External Environment of UK
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5168 Downloads I Published: 16 Nov ,2017
The study of external environment is very important as it has significant affect on the companies. The present report discusses the external environment of UK with respect to hospitality industry. In particular, IHG hotel chain has been considered for the study.
UK is the sixth largest economy in the world at present according to the prices of goods and services. In light of GDP, it is the eighth largest in the world. The economic structure of UK is mixed economy. The government share of spending in GDP is 47.3%. The economy was affected seriously in the year of 2008 when recession struck the market (Fernando, 2011).
At present, country is sixth largest economy in the world according to the current prices and 8th largest according to GDP (PPP). UK is a part of single market which believes in the free movement of people, goods, services and the capital in all of its states. They are one of the most important parts of European Union but they still have their own currency and that is called as pound(Kew and Stredwick, 2005). There are a number of big MNCs in the country. Having a large number of companies, there is perfect competition in UK market. Most of the revenue earned in the nation is through exports. London is one of the three main economic command centers including New York and Tokyo. Hence, banking and finance are the most prevalent services.
Approximately 24.88% of the Country’s land is arable and because of that role of agriculture is not important. UK has 20th largest labor force in the world in which more than 31.9 million workers work regularly but still the size of unemployment is also increasing day by day and it is almost 8%. In the present context 1.4% of the labor force is engaged in agriculture, 18.2% in industries and 80.4% in the services.
In UK simple and fair taxation is followed. The personal allowance is going to increase to £10,500 in the session of 2015-2016. Further a tax free child healthcare scheme will be enforced in 2015. The declaration and payment of custom duty, excise duty and VAT depends on the type of goods that are being imported. There are 56 countries for which visa are exempted in UK. The vat rate is 20 % in UK as compare to 10 % in Australia and 17 % in China. Thus it can put positive impact at the economic level of the UK as morerevenues could be generated within the country. On the contrary negative side it can put negative burden on overseas company so they can avoid making business relation with UK.
UK Follows three legal systems which are English Law (applies in England and Wales), Northern Ireland Law (Applied in Northern Ireland and are based on the common laws) and last is the Scots Law (Applies in Scotland and it is based on the civil law principles which contains the elements dating back to High Middle Ages). Supreme Court of the United Kingdom is the highest court in the land for all the civil and criminal cases in England and Wales and Northern Ireland and for all civil cases in Scots Law.
There is a particular body in UK which regulates the hospitality industry in country and that is called as the British Hospitality Association. It is a non-government representative body for hotels, clubs, restaurants, leisure outlets and all the hospitality related organizations in UK. They promote the interest of hospitality industry to the government ministers.
Government in UK is not much stable because there ere constant change in the rules and regulations and also all the political parties in country always rebel against each other. Country has bad relations from many countries so they have to face many restrictions. Country has faced many terrorists’ attacks and recent London Bombings shook the whole world. Government has not been able to provide proper securities to its citizens.
In terms of infrastructure, Country has made a remarkable progress as they have all the latest technology and it is the home of many international banks. They have huge spaces for MNC’s and they are always ready to welcome the new foreign investors. Hospitality industry is on the boom in the country and it has world famous hotel chains which attracts lots of people. Seeing the current growth of the industry it can be said that UK will take over almost all the countries by 2030 in terms of hospitality industry generated revenues and also many of the hotel chains will be the part of this wonderful country which will provide the employment to almost 40-45% of the total working population.
There are many rules regarding the health and safety, data protection and environment of the hospitality industry in UK. IT is necessary for all the hotels to have proper measures regarding the safety of its guests and for that, regular inspections are organized and also it is necessary for companies to protect the data of customers from leaking otherwise high penalties are fined.
There are a number of legislations that are levied in UK on the hospitality industry related to protection and safeguarding of environment. Initiative is taken by the government to oblige the hotels to implement the practice of going green according to which hotels have to take responsibility in making use of green products at their place. Apart from this, it is also required of hotels to recycle the wastes and again re use them so as to save the natural resources and protect the environment.
Other than this, hospitality industry in UK also has to take measures in order to safeguard safety and security so that order and stability is maintained in the country. Also, they have to take care of political stability in the region.
London Heathrow Airport is quite good for the tourism and hospitality industry in UK as it is the world’s largest second airport in the world. It is a major international airport which is also the busiest one. It is useful for hospitality industry as a large number of visitors and tourist visit the airport and move to different parts of the world through this. At this place, because it witness a number of tourists, can be used for attracting a large number of travelers to UK as well. This can be beneficial for the hospitality industry as well.
