Executive Summary
The report evaluates the business environment in the UK. This is attained through evaluation of the business external environment. The analysis is conducted through the incorporation of the PESTLE model. Some of the environments considered include the legal, environmental, social, and economic environment. These environments are evaluated through analysis of the environment in a real business setting. Some of the industries considered include the banking industry, food industry, grocery industry, and technology industry. The banking firm considered includes the Royal Bank of Scotland while McDonald’s is analyzed as one of the fast-food firms which have been affected by a change in social behavior. On the other hand, Sabien Technologies is analyzed about changes in a technological environment. Finally, a conclusion and recommendation are made.
Introduction
Background to the study
The business’s internal and external environments have a significant influence on a firm’s success. According to Drummond (23), firms in different economic sectors have the capacity of controlling the internal environment. Rob (1) asserts that firms cannot be able to control the macro environment which consists of the economic, political, social, technological, and legal environments. The external forces influence both a firm’s industry and internal environment. For example, the government may implement legislation that limits a firm’s capacity to hire or fire employees. There is a strong correlation between a firm’s long-term success and its external environment. Gaining a comprehensive understanding of the firm’s external environment is vital in the process of making decisions on how to survive in the long term. To achieve this, the firm’s management teams should incorporate the PESTLE model. The resultant effect is increased efficiency with which the firms analyze the political, economic, social, technological, and legal environments.
In the 21st century, the UK external business environment has undergone numerous transformations with have affected the firms’ survival. For example, the United Kingdom Motorcycle Industry witnessed significant competition as a result of technological advancement by competing firms in Japan. As a result, the industry faded due to its ineffectiveness in responding to environmental changes about technology (Talloo 48). Tesco is one of the leading global retail firms operating within the UK Grocery stores industry. The firm is ranked as the 4th largest grocery retailer. Its top competitors include Wm Morrison Supermarkets, ASDA Group, and J Sainsbury. Over the past few years, the industry has witnessed rampant changes in the integration of electronic commerce.
Similarly, economic changes have affected firms operating within the UK banking industry such as Northern Rock which provides both secured commercial and residential lending. In addition, the firm also offers personal finance. The firm has positioned itself effectively about asset management. Environmental changes have also affected firms in the UK manufacturing industry. One of the major causes is increased environmental concern. One of the firms operating in this industry is Sabien Technology which has positioned itself as an effective provider of energy-efficient technology.
Aim
The report is aimed at identifying and evaluating various PESTEL factors in the UK which affect business activities. The report also illustrates the effects of the external factor on the firm’s current and future operation.
Scope
The report evaluates the legal, environmental, social and economic environment in the UK business environment with regard to specific firms.
Findings
Pestle Factor –Legal
- Companies face further fines under new green tax
- James Kirkup and Louise Gray Friday 26 November 2010 (The Telegraph)
The UK Daily Telegraph illustrated in appendix 1 reported that firms operating within various sectors in UK are faced with a risk of being fined. According to the Agency,” firms which will not have registered by 30th September 2010 will pay a fine of $ 7,788. An additional $ 780 fine per day will be applicable up to $70,000 until they comply.
The legislation requires firms of given sizes to measure the amount of carbon they emit into the environment. It is estimated that approximately 1,229 large firms are eligible for the legislation. Firms which comply with this legislation will be rewarded whereas those which fail will be penalized. The article reports that firms which report inaccurate measurements will be fined $62 for every one ton of Carbon Dioxide gas which is over the acceptable 5% margin. Considering the heavy cost involved with failure to comply, both small and large firms find it appropriate to register. According to Kirkup and Gray (para. 2), the legislation was aimed at ensuring that firms invest in technologies result into minimal carbon emission. The resultant effect is that the UK government will be able to its target to reduce carbon emissions with a margin of 34% by 2020. The reported legislation represents an opportunity for firms which with production of various energy efficient technologies such as Sabien Technologies. Sabien estimates that a carbon market whose annual worth is $ 780 million will be created. This arises from the fact that firm’s in different economic sectors will be forced to implement green technology in an effort to eliminate carbon emissions.
PESTLE Factor – Technological
- Tesco launches barcode scanner application for online orders
- Martin King- The Guardian Tuesday 26 October 2010
Considering the high rate of technological innovation with regard to electronic commerce, it has become paramount for firms in the retail industry to consider on the most effective way to develop and maintain their competitive advantage (Drummond 38). The article in appendix 2 reports that smartphones have become vital components in the growth of electronic commerce. According to King (2010) firms in the retail industry are bund to improve their operation through integration of smartphones as one of there key components of electronic commerce.
