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18088 Downloads1 I Published: 13 Jan ,2017
Business Environment refers to sum of internal as well as external factors which influence the operations of business organizations. However, some external and internal factors can influence each other which also affect the business (Evans, Stonehouse and Campbell, 2012). For example, health and safety is an external factor which creates impact over the internal factors of business firm.
British Airways (BA) is the largest airline based on fleet size in UK and it is second largest in Britain when measured in terms of passengers. This report will explicate the environment of British Airways and also the significance of global factors which shapes activities of the said business concern. Moreover, the report will also justify the outcomes of policies made by European Union over business organizations of UK.
Business organizations differ from each other according to their functions, aim and objectives. It indicates that all business organizations operate their activities with different purposes. Some of them have been mentioned below:Purposes of different types of organizations
Private sector enterprises: - Private limited companies tend to operate business by increasing capital through issuing large number of shares. Another main purpose of Private businesses is to operate the enterprise in such a way that competitors would not be able to take over the firm easily (Kemp and Dwyer, 2003).
Public sector enterprises: - Public limited companies are not owned privately as there is big role played by government. In other words, influence of regulatory authorities is very high in public limited enterprises. The main purpose of public limited business is to gain capital through the capital market.
Franchising businesses: - Franchising companies are most probably related with food products and cloth market. For example, McDonalds and Primark are fast food and cloth companies respectively. Dealers take franchise with these firms through standard agreements and contract. However, the main purpose of franchising business is to minimize the risks and to maintain the global cost.
Non-profit organizations: - These business firms are established for the purpose of providing free services to customers. There are no rigorous rules and regulations which are to be followed in such organizations. For example, National Health Services (NHS) is a non-profit making organization which intends to provide free services to people and operated through government funds (Grugulis and Wilkinson, 2002).
Those who are related with activities and operations of business are stakeholders of the firm. However, different stakeholders have various kinds of needs and expectations towards the firm up to a certain extent. Considering that extent, the said firm has to meet all the needs and expectations of stakeholders. Some major extents which are considered by British Airways are as follows: -
Customers: - Customers are the key elements or stakeholders of British Airways who always expect new and improved services from the firm. They must be provided with adequate and reliable services at reasonable prices. Customer is the first extent which should be considered by the firm before meeting the objectives of remaining stakeholders.
Employees: - Employees are other important stakeholders of British Airways who are making their efforts in delivering outstanding services to customers by following the rules and regulations of company (Kaplan and Norton, 2001). They should be provided with good opportunities and remuneration from the firm.
Shareholders: - Shareholders are the real owners of organization who always expect good amount of return in the form of high dividend and growth in the values of shares. Moreover, British Airways has to provide rational amount in return for the risk that they are taking by investing their money in the firm.
Suppliers: - British Airways deals with number of suppliers for the purpose of receiving food products and other management facilities. Hence, they always require flexible terms of credit and good payment system.
Government: - There are number of rules and regulations regarding taxation policies, licensing, standardizing and protection of customers from various hazards which must be followed by British Airways in all conditions. Hence, it the responsibility of company to meet the objectives of government (Fyall and Garrod, 2005).
British Airways has number of responsibilities towards its stakeholders. For each and every stakeholder, the firm has to make effective strategies which can help them to meet their expectations. Various responsibilities and strategies of British Airways have been mentioned below:
Responsibilities towards customers: - British Airways has to provide qualitative products and services to 40 million customers every year. This can be done through maintaining healthy relationship with them through CRM policies. Maintaining good relationship will increase the loyalty of customers and will also create a positive impact over profitability of the firm.
Responsibilities towards employees: - There are around 40,000 employees working in British Airways who must get good working environment as well as opportunities for employment (Button, 2005). By maintaining sound Human Resource Management policies, performance of employees can be enhanced effectively.
Responsibilities towards shareholders: - British Airways holds numerous shareholders who have invested a huge amount of sum through buying shares of the firm. The mentioned aviation industry through providing healthy dividends can retain its stakeholders for the long-run. Moreover, stakeholders can gain information about BA through its website regarding making investment.
Responsibilities towards environment: - The cited aviation industry has size of around 300 which indicates that each of them emits huge amount of heat and dust particulates in air (Oum, Yu and Zhang, 2001). It is one of the prior responsibilities of British Airways to reduce such pollution through controlling devices like dust cyclones, particulate scrubbers, Baghouses, Wet scrubber etc.
In order to allocate the resources effectively and efficiently, there are number of economic systems which are followed by the regulatory authorities such as:
Free enterprise economy: - In this type of economic system, different types of business organizations can operate their activities without involvement of government. In other words, the role of regulatory authorities is very less in operations of many business firms. Moreover, there are very less number of companies which are owned by government in the market under free enterprise economy. As a result of free economy, there can be strong positive competition in market which leads to efficient resource allocation (Wensveen, 2010).
Planned economy: - Planned economy is totally different as well as opposite of free market economy because government has a great role to play in this economy. Here, the regulatory authorities keep full control over resources like food, water and other scarce resources. In this type of economic system, government supplies resources to companies which either results in surplus or deficiency of resources as regulatory authorities does not have enough knowledge about required resources in a company.