Hospitality industry is at a boom at global level due to increased relaxation of taxes and globalization. Consequently, this industry is very sensitive to changes in external business environment.
One of the largest hotel chains in UK is IHG Intercontinental. There are over 4,400 hotels of the company having more than 650,000 rooms. It operates across 100 nations. The average revenue earned by the firm in 130 million pound every year (Kourteli, 2000). It is affected by many government policies. These policies affect the business in the following ways:
Fluctuating interest rates: The changes made in interest rates via monetary policy in the nation on frequent basis. Therefore, company has to make changes in their strategies. At the times of high interest rates the demand falls for the company as people have less money to spent. However, the firm enjoys high revenue when the interest rates are low because the number of tourists increases.
Changing tax rates: Alterations are made in the tax rates over time to control the prices of goods. The company makes profit when tax rates are low on the hospitality sector (GuoandWang , 2014). However, when the tax rates are high the company has to pay considerable amount to government. At present the UK VAT policy is not favorable for the hospitality industry at 20%, it affects their businesses.
Variations in foreign exchange rates: It affects the business significantly because the company operates in different countries. The appreciation of Great British pound results in benefits from international business. However the domestic business witnesses a fall (Dascalu and et. al., 2010). The scenario is opposite in case of decrease in exchange rates.
Economic policies of the country has also affected the custom import duty as the duty rates applied to imports changes with time and presently it ranges between 0-17%. Some of the products like laptops, mobile phones, cameras, etc. are free but certain goods have duties according to the manufacturing country like Chine, etc.
Tax credit is the sum of money deducted from the total amount that tax payer owes. In UK it depends of various factors. Employees of the hotel that have to travel for the work enjoy greater tax credits.
The country has one of the largest labor markets. It has over 31.9 million workers. The living standard and the real income of people have risen in the nation. However, there are still considerable inequalities in the society. It can be further illustrated through following figures of 2009:
The official poverty line set by government is 60% of the media which is £244 per week. About six percent of UK population lives in households with disposable income of £1000 every week. There has been steady inequality in the income distribution after 2008 (Bracci and Maran, 2013). Poverty has risen in the country leading to more people losing their jobs. Following is the poverty ratio in the nation:
In the nation, rich people are getting richer and people belonging to poor population are getting poorer. Inequality has been growing from last 15 years. The increase in income has occurred only to the rich people, which is by 7-10%. On the other hand the income of poor population has decreased by 18- 19% (Harrison, 2013).
The major users of hospitality service in UK are the tourists that mostly comprise Russian people, business delegates, and other travelers. The providers mostly include home country nationals of UK.
British Hospitality Association (BHA) is the restaurant association headquarters in London. It specified rules and regulations for hotels, pubs and leisure outlets which are situate din London. The association work in relation to promotion of hospitality industry by providing necessary resources so as to increase rate of return and cater requirement of different types of customers in an effective way (Fernando, 2011). It proves to be effective in order to management food and other services so as to give higher level of satisfaction among customers. It is also accountable to make policies for employment and other amenities in the firm.
Another authority is Assured Food Standard in which hotel and restaurant need to follow regulatory framework so as to provide good quality of services to customers. There are various schemes formed in order to ensure quality of food services. In this, Red tractors is the largest food assurance scheme of UK which facilitate to provide standard for variety of products provided by IHG hotel (Harrison, 2013). It consist regulation for all types of food such as vegetable as well as non-vegetable that facilitate hotels to ensure about ethical conduct of business. It leads to cater requirement of customers and increases overall rate of return of hotels.
One of the local authorities of London is Westminster City Council which is situated in Greater London. It is a London borough council which has been entitled so that it can be known as city council. This is found rare in UK. The city council gets its powers and authorities from the London Government Act 1963 and the legislation associated to it. Westminster enjoys the powers and functions similar to that of London borough council. It is a kind of billing authorities that perform the function of collecting council tax and also implement function of applications of local planning.
On the other hand, any city council in UK is Cambridge City Council which is district council that exists in county of Cambridgeshire which is situated in the city of Cambridge. This council performs the function of providing various facilities and services so that development of the city can take place. This includes provision of open and park spaces, council housing and collection of waste as well as for local planning. Apart from this, Cambridge City Council also has the responsibility of organizing a large number of events all throughout the year so as to provide entertainment to the people.