The article reports Tesco to be the first retail firm to have integrated its barcode reader in its new Groceries iPhone. The objective of the application is to improve the firm’s online marketing ability. The application targets busy customers such as parents and professionals. According to King (2010), the new technological innovation will enable customers to conduct online purchasing more conveniently. This arises from the fact that the ordering process will be simplified which makes it possible for consumers to add products to their basket for home delivery. The resultant effect is that there will be an improvement in the firm’s sales as consumers integrate the technology in their purchasing patterns.
PESTLE Factor- Economic
- UK banks face credit rating downgrades
- Nicholas Watt- The Guardian Thursday May 6, 2010
The article in appendix 3 reports how the UK banks have been downgraded by Standard & Poor’s a credit rating agency. The industry’s rating was lowered by one tier. The reason behind the decline in rating arises from the weak economic environment in UK. In an effort to minimize the effects of the weak economic environment, the government, supported most of the banks directly which represents a high degree of banks instability. According to Watt (2010), this may affect the performance of major banks such as Royal Bank of Scotland. This arises from the fact that the firm’s reputation will be negatively affected leading into a decline in the volume of deposits. The ultimate result will be a decline in the firm’s financial performance. Due to decline in credit rating, Royal Bank of Scotland experienced a reduction of 0.42% in its share price. Decline credit rating will culminate into an increment in the cost of borrowing. This means that a large number of customers will not consider sourcing for finance from the bank in form of bank loan.
PESTLE factor –Social
- It’s not McDonald’s making us fat
- William Leith- The Guardian Monday October 18, 2010
The article in appendix 4 reports the change in consumer behavior with regard to health consciousness. Currently, consumers are becoming more conscious to food products which they consume. The change arises from increased cases of diet related diseases such as obesity. This will affect performance of firms of McDonald’s UK which is a fast food firm. Due to their health conscious nature, the firm expects a reduction in the volume of its sales. This arises from the fact that there will be a decline in demand for junk foods. Consumers will search for more healthy foods to substitute the junk foods such as burgers.
In an effort to move with the market trends, there is a high probability of other new firms entering into the industry through production of healthy food products. This arises from the fact that the market for fast foods is characterized by perfect competition hence there is ease of entry.
Conclusion and Recommendations
From the analysis, it is evident that the various external factors affect the success of firms in different economic sectors. For example, changes in the legal environment may result into a firm incurring heavy financial cost if it fails to comply with the legal requirements. Similarly, changes in the economic environment may affect a firm’s financial performance while social changes may affect the demand of a firm’s products and services. In order for firms to succeed, it is paramount for the management teams to continuously evaluate the external environment. This will aid in identification of the changes in the external environment and hence making a decision that will enable the firm to survive.
Work Cited
Drummond, Thompson. The Business Environment. London: Pearson Custom. Publishing, 2006. Print
Kirkup, James and Gray, Louise. Companies face further fines under new green tax. London: The Telegraph. 26 November 2010. Web.
King, Mark. Tesco launches barcode scanner app for online orders. London: The Guardian. 2010. Web.
Leith, William. It’s not McDonald’s making us fat. 2010. Web.
Rob, Watkins. The Business Environment. London: Pearson Custom Publishing, 2008. Print.
Talloo, Eric. Business organization and management. New Delhi: Tata McGraw-Hill. 2007. Print.
Watt, Nicholas. UK banks face credit rating downgrades. London: The Guardian. 2010. Web.
Appendix 1
News
Companies face further fines under new ‘green tax’
The Environment Agency has been accused of leaving businesses open to further fines under a new ‘green tax’ by asking companies to register their carbon footprint even if it is not accurate.
Earlier in the week the Daily Telegraph revealed that thousands of companies face fines of up to £45,000 for failing to register for the Carbon Reduction Commitment.
The new ‘green tax’ requires business over a certain size to start measuring their greenhouse gas emissions as the first step towards a new carbon trading scheme.
Ultimately those companies that cut the most carbon will be rewarded while those at the bottom of the league table will face financial penalties that could end up running up to hundreds of thousands of pounds.
But many smaller businesses are already struggling to submit accurate measurements of their energy use and where the fuel comes from.
Now the Environment Agency is telling companies they can register without having to accurately measure their ‘carbon footprint’ in an effort to make more firms sign up to the “difficult and disjointed” scheme. The email reads: “Do not delay registration even if your information is not fully accurate”.
Rebecca Seabury, from Inenco, the UK’s largest energy analyst, said this runs contrary to the whole point of the scheme, which is to start measuring carbon emissions accurately in order to tackle climate change.
It also leaves companies open to further fines if they get it wrong, once the scheme is up and running from April next year.
Companies found to be putting in inaccurate measurements will be fined £40 for every tonne of carbon dioxide over and above a 5 per cent margin. Again this could run to hundreds of thousands of pounds. “The move appears to encourage nothing more than rudimentary compliance with the legislation, which contrasts with the central aim of the scheme, to promote proactive management of energy consumption and carbon emissions,” said Ms Seabury.
