).
Consequently, the business debts and liabilities are those of the company and not those of its members (shareholders). In other words, if the assets owned by the business are not sufficient to pay off the debts incurred by the business, the owners cannot be compelled to make up the deficit from their private resources. The point is that the business debts are not the owners’ responsibility. They ‘belong’ to the company, which is regarded as a separate person in its own right.
The Companies Acts distinguish between: a. Public limited companies that are traded on an official stock market. (Such companies must include the letters ‘plc’ in their names.) b. Private limited companies (which must include ‘Ltd’ or ‘Limited’ in their title) and whose shares are only transferable by direct contact and purchase from the shareholders (e.g. members of a family).
Public limited companies tend to be owned by a wide range of investors, whereas a private limited company, with no natural trading place for its shares, tends to be owned by a small number of shareholders.
Naturally the benefits of limited liability encourage companies to register as ‘limited’ or ‘plc’. This protection attracts investors, secure in the knowledge that they will not be called upon to provide further capital to meet company debts, Limited liability can only exist where the company is a separate legal entity and it is these two fundamentals-limited liability and separate legal entity that distinguish companies from other forms of organization.
Certain organizations may be limited by guarantee like a university or professional institute, or, rarely, a company may be unlimited, which does not give its members the protection of limited liability.

Size
The concept of size is problematic. It can be viewed in terms of: a. Numbers employed b. Volume of output c. Volume of sales d. Assets employed e. Profits earned f. Net worth in real terms.
There are both similarities and differences between large, medium and small businesses.
Small businesses – are usually owned and run by one person (a sole trader) or by a few people (partnership) and tend to sell their goods or services locally e.g. a plumber, a bicycle repair shop. They normally employ less than 50 people. Businesses of this type can include: * small/medium-sized shops * computer trainers * solicitors and accountants
Medium-sized businesses – normally employ between 50 and 250 people and operate either at local or national level. Examples include: * manufacturers, e.g. clothing, furniture, household goods * theatres * insurance companies
Large businesses – normally have factories/offices and outlets in more than one city and often in more than one country. Typical examples of large businesses include: * car manufacturers, e.g. Ford, Nissan * retail food outlets, e.g. Tesco * oil companies, e.g. Esso, BP
Most national businesses have household names, are easily recognized by their logos, are large in size, i.e. employ a workforce of more than 250 people and have branches /factories in major towns/cities. Well-known national businesses include Royal Mail, Boots the chemist, Topshop, HMV and Specsavers.
Multinational businesses sell goods or provide services worldwide and operate in more than one country. Some well known multinationals include Ford, McDonalds, Shell and Esso.

Level of activity – the primary, secondary and tertiary sectors
The type of activity which individual businesses are involved in varies depending upon their product. There are three levels of economic activity: 1. The primary sector – this sector is industry consists of industries that produce raw materials, such as crops and minerals. Examples of this type of business activity would include oil extraction, wood felling or a coal mining company. 2. The secondary sector – this sector of industry consists of industries that use the raw material produced by the primary sector. For example, processing oil to produce petrol, chemicals, gas etc. Firms taking part in secondary production are either involved in manufacturing or in construction. They manufacture the finished article or parts for further assembly and manufacture. They construct building such as houses and shops as well as building roads etc. 3. The tertiary sector – this sector of industry consists of distribution and service industries. They are involved in passing the goods from the producer to the consumer. Services include activities as diverse as banking, tourism, hairdressing, teaching, office cleaning, tax advice and the media. Tertiary industries involve passing the goods from the producer to the consumer.
All these activities can involve public or private sector organizations.
Private sector organizations are usually set up for personal gain and are funded by shares issued, loans from banks, overdrafts etc.
Public sector organizations are usually set up in the interests of the community and are funded wholly or partly by the government from public funds and are answerable to a government department or the Treasury.
Co-operative
A co-operative is the result of a voluntary linking together of consumers, producers or retailers into a trading organization, which is then used to represent its constituent members in the marketplace.
Co-operative do not fall into conventional private or public enterprise categories and are not nationalized or state-owned. They are not legally constituted as private or public limited companies.

Voluntary organizations
Voluntary organizations can be described as non-profit driven, non-statutory, autonomous and run by individuals who do not get paid for running the organization.
The ‘Social Economy’ or ‘Third Sector’ is other terms used to refer to the voluntary sector. Voluntary organizations include large international charities, small community groups, arte and trade organizations, professional bodies and charitable trusts.