Mixed economic system: - This system is somewhat similar to free enterprise economy but the only difference is that government has little participation in the activities of business. For example, tax policies or monitory and fiscal policies (Fu, Homsombat and Oum, 2011). In this context, the private sectors have authority to operate the business with full freedom but government implements some regulations and policies in order to maintain the stability in market conditions. The main advantage of mixed economic system is that resources can be allocated efficiently where there remains both free trade and restrictions of government.In order to allocate the resources effectively and efficiently, there are number of economic systems which are followed by the regulatory authorities such as:
Changes in taxation rates: - In UK, changes in fiscal policies create a huge impact over large business enterprises. British Airways is one of those industries which get influenced by fiscal policies that are amended by the regulatory authorities. Company has to pay high amount of taxes which reduces its marginal revenue. As a result, shareholders are not paid with healthy dividend (Starkie, 2002). Moreover, payment’s terms with suppliers also get disturbed due to lack of capital in British Airways.
Impact on spending: - With the increase in expenditures of British Airways in the form of tax, spending for customer welfare decreases. In simple words, Fiscal policies also have impact on the services that are given to customers as the firm cannot purchase services from suppliers without having adequate funds.
Interest rates: - Lower interest rates can influence British Airways positively as they have to invest fewer expenses for customers. In other words, lower rates of interest allows the firm to gain high profitability by spending less amount in terms of interest to financial institutions like banks (Lee, 2001). On the other hand, if interest rates are very high, it means, British Airways cannot gain high profitability as they have lower sales and have to pay huge funds for interest in the form of cash.
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Hence, the aim of implementing monetary policies is to pull down inflation rate while on the other hand, fiscal policies tend to reduce the unemployment for long term.
There are number of aviation firms in UK such as Atlantic Airlines, Cello Aviation, EasyJet, Monarch Airlines etc. which are operating their businesses in highly competitive market. Many other aviation firms are also running their business in UK but the aforesaid are some major firms among them (Florio, 2004). British Airways is one of the largest airlines among them in terms of fleet size and second largest in carrying passengers after Easy Jet.
On the basis of competition policy, every company has to change its policies in order to follow the rules and regulations that are made under policies. Even British Airways also need to adjust its activities in order to cope up with the competition. Therefore, it can be concluded that all business organizations have changed their working procedure in order to meet the requirements of competition policy. However, the main aim of implementing such kind of policy is to maintain the working practices of business in aviation sector. In addition to it, British Airways has to develop marketing content that best adhere with the competition policy. Also, they are not able to conduct aggressive promotion technique where other company are denoted by inferior and cited company by superior. This is so because competition policy aims to ensure healthy competition practice. Due to this, mentioned firm is not able to conduct comparative marketing activity. In addition to it, BA needs to include clear and concise information in the promotional content so that it doesn’t confuse customers. This content is reviewed by the regulatory bodies within the context of competition so that company adheres to the policy.
On the other hand, regulatory mechanisms also create major influence over the activities of British Airways. For example, if government imposes policies regarding reduction in prices of tickets in off-season, the firm must have to follow it in order to remain consistent in European Union (Pandit and et. al., 2011).
There are different types of market structures such as monopoly market, perfect competition and oligopoly market. In order to determine the output and prices of firm's fare prices in such differentiated marketed structures, British Airways has to make different strategies.
Monopoly market: - In this type of market structure, there are limited or few competitors who emerge in the market with performing similar type of business. In such situations, they can charge prices of products according to their wish without considering the perception of customers (Kessides, 2004). There are number of aviation firms in UK which indicate that there is no existence of monopoly market. In case if BA operates in monopoly market then it enjoys the opportunity of setting the price as per its own desire. This will help the company in enjoying the position where it makes decisions with regards to price and product with no intervention of customers, competitors and government.
Perfect competition market: - In this marketing condition, there are number of business firms which are operating their activities in the same industry. The level of competition is very high under perfect competition. British Airways comes under the category of perfect competition as there are large number of aviation organizations in UK which are providing services to thousands of customers on daily basis. Hence, it can be understood that British Airways focuses over the demand of services and set prices by considering the willingness of customers to pay for their services. Here, BA needs to set low cost for the products and services in order to attract more of customers towards it.
Oligopoly market: - Under oligopoly marketing conditions, British Airways only consider the prices of high levelled competitors only and then consider the demand of customers (Button, 2008). In other words, there is limited number of sellers in oligopoly market which usually tends to keep their prices low in order to gain the market share. However, British Airways does not come into the category of Oligopoly market as their number of aviation firms in UK which are operating their business with similar prices. In case, if BA operates in this market then it needs to charge competitive price so that they can gain the attention from varied customer in the marketplace. This will help in increasing the sales of the company and aids in enhancing profit margin.
There are number of market forces which must be considered by British Airways in order to make strategic decisions. Some major forces have been mentioned below:
Supply and demand: - British Airways has to adjust its service supply decisions on the basis of demand of customers. Therefore, if demand of services is high, BA will have to render high amount of services through employing additional employees or by increasing the fleet size (Evans, 2001). Moreover, depending upon the market conditions, if the number of travellers is high in a particular time period, the said firm has to manage its operations in such a way that increases the profitability and allows customers to enjoy the benefit services provided by company at reasonable rates.