“If organizations are unable to obtain accurate data on their energy usage at this stage, it’s going to be difficult for them to track their efficiency and make reductions in the future, and unlikely that they’ll benefit from the CRC league table. It also leaves them open to further fines that could run to hundreds of thousands of pounds.”
The Environment Agency insisted that the email was sent out to encourage all companies to register by 30th September and to highlight the help available to businesses that may be struggling. Anwen Robinson, of Unit4, that helps business on comply with environmental law, said the penalties attached to the new green tax will soon build up to a “major bill”.
She pointed out that businesses face fines of £5,000 if they do not register in time and then £500 for every day they are over the September deadline up to £45,000.
Even if companies do register in time they will be forced to shell out thousands of pounds if they fail to cut carbon emissions. And if they supply inaccurate information they are fined £40 for every tonne of carbon outside the five per cent margin.
Finally, there is the threat of fines and even a jail sentence for staff and company executives that knowingly provide the wrong information.
“Businesses are not taking it seriously because they do not understand the impact on their organization. They need to wake up and smell the roses,” she said.
An Environment Agency spokesperson said: “It is in the interest of companies to be as accurate in their assessment as possible but we have always made it clear that at this stage of the process there is flexibility around in the information that needs to be provided. We will work closely with businesses to aid their registration and encourage organizations to submit the most accurate information they have.”
Appendix 2
Tesco launches barcode scanner app for online orders
Tesco has added a barcode reader to its Groceries iPhone app that can add items to a customer’s online home delivery order
The UK’s first transactional barcode scanner for the iPhone is being launched by Tesco today, enabling householders to scan any grocery item and add it to a home delivery order instantly.
The barcode reader, which has been added to the existing Tesco Groceries app available on the iPhone, is being targeted at busy parents and time-poor professionals who want to be able to add specific items to their online shopping basket at any time rather than browsing for groceries to add to their shopping lists in the (now) traditional way.
Tesco envisages that it will be particularly useful for those times when a customer tries a new food at a friend’s house that they want to buy or a child has finished the last of their favorite yoghurt while out and about – a quick scan will see the item added to a shopping basket where it will remain until the customer is ready to checkout.
Laura Wade-Gery, chief executive of Tesco.com and Tesco Direct, said: “We’re always looking for ways to make life easier for customers and for busy mums in particular. The barcode scanner will make online ordering much quicker for those that have an iPhone. Customers can simply scan the barcode of grocery products stocked by Tesco whilst on the go and add them into their online shopping basket.
“This is the perfect solution for iPhone lovers that are always forgetting to add items to their shopping list or haven’t the time to even write one.”
Tesco’s four iPhone apps (including the Clubcard, Store Finder and the Wine Finder apps) have over 1m downloads between them, with the Grocery app alone notching 400,000 downloads since it launched in early September 2010.
A quick test of the app in the Guardian offices resulted in a relatively successful trial, with the barcode recognizing a pack of Berocca, a small tub of Vaseline lip balm and, of course, today’s copy of the Guardian. It failed to identify a large tub of Extra chewing gum (60 pieces) and a 750ml bottle of Vittel water.
Tesco said the barcode scanner will find any item stocked by the supermarket rather than just own-brand products, but it will not work on larger items as the group said they will not fit in the supermarket’s delivery vans. Developments in the Tesco Direct business (which does deliver larger items to customers) are expected to be announced by Tesco within weeks.
Appendix 3
UK banks face credit rating downgrades
UK banks could face downgrades to their credit ratings because of exposure to European sovereign debt that has been dealt a blow by the Greek crisis, a ratings agency has warned.
 |
| Exposed:Bank assets could be weakened. |
Moody’s reported today that ‘the potential contagion of sovereign risks to banking systems could spread to other countries such as Portugal, Spain, Italy, as well as Ireland and the UK.’
Moody’s was assessing the risk to banks of poorer quality sovereign debt arising from the Greek debt crisis. Rather than direct exposure to Greek government debt – most of this was held by French and German banks – Moody was looking at the impact of downgrades to other nations’ debt.
The so-called PIGS – Portugal, Ireland, Greece and Spain – have been under close scrutiny from ratings agencies. With Greece now reliant on a European Union/International Monetary Fund loan, other nations are looking increasingly vulnerable.
Moody’s yesterday put Portugal on watch for a possible downgrade of its sovereign debt. A week ago, Standard & Poor’s downgraded Greece’s government bonds to junk status.
Moody’s said the banking systems of Portugal, Italy, Spain, Ireland and Britain all face different challenges of different types, but warned that ‘contagion risk could dilute these differences and impose very real, common threats on all of them.’
