Business Environment

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Business Environment

Unit 1:
Unit code: QCF level: Credit value:Business Environment Y/601/0546 4 15 credits

• Aim

reconcile. 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 oblique impact on the national business environment. It is within this business environment that organisations function and have to determine strategies and a modus operandi that allow them to meet their organisational 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 organisations 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.

• Learning Outcomes
  LO1 Understand the organisational purposes of businesses .                                                                 LO2. Understand the nature of the national environment in which businesses operate .                 LO3.Understand the behaviour of organisations in their market environment  .                               LO4. Be able to assess the significance of the global factors that shape national business activities.

Unit Content

1.  Understand the organisational purposes of businesses Categories of organisation: legal structure; type eg private company, public company, government, voluntary organisation, co-operative, 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 Stakeholders: owners; customers; suppliers; employees; debtors; creditors; financial institutions (banks, mortgage lenders, credit factors); environmental groups; government agencies (central government, local authorities); trade unions Responsibilities of organisations: 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, charter compliance eg Banking Code

2 . Understand the nature of the national environment in which businesses operate Economic systems: the allocation of scarce resources; effective use of resources; type of economic system eg command, free enterprise, mixed, transitional 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; propensity to save; propensity to spend; tastes and preferences 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 Ofgem, Ofwat, Civil Aviation Authority; Companies Acts; regional policy; industrial policy; enterprise strategy; training and skills policy

3 .Understand the behaviour of organisations in their market environment Market types: perfect competition, monopoly, monopolistic competition, oligopoly, duopoly; competitive advantage, strategies adopted by firms; regulation of competition Market forces and organisational 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

4 .Be 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 Organisation (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

Learning Outcomes And Assessment Criteria

Learning Outcomes
On successful completion of this unit a learner will:

LO1 Understand the organisational purposes of businesses

 1.1 identify the purposes of different types of organisation

1.2 describe the extent to which an organisation meets the objectives of different

1.3 explain the responsibilities of an organisation and strategies employed to meet them

LO2  Understand the nature of the national environment in which businesses operate

 2.1 explain how economic systems attempt to allocate resources effectively

2.2  assess the impact of fiscal and monetary policy on business organisations and their activities

2.3 evaluate the impact of competition policy and other regulatory mechanisms on the activities of a selected organisation

LO3  Understand the behaviour of organisations in their market environment

3.1 explain how market structures determine the pricing and output decisions of businesses

3.2 illustrate the way in which market forces shape organisational responses using a range of examples

3.3 judge how the business and cultural environments shape the behaviour of a selected organisation

LO4 Be able to assess the significance of the global factors that shape national business activities

4.1 discuss the significance of international trade to UK business organisations

4.2 analyse the impact of global factors on UK business organisations

4.3 evaluate the impact of policies of the European Union on UK business organisations.

Guidance

Links
This unit has links with other business and economics-focused units such as Unit 3: Organisations and Behaviour, Unit 7: Business Strategy, Unit 35: European Business and Unit 45: Business Ethics. This unit also links to the Management and Leadership NOS as mapped in Annexe B.

Essential Requirements
There are no essential or unique resources required for the delivery of this unit.

Employer Engagement And Vocational Contexts
Centres can develop links with local employers. Many businesses look to employ learners when they finish their programmes of study and may provide information about the business environment which they operate in. They will have a view about the impact of the governmental and EU factors that shape how they behave. Many learners are, or have been, employed and will be able to draw on their experience of employment and will have had experience of the nature of the business environment and the ways in which organisations respond to and determine the nature of that environment.

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Business As A Social Process

Business As A Social Process

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Business As A Social Process

Several aspects of a business affect net income. This is evident from the net income equation (Net Income= [{(Price*Quantity) -(Variable Cost per Unit*Quantity)-Fixed Cost} *(1-Tax Rate)]. To sell goods or services, a company needs to make its services or products are known and demanded by the customers. A company can increase its marketing activities to increase the amount of sales and as a result increase the net income to the company. Marketing should be specific to achieve the desired results. The more a company invests in marketing the greater the sales which is a function of quantity in the income equation. With more sales being multiplied with price, the aggregate revenue increases. With the fixed cost being constant, net income will increase.

Companies also require to have a code of ethics that guides internal and external interactions. Ethics will affect net income in two different ways. Employees need to be ethical when dealing with clients to increase loyalty and referral clients. This in turn increases sales volume. Unethical practices can also lead to losses of company funds. From an external perspective, companies that operate ethically in their production processes win more clients and this increases revenue which in turn increases the net income.

Accounting can also have an income on the net income. Accounting is the basis on which is business transactions are recorded. The records can be in cash where transactions are recorded when cash has been issued. Transactions can be recorded on an accrual basis where revenues are recorded regardless of the cash flow. This can have an effect on the net income. When a company recognizes transactions that involve cash movements, net income will be lower than when transactions are recorded whether cash has been issued or not.

Organizational behavior regards how an organization deals with human challenges that exist in the business. Addressing challenges organizational behavior will help an organization run smoothly without increasing the costs of operation. Businesses will be able to monitor and control the variable costs of production by being able to counter contingencies without much costs being involved.

Finance is also important in controlling costs and maximizing profits. A business will consider the best mix of funds to employ in the firm. The optimal finance mix can help a business reduce its tax liability because tax is calculated after deduction other obligations of a business. In this way a business is able to employ more capital by borrowing and offsetting the effects on the tax remitted to the tax authorities. Reducing tax will help the business increase net income.

Operations is one of the most crucial processes in a business. Operations is the process through which goods and services are produced. Operations will help an organization determine the optima production capacity. At the optimal capacity there will be no idle inventory that ties up funds while cost have been incurred in the production process. Operations can help the business increase output if it producing sub optimally increasing sales revenue. It can also help reduce the variable cost component by setting the optimum number of goods to produce to make the variable cost per unit optimal. By reducing variable costs or producing optimally business are able to increase sales and reduce variable costs increasing net income as a result.

Quantitative analysis is tool that uses numbers to solve some of the complicated problems in business. For instance, a cash flow analysis can help a business evaluate business on their profitability. This helps identify which projects are more profitable and the timing of profits. In this case, quantitative analysis will help a business identify which areas have higher variable costs and how to reduce them. This can help reduce the costs and increase the net income.

Strategy looks at how a business works as a whole to meet the desired goals. Functional strategies help a business chose the activities to engage in such as utilizing modern technology to cut costs. Such a strategy reduced variable costs and increases net income. Business also set business strategies which are the strategies that it employs to compete with rivals. For instance, a business may choose to lower its prices to increase its market size which in turn increases the quantity sold and net income as a result. Business also use corporate strategies to decide the kind of business to be involved with and the reasons for such business. A Business will therefore choose to stay in the business that is most profitable and increase net income.

Every aspect of a business is aimed at the ultimate goal of profit maximization and by extension increasing shareholder wealth. Business must therefore choose the right course of action that leads to the ultimate goal of increasing the company shareholder’s wealth. Profitability is one of the greatest way to increase shareholder wealth because shareholders get higher returns from their ownership stake in the company. The value can be measured by estimating future earnings for a business and discounting them to the present. This shows that a firm value will increase as its profits increase.

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