In the past forty years, the percentage of women has grown in the services sector. Mostly, women in working class are of the age of 16 to 64. The percentage of women of this agegroup in service sector has increases to 67% percent. However, men belonging to this age group in service sector have decreased to a percentage of 76% from 925 in 2003 (Rodiek, 2008). 13.4 million Women belong to this age group. Out of this 42% are working on part time basis. Similarly, 15.3 million men belong to this age group. Only 12% of them are working on pert time basis. Among the full time workers, men work for 44 hours every week and women work for 40 hour per week (Fraser and Pong, 2009).
In service sector there is considerable engagement of both male and female workforce of the nation. In 2013, the percentage of older women belonging to the age group of 25-49 years in service sector has dropped considerably. The percentage of economic output was 4.9 percent in 2011 as accounted by the hospitality industry. In means that 1 of the 14 people are engaged in hospitality sector. The number of jobs in this sector is 2.1 million that comprise of 7.2% of working population of the nation (Khanna, 2012). About 48% of the workforce belonging to the age group of below 29 years is engaged in hospitality industry.
In country Women are still considered as the lower categories in the company and they are not provided much opportunities to move to the top management. In the particular hospitality industry, they are normally given the jobs of housekeepers, maid, etc. Most of the women with children are not given jobs and even if the jobs are given then they are only allowed to work for the part time. This is one of the basic trends in the country and it has affected the social life of women a lot.
The firm is among the largest hotel chains the world. It directly employs more than 8100 people around the world. Considering the whole IHG estate the total number of employees rises to 350000 at global level. On the basis of gender, it employs 59% of males and 41% of females. The managerial diversity is also high in the company. At the post of manager there are 49% of males and 36% of females. However in non-managerial posts there are 56% of male workers and 64 % of female workers (Jain, Trehan and Trehan, 2014).
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On average the salary of female workers at IHG falls between £18,000- £64,257. Similarly, the salary of male workers falls between £18,000- £42,500.
On considering the whole industry, the average salary in hospitality industry of UK is under £300 per year. Further, the employment rate in UK has decreased by 7.1% (Ghumnam, 2010). Consequently, 167000 to 2.32 million people fell out of their jobs in three months.
In the hospitality sector, the ration of male and female workers is almost equal. The only issue with the industry is the lack of employment opportunities and low wages as compared to other industries in the nation.
The market structure for the hotel is free market economic structure. Hence the restrictions are low. The key of success of any industry is the political stability. It is applicable to IHG hotel chain also (Wang and Ellinger, 2011). The number of visitors and tourists is influenced by the political factor. The political situation in Netherland is very delicate. Hence, people visiting there are highly concerned about the political factor. This also leads the company to be unable to make profit in Netherland and areas with political instability because there are not much tourists and business travelers. Further, the availability of skilled workers is also low.
There are certain laws that directly affect the .company. These include employment law, competition law and consumer protection law (Capon, 2009). Further the country has cold war with several nations. Consequently, IHG’s business in those countries is affected by the political tension. However, the firm has been benefitted form various government ventures such as London Olympics that lead to huge revenues for the company.
The EU has an important role of formulating rules and regulation for the sector. Some of the policies like EMU policy, for the service industry businesses, state that all the companies have to deal in Euros. Consequently, the company has to monitor every change in Euros. However, some of the policies have benefitted the firm (Pizam, 2010). One such example is the policy of equal rights under which people are employed without any discrimination and have equal opportunities.
The basic income tax in UK is 20% on £31,865 and the higher rate is 40% for income more than £31,865 and less than £150000. Over that the tax rate is 45%. VAT is 20%. In order to lead to growth in hospitality industry, VAT must be reduced.
Pressure group is a collection of people that does not put their candidates for the election but instead of that, they try to influence the government policies and legislations by the means of rallies, movements, etc. Because of their characteristics, they are also called as the protest or the interest groups who fight with the corporations for the interest of people and society. One of the main for the formation of these groups is to influence the decision of the people who have the power to make the decisions (Laudal, 2012). There are different pressure groups within one city which may fight with each other or against each other because thinking and policies of each group is very different. They use varieties of the methods to influence the law so that it can benefit society, or provide help in the election, threaten any company, speed up the formation of laws, etc.