Charities
The term charity or charity sector officially came into use in the 1600s when the first Act of Parliament was introduced to regulate groups of individuals involved in philanthropic work. To be a charity an organization has to fulfill certain criteria: a. Its work must be recognized by UK law as being charitable. This means that its purpose must fit under one of the ‘four heads’ of charity (old-fashioned term for ‘heading’). i. The relief of poverty ii. The advancement of education iii. The advancement of religion iv. Other purpose beneficial to the community which does not fit less than one of the other there heads. b. Its work must be for the public benefit. It must be of actual benefit and benefit the public as a whole or a significant section of it.
It can be inferred from the general literature that public enterprises have three defining characteristics, they: a) are government owned and controlled b) are engaged in commercial (business) activities c) have socio-political goals alongside their primary economic goals.
Some provide services paid for by taxation. Others levy charger on users directly, although such charges such charges may be reduced by subsidy. The public sector refers to all publicly-funded or publicly-owned bodies, even though they may not form part of the obvious apparatus of government.

1.2 Describe the extent to which an organization meets the objectives of different stake holders

All enterprises, whether in the public or private sectors, whether they are profit or not-for-profit organizations, have stakeholders. Stakeholders are individuals or groups who have an interest in how the enterprise performs because it affects them in some way that is they a stake in the organization. Traditionally, the owners of a business (for example, shareholders in a publicly listed company or the government in public service situations) were seen as the most important stakeholders, and meeting their requirement was the sole reason for the existence of the enterprise.
There are three broad types of stakeholder in an organization. a) Internal stakeholders (employees, management) b) Connected stakeholders (shareholders, customers, suppliers, financiers) c) External stakeholders (the community, government, pressure groups)

Internal stakeholders
Employees and management are so intimately connected with the company; their objectives are likely to have a strong and immediate influence on how it is run. They are interested in the organization’s continuation and growth. The organization is a place where management and employees spend a great deal of their time and energy. It pays them. Management and employees have a special interest in the organization’s continued existence. This interest may not be held by share holders. For example, if the organization has surplus funds, the management might try and invest them in new projects whereas shareholders might prefer funds to be returned to them, so that they can make up their own minds.
Employees have a major effect on the success of a business as it is they who are responsible for all aspects of work carried out there in. Many writers have started that employees are the most important of all of the factors of production.
Employees when motivated, will usually be more productive, produce a better quality product/service, work as a team, provide ideas for improvement and guarantee that all objectives are met to the best of their ability.

Connected stakeholders
There are several groups of connected stakeholders. a) Shareholders/owners. Their prime interest is a return on their investment, whether in the short-or long-term. As shareholders own the business, this is a commercial organization’s prime objective. Some shareholders are concerned with a corporation’s ethical performance, hence the growth of investment funds designed to avoid certain companies. Shareholders are now being asked to take a more involved interest in a company’s affairs. b) Bankers are also interested in a firm’s overall condition, but from the point of view of the security of any loan they make. A bank is keen to minimize the risk of interest not being paid, or of its security being eroded. c) Customers want products and service. Large customers have significant power over prices and procedures. They ultimately determine what is produced, what quality is needed, what price is charged and what development is needed. Failure to listen to customers will ultimately result in no sales and no market. The main ways that customers affect businesses is through feedback, complaints, and suggestions, choosing whether or not to buy and filling out questionnaires. d) Suppliers will expect to be paid and will be interested in future business.
External stakeholders External stakeholder groups – the government, local authorities, pressure groups, the community at large, professional bodies – are likely to have quite diverse objectives and have a varying ability to ensure that the company meets them.

a) Central government has a big role to play in the success of businesses through the passing of law and policies it pursues. Its main role include: i. Passing laws to protect workers and customers ii. Collecting taxes e.g. income tax, corporation tax, VAT iii. Supporting businesses in socially or economically deprived areas iv. Subsidizing activities v. Aiding exporters

The impact on businesses depends on whether they are putting more into or taking more out of the business concerned.

a) Local authorities are interested, since companies can bring local employment. Also they can affect the local go environment for instance by increasing road traffic. b) Professional bodies are interested to ensure that members who work for companies comply with professional ethics and standards. c) Pressure groups will have an interest in particular issues.