The banking systems of Portugal and Italy, like that of Greece, were not hit too hard by the global financial crisis, but their huge public debt load is remains threat. Banks in Spain, Ireland and the UK were more exposed to the credit crunch and have weakened their countries’ finances significantly over the past year, the agency said.
Bank shares are already suffering from dwindling investor confidence. Moody’s downgrade of Portugal sparked another rout in the bond market and saw investors dump shares in Europe’s biggest banks, with Santander losing nearly 3% of its value.
Between them, UK and continental lenders are expected to lose tens of billions of pounds on their combined £453bn holdings of Greek, Spanish, Portuguese and Italian government debt following the recent sell-off.
British banks are sitting on an estimated £40bn stockpile of this weaker European government debt. In the past week alone, Lloyds Banking Group shares have plunged 11.9%, Royal Bank of Scotland has fallen 11.03%, HSBC 5% and Barclays a whopping 12.2%. Today banks were among London’s biggest fallers. Barclays lost 3.9p to 318.85p, HSBC fell 6.6p to 646p and Royal Bank of Scotland slipped 0.42p to 49.98p ahead of its latest trading update. On the day that Lloyds Banking Group faced its shareholders the lender recovered slightly by 0.42p to 60.52p. Moody’s gloomy report helped to send the euro to a one-year low against the dollar. The euro fell to $1.2780, and to 80.3p sterling.
Appendix 4
It’s not McDonald’s making us fat
Despite its rot-proof burgers, McDonald’s isn’t the cause of our obesity epidemic – our culture of greed is
When I heard the story about the McDonald’s Happy Meal that wouldn’t decompose, I was sure there would be a smoking gun. If we are to believe her, Sally Davies, a photographer from New York, bought a Happy Meal – a burger and fries – on 26 April. Then, she says, she left it alone on a plate.
She photographed the meal every day. Weirdly, it didn’t seem to rot. It didn’t smell bad. There were no maggots. Neither the burger nor the fries developed a coating of slime or mould. In the pictures, the burger doesn’t change much, from day one right up to day 180.
Could this be true? Well, it was certainly something a lot of people wanted to be true. Davies’s pictures, and videos of Davies being interviewed, have become a viral hit on the internet. Davies says she was inspired by another woman, Karen Hanrahan, who has kept a similar McDonald’s burger since 1996. That’s 14 years.
Another woman, Julia Havey, who describes herself as an obesity activist, uses an ageing burger as a promotional tool. Having been seriously overweight, Havey gave up eating junk food, and keeps a three-year-old McDonald’s burger and some ancient McDonald’s fries in a lunchbox. There is, as she points out, no mould or mildew on the burger, and the fries look as good as new. “It’s ageing better than me,” she has said. Havey also keeps pieces of ordinary potato, which turn black after a few weeks. Talking about junk food, she recently said: “Once it gets in your thighs, there’s no breakdown! It doesn’t go anywhere! Real food breaks down. This can’t be real food.”
For their part, McDonald’s have issued a statement in response to the Davies burger. “It is not possible to provide a detailed explanation regarding these claims without knowing the conditions in which these food items were kept.” The fast food giant also points out that their burgers are made from “100% USDA-inspected beef cooked and prepared with salt, pepper and nothing else”, and that their “world-famous French fries” are “made from potatoes and cooked in a canola-oil blend”.
Three women; three mummified burgers. So what’s going on? Well, the mummified burgers and fries are easy to explain. As the food scientist Barry Swanson, from Washington State University, recently told Salon.com: “Anything high in fat will be low in moisture.” These French fries are cooked at a very high temperature. They are very thin, and have been fried to a crisp, so they contain lots of fat. They also contain salt, another natural preservative. And what about the burger? Another food scientist, Sean O’Keefe from Virginia Tech, told Salon something similar. “It’s also very thin, which once again means high heat per surface area.”
This food, then, is not particularly healthy. The fries are made of cooked starch, which quickly turns to glucose in your blood, and salt, which can raise your blood pressure, and fat, which is high in calories – a triple-whammy of badness. The burger – well, it’s made of meat from a lot of different cows. And this meat comes from all over these cows. It’s not prime fillet steak. And it’s not exactly organic. But really, it’s just a thin bit of ground-up cow, with added salt, cooked at a high temperature. It doesn’t rot like a homemade burger would. This is, basically, because it’s not as nice as a homemade burger. Germs don’t like it very much.
Perhaps the most disturbing thing about the phenomenon of the immortal junk food, whether it’s true or not, is how much we want it to be true. The fact is, we’re fat. We’re getting fatter. And we really want to blame somebody. So we blame McDonald’s. We want to believe that McDonald’s is the reason we’re fat. But the truth is much more complicated, and much more inconvenient. We are greedy. Our whole culture is greedy. We are fat because our whole culture is based on making us want more stuff all the time. The problem is not just junk food. It’s everything else as well.