UKCBC Unit 2 Business Environment-2
LO2: Understand the Nature of the National Environment in Which the Business Operates
P 2.1 Giving relevant examples, briefly explain how different economic systems such as command, free enterprise, mixed and transitional systems attempt to allocate resources effectively
If we talk about the types of the economic system prevailing across the world, then there are basically three types of economies present which are: free market economy, command economy, and the mixed economy. The economic systems have different driving forces which work towards the allocation of resources effectively. In a free market economy, there is total freedom top the producers and the buyers to exchange in a way that is a win-win situation for both the parties. This type of structure enables the problems tone handles automatically by the system and the market is responsible for the allocation of resources. In the free market economy, the stakeholders have a lot of options to choose from because of the independent marketing strategy (Whitley, 1994). The business decides what to produce depending on the preferences and demands of the customers. The businesses are required to keep the customer preferences as the top priority but with a motive of making a profit. The activity of producing goods and services decides the profits of any company. The products are offered to the customers in the market and the market forces decide the flow of products to certain customers depending on their disposable income and their interests. On the other hand in the command economic system, the controlling authorities are responsible for the effective allocation of resources. Here by controlling authorities we refer to the government and its related organizations. In the command economic system, the decisions are made based on the need basis. The companies have the right to decide what to produce, for whom to produce, how to produce, how much to produce, etc. The allocation of resources in such a system is done by proper planning and strategy. So according to some of the economists, the command economy is better than the free market economy. In the mixed economy, there is a combination of the free market economy and the controlled economic system. The free markets forces are controlled by the controlling authorities so they have the advantage of both the economies hence the resources are more efficiently allocated. Here the decision of what to produce is partially decided by the consumer preferences and partly by the government intervention. The decision of how to produce is to decide by the firm itself under government surveillance. The customers for whom the products are produced are decided by the consumer purchasing power, their interests, and government policies as well. Most of the economies in the current scenario are mixed economies and it is very beneficial for both the parties i.e. the producers and the customers (Young, 1999).
P2.2 Considering Tesco PLC UK, assess the impact of fiscal and monetary policy on their activities
The government policies and the related regulations play a very crucial role in formulating the fiscal and monetary policies of any country to keep a balance between the expenditure of the government with respect to its earning to meet its objectives of personal development. This is done by the government by formulating policies and by the help of central planning system. The economies of any country are majorly governed by the two policies formulated by the government of that country: fiscal policy and the monetary policy. The main elements of the economy will be affecting the business are the tax rates and government spending. The fiscal policy can take the form of automatic or discretionary depending on the present conditions and the government preferences (Fatás, 2001). The fiscal policy determined by the government has to play a major role in the growth of any economy and the employment opportunities of the economy. The fiscal policies can enable the consumers and the producers to have the access to capital. The business has to take into consideration the tax rates in developing its strategies and taking various business decisions (Kollmann, 2002). Tesco plc also gets affected by these fiscal and monetary policies which are formulated by business. In the UK, they are not favorable for the company to expand in different geographies. The tax rates are high so the company has to conscious about its investment plans and recruiting strategies. Higher the tax rate, it would be more difficult for the businesses to pay back to their investors and lenders and more will the risk. Also, higher taxes will mean less disposable income to the customers and hence less possibility of earning high revenue by the businesses. If the customer expenditure is less it means the supply-demand issue will be brought into the picture which will not be good for the health of any economy. The monetary policies on the other hand also play some similar roles. It is basically concerned with the control over the supply of money in the market. The amount of money supply in the market is responsible for many decisions being taken by businesses. This supply of money is in total control of the government, the controlling authority and this can be regulated depending on the satiation by adjusting the interest rate, tax rate, etc. All these will affect the supply of money available in the market. All these regulations done by the government will indirectly also affect the foreign exchange rate which has a direct impact on global businesses. The interest amount to be paid will be high as the base rate increases. It will decrease the profit amount and will demotivate the organizations to do business. It will affect the market sentiments in a negative way and organizations will avoid taking loans and do business. The businesses will also get affected due to high foreign exchange rate due to high-interest rate and will have to pay more for import of raw materials (Scherer, 1990).
P2.3 Evaluate the impact of competition policy and other regulatory mechanisms on the activities of Tesco plc the UK.
Tesco plc is a UK based organization which is dealing with supermarket chains all over the world. The company has a very strong brand name in the retail sector and is very popular in the field of grocery and general merchandising. As we have mentioned that the company has gone global and has a presence in various parts of the world. So they also have to face a lot of cross-border rule and regulations to do business outside the local environment. They have to follow the legal complication of different nations before doing business in that geography. In the UK, the company had to face the regulation of the competition law which was incorporated by the UK government in the year 1948. This law was passed with the prime motive of creating a healthy and robust competitive market where every competitor has a fair chance to compete with its competitors. This also helps for stopping the big players to take the advantage over the small players and every player in the market gets equal opportunity to flourish. These laws are in favor of customers in giving them multiple options to choose from. This also helps in the fair pricing of the products and services offered by different organizations. Tesco has faced some problems due to these policies. They cannot get into taking decisions in fixing their prices. The company has faced challenges in complying with the proposals of the British government (Yip, 2006). The government has imposed heavy penalties on the organizations in the past that broke any rule or regulation in the competition law hence Tesco has to careful enough on this front. These policies have also served as roadblocks in expanding the business to new locations and new markets. There are many other laws like the competition laws which are imposed by the British government which Tesco has to follow. There are many human resource related laws which the company has to abide by. For example Minimum wage policy which was introduced under the National Minimum Wage Act in the year 1998, workplace safety regulations which come under the Health and Safety Wage Act 1974, maximum work hour policy, etc. All these acts decide that how Tesco will treat its employees. Another act known as the Sales and Good Act makes Tesco fulfill the requirement of contract terms with the suppliers in buying raw materials and in selling the finished goods from its retail outlets. The recruitment policy followed by Tesco makes the company follow the anti-discrimination laws prevailing in the UK. This helps the employees in the UK from getting discriminated from each other on a different basis. Other acts followed by Tesco are race relation act, disability act, employment equality regulation etc.Order Now