1.3 Explain the responsibilities of an organization and strategies employed to meet them

McDonalds responsibilities:
• Develop and produce more food for children
• Increase the welfare of children through various programs and initiatives that provide "fun with a purpose"
• Provide clients with useful information about nutrition and offer foods that are suitable for clients.
• Improve the supply system by using better technology and communication system
• Develop a global forest policy to apply to purchase products
• Implement comprehensive forest policy in the packaging and other consumer sectors
• Packaging is designed to reflect the environment.
• The practice of innovation will increase and employees are encouraged to participate in innovation activities
• Maximize energy efficiency in their stores.
• produce more certified restaurant managers Hamburger University
• Increase the value proposition for employees to motivate employee engagement.
• Hiring skilled employees and training their existing employees for better performance
• Increase support of the Foundation Ronald McDonald House children through awareness communication
Followed by McDonalds strategies provides other franchise opportunities to expand its business worldwide. It enables shareholders to franchisees, management and members to share their risks and benefits. This model works very well; now it has less risk, but they earn income and earnings per share of rental. Other organizations adopt this model. They invest heavily in product development and innovation to produce goods that customers want. Develop their products on the basis of the economy, demographics and local factors.

Task2 Understand the nature of the national environment in which businesses operate

2.2 Assess the impact of fiscal and monetary policy on business organizations and their activities

Policy: a way of expressing the broad purpose of government activity in a particular field, with some desired outcome in mind. The word ‘policy’ is used in a variety of ways. (a) A policy may be a specific proposal (e.g. to raise revenue by indirect as opposed to direct taxation). (b) A policy may establish procedures to achieve specific objectives such as parental choice in education (e.g. enabling schools to opt out of local authority control). (c) A policy can also be a vague direction for change with no specific outcome intended.

Fiscal policy
Fiscal policy involves: (a) Taxation and other sources of income (b) Government spending (c) Borrowing whenever spending exceeds income (d) Repaying debt when income exceeds expenditure
A feature of fiscal policy is that a government must plan what it wants to spend, and so how much it needs to raise in income or by borrowing. It needs to make a plan in order to establish how much taxation there should be what form the taxes should take and so which sectors of the economy (firms or households, high income earners or low income earners etc) the money should come from. This formal planning of fiscal policy is usually done once a year. The taxation aspects are set out in the Budget.
This annual review of taxation means that a government’s review of its fiscal policy can normally only be done once a year. In between Budgets, a government must resort to other non-fiscal policy instruments to control the economy, such as influencing interest rate levels.
Fiscal policy then covers a government’s income and expenditure. In the UK the policies adopted are intended to promote high and stable levels of growth and employment.

Expansionary fiscal policy
Expansionary fiscal policy involves government attempts to increase aggregate demand. It will involve higher government spending and/or lower tax. In theory, higher government spending will increase aggregate demand (AD=C+I+G+X-M) and lead to higher economic growth.
Lower taxes should increase disposable income of consumers leading to higher levels of consumer spending. This should also increase aggregate demand and could lead to higher economic growth.
Expansionary Fiscal policy can also lead to inflation because of the higher demand in the economy.
Contractionary fiscal policy
Contractionary fiscal policy is a decrease in government expenditures and/or an increase in taxes that causes the government’s budget deficit to decrease or its budget surplus to increase.
Due to an increase in taxes, householders have less disposal income to spend. Lower disposal income decreases consumption. An increase in taxes also reduces profits available to businesses and they cut down their investment expenditures. Consumption and private investment are part of GDP, so GDP falls as a result. However, this fall is magnified by the multiplier effect.
A decrease in government expenditures decreases GDP directly because government expenditures is a part of GDP (i.e. GDP = consumption + private investment + government expenditures + net exports). But, such a decrease is worsened as a result of indirect decrease in consumption and other components of GDP.
Impact of fiscal policy
Businesses are affected by a government’s fiscal or tax policy. The levels of taxation and the methods through which they are collected – on individual earnings, on savings, through VAT, on business profits or upon inheritance of wealth – illustrate the power of the state to determine the operating environment and thus the strategy of firms at any given time.
Monetary policy
Monetary policy involves attempts to influence economic activity through: (a) Interest rates (b) Exchange rates (c) Control of the money supply (d) Controls over bank lending and credit
Monetary policy can be made to act as a subsidiary support to fiscal policy and demand management. Since budgets are usually once-a-year events, a government must use non-fiscal measures in between budgets to make adjustments to its control of the economy.
Expansionary monetary policy
Expansionary monetary policy is a form of economic policy that involves increasing the money supply so as to decrease the cost of borrowing which in turn increases growth rate and reduces unemployment rate. Expansionary monetary policy is used to fight off recessionary pressures
Contractionary monetary policy
Contractionary monetary policy is a form of economic policy used to fight inflation which involves decreasing the money supply in order to increase the cost of borrowing which in turn decrease GDP and dampens inflation.
Impact of monetary policy
It is clear that expansionary monetary policy will lower the country’s exchange rate. The effect of monetary policy on the current and financial accounts is not so clear because the price and income effects move in opposite directions. For example, the price effect of easy money on the current account tends to strengthen it, while the income effect tends to weaken the current account. Since the effects move in opposite directions, it is not immediately clear what the ultimate impact will be.