Their role in the hospitality industry is very crucial as they fight against the big corporations and harm the societies (Sundaramuthy and Dean, 2008). Many of the hospitality firms break rules in terms of environment law, discrimination law, gender biasness, fare wages, etc. It is the role of these groups to make sure that these companies do not fool the people and provide benefits to the societies as well. There are many hotels that harm the environment for the sake of their benefits so the pressure groups try to protect against those groups and raise awareness so that company can stop that. There was a movement called Green peace which helped the UK to save thousands of tress from being cut down. These groups also take care of the workers as they fight for their rights in the company so that they could be provided good wages and there should be no gender inequality. They have helped many poor citizens in the country by protesting against the companies so that these people could be provided with pensions. Also they organize many camps in which they educate workers regarding the safety at workplace so that these people can tell in their companies to follow all those measures.
Some of the Hotels like IHG are also very active in forming the pressure groups as they have successfully created campaigns regarding the environment safety in which they focused on the ways to stop the water pollution, air pollution, etc.
The whole of United Kingdom and the Northern Island is made up of four countries which are England, Wales, Scotland and Northern Island. There are some of the difference between the English law and Scottish Law and UK parliament enacts the statute law except Scotland. The principle of UK law are-
Common Law- These laws are made by the judges who sit in the court by applying their own knowledge and the judgment which is based on the legal precedents of the cases (Lai and et. al. 2007). All the judgments are binding as if the similar case comes then the previous decisions are implied.
European Law- All the laws of EU are incorporated in the English law before they are applied in the English Courts (Wall, 2002). EU laws are made to help the societies and companies so that they can develop.
European Convention of Human Rights- UK is a big part of this committee and the laws made by them are applied in every court of the country.
IHG Hotels have to follow many rules and regulations to run their business. Law starts from the beginning like from taking license to the food and hygienic rules. These laws are very strict and failure of them by any hospitality chain can cause them great trouble as they will have to face very severe punishments which can rise from criminal, civil actions to the imprisonments.
There are different types of businesses in the hospitality industry which are very different from each other, some of their characteristics are-
Hotels- These are called as the core of the hospitality industry as there are more than 60, 000 hotels in UK and their occupancy rates are more than 75%. It contributes more than 20% of the revenue in this sector and provide employment to almost 240, 000 people.
Restaurant- After hotel, these have the largest contributions as they are associated with the food area. There are more than 56, 000 restaurants in UK and they all are earning fair revenues. It employees more people than the hotel sector which is almost 500, 000 people (Bracci and Maran, 2013).
Pubs- These are owned by the private investors and are related to the fun and entertainments. They serve both the food and drinks and their main aim is to attract the youth. There are 59,000 pubs in the country and they are doing very good business.
Entertainment Parks- These are also related to the fun and entertainment but their mainly attracts the kids and the families (Laudal, 2012). These are made on the very large areas with lots of fun rides, etc. They might include pubs, restaurants and even restaurant too in them.
There are different types of business which workers on the basis of their nature as well as requirement so as to cater requirement of customers in an effective way. These are as follows-
Sole trader-Under this only a single man runs business and make necessary arrangement on the basis of his own requirement that facilitate to have effective control over the firm. Here, third party cannot interrupt in the decision making process and profit sharing also do not take place (Fraser and Pong, 2009). Further, there is very less legal requirement which facilitates to easy start up of business and contributes toward achieving long as well as short term objectives of business. It is very effective way to open independent business and start family business so as to increase overall rate of return by providing good quality of services to customers. For example, an individual can open its sole trading business by opening a restaurant that does not require to complete many legal requirement as well as keeping specified capital (Guo and Wang , 2014). For example, Princess Hotel is running as a sole proprietorship type of business in UK.
Partnership-It is the joint business of two people in which at least 2 and maximum 20 people are required. Their liability is limited up to the capital invested by them or on the basis of agreed condition. All partners have to work together otherwise business need to be dissolved by sharing profit as well as losses on the basis of agreed terms. There can be equal ratio of profitability or on the basis of ratio of capital invested by each partner. For example, Luxury Hotel Partners is in partnership as it manages a group of 30 luxury hotels all across the world for owners, absentee landlords and investors.
Franchise- It is other type of well-known business which facilitates to ensure expansion and growth of parent corporation. Under this, in order to expand business in other geographical areas, management of companies give right to another firm to sale and manufacture product by their own brand (Khanna, 2012). Here, rules and regulation are made by the parent firm and also it supplies equipment that contributes towards achieving long as well as short term objectives of firm. Under this, license is issued to franchisee in which they have to pay set cost as well other relevant cost that assists to deliver good quality of services to customers. For example, IHG issue license to another firm which is situated in England then franchise take place in England. Here, franchisee attract large number of customers and provides them similar services by the name of IHG hotel. For example, Mc donalds and Hilton is franchisee.