Customer's perceptions and actions: - Perception of customers is another factor which influences British Airways to provide services. However, it depends upon the nature of services which are rendered by the staff members of BA. If they provide satisfactory services, customers would like to visit again and vice-versa. Hence, it can be said that perception of customers towards the firm is a critical market force.
Economies of scale: - British Airways before making decision regarding shaping the organization should consider its economy of scale in order to assess that whether it can fulfil the demand of customers at proper time or not (Keller, Parameswaran and Jacob, 2011). However, being one of the major aviation firms of UK, BA has good economies of scale to meet the demand of customers at any point of time.
British Airways has to make proper analysis of environment before decision making process. However, this can be done through the help of PESTLE analysis.
Political factor: - Political issues like changes in tax policies require British Airways to reduce its operational cost to gain good marginal revenues.
Economic factors: - Changes in inflation rates creates impact on British Airways while taking loans from financial institutions due to change in interest rates.
Social factors: - Perception of customers towards services of British Airways influence or lead to alteration in practices or services with changed requirements (Grundy and Moxon, 2013).
Technological factors: - Latest technologies adopted by business firms help to provide improved services. Customers get satisfied only with smooth and reliable services so British Airways and always need to stay up to date with the latest technological model.
Legal factors: - Various legislation policies implemented by UK government plays a key role in influencing the activities of British Airways. Therefore, it becomes mandatory for the firm to keep consistent watch over legislative policies to remain competitive in the UK market.
Environmental factors: - Being an aviation industry, impact of climatic change can highly influence the operations of British Airways. Therefore, proper check on changes in climatic conditions is crucial to avoid the accidents in future (Paliwoda and Thomas, 2013).British Airways has to make proper analysis of environment before decision making process. However, this can be done through the help of PESTLE analysis.
With the help of modern production techniques and improved transportation systems, international trade has moved in the recent years. In other words, international trade has helped British Airways to conduct the business across different countries with minimum number of barriers. Therefore, international trade has become crucial for British Airways to manage the operations in other countries in order to gain higher profitability with limited number of barriers (Samy, Odemilin and Bampton, 2010). However, if there was no existence of international in UK, the economies of scale for the said firm would be low and it could not make higher amount of marginal revenues.
Moreover, British Airways through operating business on international level will gain good amount of marginal revenues. Along with that, it can also improve the quality of services with low cost. In nutshell, it can be said that international trade has been beneficial for British Airways to gain the loyalty of customers and marginal revenue as well.
Apart from this, there are varied international organizations such as WTO that helps company in conducting international trade with ease. WTO has liberalised the trade activity across globe from which company like BA are able to enter into marketplace like UAE, Kuwait, Qatar and other related. Further, it assisted cited company in developing base in foreign country such as South Africa, Denmark and other related. With this, cited company is able to enter into different market which helped in boosting its profitability.
Global factors are always considered as the major issue while British Airways is operating its business either globally or domestically (Beck, Campbell and Shrives, 2010). However, some global factors which create major influence over the activities of British Airways have been discussed below:
International competitiveness: - Competition on international level affects the operations of British Airways as policies are different in various countries so it becomes mandatory for BA to follow the rules and regulations of other countries.
Social factors: - Customers existing in different parts of the world have different needs and requirements so; British Airways has to focus over changing needs and requirements of customers of the world while operating business internationally.
Tariff and tax: - When Tax and Tariff rates are high in other countries; British Airways can find difficulties while operating business in that particular country.
Exchange rates: - Changes in exchange rate of other nations can create a huge impact over the profitability of British Airways (Griffin, 2007). So, this has become a major threat for the said firm.
There are several rules and regulations which are imposed by European Union which must be followed by the member countries along with companies while operating business at national as well as international level (Bulmer and et.al., 2007). Some policies are like employment policy, regional policy, inflation policy, education and training policy, taxation policy, international policy etc. However, all these policies create major impact over the activities of British Airways. In the current scenario, said firm has to consider any inflation policy which can influence its activities while performing business abroad. Hence, it can be said that British Airways has to follow all the policies that are implemented by European Union. Otherwise, it will have to compensate under the common law of violating agreement of EU. Therefore, it becomes necessary for the firm to follow all the policies implemented by European Union (Ruff, 2006). Further, EU policies helped in developing a market where competition is managed up to great extent due to effective completion laws. This helped BA in gaining high market share and also supported in attracting more of customers towards it. Further, policies with regards to aviation are also developed that helped company in sustaining in the market by adhering to such policies. This includes The European Aviation Safety Agency, EU Emission Trading System and other related.
It has been concluded through the report that business organization while operating various activities have to judge its environment before making any final decision. British Airways is the chosen firm in this report which has to ascertain the knowledge about its environment through PESTLE analysis. Organization has to consider the demand of services along with the perception of customers towards its services to improve them. Moreover, impact of policies made by European Union such as inflation policy has also been understood through this report.
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