2.3 Evaluate the impact of competition policy and other regulatory mechanisms on the activities of a selected organization

Industrial policy
In the UK the government’s industrial policy allows it to take an active role to support investment and encourage a faster rate of economic growth in industry and to halt the decline of the manufacturing sector.
The government can give assistance to those industries with the highest growth potential; this is a referred to as picking winners or indicative planning. This also includes identifying bottlenecks – areas in the economy where there are supply side problems.
Government industrial policy might either hamper or promote the growth of new industries. (a) Restraining growth: ‘green belt’ policies prevent the location of industry in certain areas. (b) Encouraging an emerging industry: for example the decision by the UK government some years ago to adopt the BBC microcomputer in same school
Government policy might make it difficult for new firms to gain entry into an industry or market.
Industrial competitiveness policy
The new approach to industrial policy is to focus on improving the factors that shape the nation’s competitiveness. Initiatives may include: (a) Investment in physical and human capital – a sound skills base is crucial for attracting global business (b) Reductions in non-wage employment costs – these costs are seen as limiting competitiveness and employment creation (c) Support for small-sized and medium-sized enterprises – because they create employment opportunities and contribute to skills development, especially in high-tech areas (d) Promotion of R&D and innovation (e) Improvements to infrastructure – physical transport as well as information highways (f) Reinforcing the laws on copyright and patents to encourage enterprises to develop new products
These initiatives represent a shift in the government’s role from direct intervention in the form of subsidies and protecting industry from competition to one of focusing on the external business environment and pinpointing the conditions that influence its competitiveness.
Social welfare policy
Social welfare policy seeks to protect and directly improve people’s standard of living.
In the UK the name ‘social policy’ is used to apply to: (a) the policies that government uses for welfare and social protection, and (b) the ways in which welfare is developed in a society
In the first sense, social policy is particularly concerned with social services and the welfare state. In the second, broader sense, it stands for a range of issues extending gar beyond the actions of government – the means by which welfare is promoted, and the social and economic conditions which shape the development of welfare.

Social security
Contributory benefits are benefits that an individual has paid for, rater like an insurance policy. Payment is made by national insurance contributions (NICs), which are compulsory deductions. (a) Retirement pension is a taxable benefit. Broadly, the level of pension depends on the number of years for which NICs have been paid (the individual’s contributions record). (b) Incapacity benefit is paid when an individual cannot work because of incapacity (e.g. illness, disability etc. (c) Maternity allowance is a tax-free benefit paid to mothers for eighteen weeks. It can start between six and eleven weeks before the expected date of the birth. (d) Jobseekers’ allowance is for those who are looking for work.

Task3 Understand the behavior of organizations in their market environment

4.1 Market structures determines the pricing and output decisions of businesses

There are four basic market structures: perfect competition, monopoly, monopolistic competition and oligopoly.
In a perfect competition market structure several firms are present who all produce identical products and are all sold at market price. The entry barriers to this market are low and the only factor determining sales is price. Since no one producer can affect prices, the demand curve for such a market is horizontal i.e. perfectly elastic. An example of this could be onions produced from a certain region.
On the other end of the spectrum is the monopoly market structure. In such a market there is usually just one seller. The entry barrier is very high to this kind of market. The cost of investment, copyright or holds over resources are some examples of high entry barrier. The railway network of any country is an example of a monopoly.
When it makes natural sense to have one firm produce a product it is called a natural monopoly. Public utilities, electronic defense equipment are government sponsored natural monopolies.
Covering the middle ground of market structure in one form is monopolistic competition. In this scenario firms do not produce identical products. There exist in the products difference in features, price, branding and so on. The shampoo market demonstrates this. Despite the same end use, i.e., cleaning hair and scalp, the firms producing them market their differences. Removal of dandruff, stopping hair fall, more luster are some of the differentiators they advertise. Consumers are loath to shift unless there is a very high (>10%) increase in price.
In an oligopoly market there are a few players who need to keep an eye on each other’s strategy. The cement industry or airline manufacturing industries are good examples. In both these industries the economies of scale are very high making entry barriers in these segments high. The different firms differentiate on the basis of some features, their offerings being good substitutes to each other. In this market structure demand elasticity is more than that of a monopoly.

3.2 Illustrate the way in which market forces shape organizational responses using a range of examples