Understand The Organizational Purposes Of Business Economics Essay

This study is conducted to identify how different organizations are influenced by its stakeholders and the relationship between business and the local, national and global environment.

The following are the main objectives of the study.

Understand the organizational purposes of business

Understand the nature of the national environment in which business operate

Understand the behavior of organizations in their market environment

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

To achieve the above outcome, a leading British multinational company ‘Anglo American’ was selected and studied to find out its environmental factors and their influence in the business. As indicated in their official website, Anglo American’s headquarters is in London and it operates in Africa, Europe, South and north America, Australia and Asia.

Task 1:

Identify purposes of different types of organizations. Define Anglo American in terms of organizational purpose.

Different types of organization have different purposes. According to Draft R. L.(2008, p 60) all organizations exists for a purpose & this purpose may be referred to as the overall goal ,or mission. Organizations can be categorized according to several categories. Firstly it can be divided to public and private sector organizations. Usually public sector organizations have more non financial objects than than the financial objectives. Private companies can be divided into many organizational types like sole traders; private limited companies (Ltd), partnerships, public limited companies (PLC).These have mainly financial objectives. However, nowadays all organizations understand the importance of introducing non financial objectives to their portfolio.

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Modern Organizations especially large multinational companies set their objectives not only in economical perspective, but also concentrate on social, environmental and customer perspective &etc. Carpenter et al (2010) pointed out that it can be seen many organizations increasingly adopt noneconomic objectives and techniques like triple bottom e is gaining so much attention in the businesses. Triple bottom line is a criteria for measuring organizational success in economical, ecological, and social aspects. Anglo American’s objectives too involve triple bottom line. Anglo American have six guiding values and SMART objectives which help them to achieve its business strategy which focuses of sustainable development. Therefore Anglo American similar to any other multinational companies in the modern world.

http://elizabethgwalker.com/wordpress/wp-content/uploads/2010/12/20070207-threees.jpg

[Source: http://elizabethgwalker.com/wordpress/2010/12/the-triple-bottom-line-for-true-sustainability]

Also describe the extent to which Anglo American meets the objectives of different stake holders.

Stakeholders are the individuals or groups who have interest and/or influence over the organization and its action.Marquiset al(2009, p276) points out that “stakeholders have interests in what the organizations does but may or may not have the power to influence the organization to protect their interest. Stakeholder’s interests are varied. however, and their interest may coincide on some issues & not others”. Therefore a company should have different objectives towards different stake holders.

Shareholders are one of the most important stakeholders to a company.Shareholder’s ultimate objective is wealth maximization. Anglo Americans official website shows that its Operating profit for the year 2011 was $11.1 billion and had a Earnings of $6.1 billion which shows that the company has been able to provide financial returns.

Employees are another important internal stakeholder. Anglo American’s website says becoming the employer of choice is a key part of their ambition to be the leading global mining company.During 2011, Anglo American have invested $79 million (2.2% of total employee costs) in direct training activities, and have supported more than 3,122 bursars, apprentices, graduates and other trainees. As talent management techniques, Anglo American has implement People Development project in 2010 and a new performance management system in 2012.Futher their website points that they are promoting diversity and equality within the work place.

In addition to these stakeholders Anglo American have a duty towards customers, general public, government and etc.Fighting Global Poverty: Fanning the Flames report points out that “Anglo American prides itself not only on its profits and ‘market beating returns’ to shareholders but also on its corporate social responsibility (CSR) record. To this end, Anglo American has made much of its ‘good citizenship business principles’and its involvement in various voluntary CSR schemes.”.However it further says that “For communities living with the impacts of Anglo American’s activities, such voluntary initiatives mean very little.”Further it report a case of example of Africa of how local communities see Anglo American’s mining operations as a threat to their lives; and often suffer heavy consequences as a result of voicing opposition to company’s activities

Therefore it is clear that Anglo American has succeed in achiving in some objectives of shareholders while they have been failed to cater some.

Highlight the responsibilities and also explain the strategies used in connection with fulfilling these responsibilities at Anglo American.

Sunita (2005) points out that primary responsibility of a business is to earn profit, but it is not the only responsibility. It points out that business corporation have responsibilities towards the owners, employees, customers, dealers, competitors, government & general public. Therefore, the concept of corporate social responsibility is coming into existence. It is a form of self regulation which ensures its active compliance with law, ethical and international norms.