Private limited company-It is another business in which intervention of government does not take place and associated manages all business activities at their own. They are not allowed to issue share for raising capital. They are not required to cater need of general public by showing their financial statements (Wall, 2002). Under this, owner does not have to worry about assets of business because he has limited liability. Further, one person is assigned in the company who managers all business activities as well as other team members. Example, Britannia Hotels is a group of hotel company which is a private limited one in UK.
Public limited company-It is the most imperative business in which government interferes in all financial transaction as well as rest of the activities that enables management to abide by the law and ensure ethical conduct of business. Here, hotels have prime requirement to cater need of different stakeholders as well as general public. Public limited firm have to keep minimum capital as per the specification of government and also publication of financial statements so as to provide detail information to shareholders (Bracci and Maran, 2013). Management of public limited company need to ensure about compliance of International Financial Reporting Standard. Shareholders of public limited firm has limited liability and business continue even they leave firm. Here, firm has opportunity to raise capital by variety of sources of finance that facilitate to expand business over the globe and deliver good quality of services to customers. Further, stakeholders of firm can transfer their share without much concern which ensure high liquidity and satisfy them in an effective way (Dascalu and et. al., 2010). Example, Forte Group is listed on LSE and is a public limited group of Britain of hotel and restaurant.
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There are various legal procedures required for the incorporation of any company in UK. Due to the advancement in the technology, many of the companies are formed within one day. Incorporation Process is-
There are different roles and duties of the people in each and every organization which starts from the directors of the company to the stakeholders. It is very much crucial for each and every person to follow all their responsibilities otherwise many strict actions are taken in accordance with the companies act and people have to face court trials. Roles and responsibilities of each person are-
Boards of Directors- They have to meet on regular basis and it is their duty to make the balance between their power and authority (Khanna, 2012). Company’s secretary is involved with all the directors and he sees that every responsibility of the director is fulfilled.
Non-Executive Directors- They has to provide their independent judgments in the matters of the strategy formulations, performances, etc.
Executive Directors- They has to maintain the transparency in the business by disclosing the amount paid to chairman, directors, employees, pensioners, suppliers in the annual reports of the company.
Financial Reporting- It is necessary for this department to prepare a well-balanced assessment of the company’s position.
Roles of Auditor- Annual audit of the company is presented to the board of directors which should be completely fair and honest (Fraser and Pong, 2009). There should be complete professional between the board of directors of the company and the auditors. It is the right of the auditors to have direct access the non-executive directors.
Roles and responsibilities of shareholders- They have the duty to select the director to run the company by exercising their vote in the best interest of the company. They can also appoint the auditor for the company so that he can follow the performance of the organization.
There are different roles and responsibilities of higher as well as upper management of the firm IHG hotel. Here, human resources management is responsible for providing good working conditions to chef and other services providers so as to give them higher level of satisfaction and complete task on right time (Capon, 2009). Upper level management need to assign task among team and they should also be delegated proper authority to work so that they can be able to contribute toward achieving long as well as short term objectives of firm. Further, upper level management of company need to ensure about availability of proper financial as well as physical resources which aid to increase overall productivity as well as profitability of the firm (Fernando, 2011). It facilitate to ensure about smooth flow of production and increases overall rate of return of IHG hotel. For example, with the help of consistent flow of production, IHG hotel can retain existing customers and attract new one so as to provide them good quality of services and expand business over the globe. It is also imperative to give higher level of satisfaction among employees and retain them for long span of time. It leads to accomplish long as well as short tem objectives of IHG hotel (Jain, Trehan and Trehan, 2014).
It can be concluded that there are a number of external factors that affect the company considerably. These factors cannot be controlled by the company and hence they have to study them effectively and take significant precautions. The market structure and some of the government policies are beneficial for the business (Sundaramuthy and Dean, 2008). However, the growth is hampered by high political instability. The only issue with the industry is that businesses are unable to provide appropriate remuneration.
UK’s economy is very encouraging but on the other hand there are some laws which do not favor the companies and they have to face many difficulties. IHG hotels are doing great business in their field and they have to take many precautions to run the business because slight mistake can go against them.
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