Anglo American’s website illustrates how well they have been able to deliver its responsibilities. Sustainability development section demonstrates strategies Anglo American used to fulfill these responsibilities. Anglo American has established policies, standards & commitments towards environment, safety & health, society and sustainability. Further Anglo American has some strategies like integrating sustainable development to its operations, promoting transparency & ethics adhering to human rights & collaborating with other companies to achieve the aim of delivering responsibilities to all its stakeholders. Further they have incorporated strategies like Socio-Economic Assessment Toolbox (SEAT), Social & environment impact assessment standards and group social policy to strengthen the commitment to its responsibility.

‘Our performance’ section of Anglo American website cited its achievement on being a good cooperate social responsible entity. It points out a Germany’s leading business magazine has rated Anglo American as the top mining company for cooperate social responsibility on the 24th April 2009. This shows the success of their polices.

Task 3:

Evaluate the impact of the competition policy and other regulatory mechanisms of the UK government on Anglo American’s activities.

The Mining Journal’s (2012 p26) article points out that that the government’s strengthening regulations will be among the top ten trends in Mining industry.

Competition policy of UK government has major effects on dominant companies like Anglo American. There are four pillars of competition policy in the UK and in the European Union (i.e. Antitrust & cartels, Market liberalization, State aid control, Merger control).Firstly, antitrust & cartels involves the elimination of agreements which seek to restrict competition through barriers of entries such as price-fixing agreements, or cartels which will reduce the power of market giants. Therefore Anglo American will be affected as it is one of the top mining companies in UK. Liberalization involves introducing new competition in previously monopolistic or less competitive markets and this will help and reduce barriers to entry for new entrance. However this may not be a major problem for Anglo American as they are well established and operate in a high capital required industry which is considered to be more powerful barriers to entry. There are new rules set to control Mergers which will reduce chances of growth other than organic growth for Anglo American. However some regulations on competition are needed to ensure the industry growth. Further Rodger B.J. & MacCulloch A. (2004) emphasis on the same fact by pointing out that “Competition policy could function fully it should be required to ‘take account of globalization’ & ‘help to develop the full potential of internal market’ “.

There are no. of “health and safety” legislations that applies to mining companies such as The health & safety at work(Act 1974 C37),The Mines & Quarries Act(1954 C70), The Mines & Quarries(tips) (Act 1969 C10).Due to these regulations, companies like Anglo American are forced to spend more money on health & safety aspects and take necessary preciouous actions. This will increase the cost and ultimately reduces profit. Brune (2010) points out that the industry heavily depends on labour, with labour costs accounting for between two thirds to three quarter of the cost of mines. However these regulations are essential to ensure the safety of the employees & general public. Further companies can reduce reputational risk and future penalties. As the official website of Anglo American indicates Safety is a core value of Anglo American and remains our first priority. Further it demonstrates many steps and projects taken to ensure that they are up to the stranded. This will enhance customer loyalty and reputation of Anglo American.

Further there are other regulations which are not directly imposed on mining related industry but will severely affect the companies like Anglo American. The Mining Journal’s (2012 p 26) article emphasis that “The UK Bribery Act 2010, which came into force in truly 2011, introduces two new offences: bribing a foreign public official and failing to prevent a bribe being paid by someone associated with the organization. With extra-territorial application, this latter offence means UK companies, as well as foreign companies doing business in the UK, are liable for prosecution no matter where a bribe is paid, unless they can prove they have adequate procedures in place to prevent bribery. As mining companies – a large number of which are listed in the UK – expand to less regulated, and potentially corrupt, jurisdictions, they face greater danger of running afoul of these rules”. Therefore there are many regulations mechanism affecting companies like Anglo American. Even though these regulations add additional burden on companies, these will ensure the survival of the industry and the goodwill of the society.

Define the various types of markets such as perfect competition, monopoly, monopolistic competition, oligopoly and duopoly and explain how two of these types of market would determine the pricing and the output decision of UK based organization.

Markets are categorized according to different criterions. Number of firms in the market or the level of competition is one of the main criterions to categorize markets.

Siddiqni S. A. et al (2005 p. 159-167) define different types of markets as follows:

Perfect Competition: It is the situation in which large number of sellers sell homogeneous product at uniform price for large number of buyers.

Monopoly: A market situation in which a firm has the sole right over production or sale of the product and it has no competition in the market and no close substitute for its product

Monopolistic Competition: It is a market situation, in which both the monopolistic element and the competitive element are present.

Oligopoly: It is the market situation in which there are only few sellers of more than two for the commodity.

Duopoly: If there are two sellers of the commodity in the market, the situation is known as duopoly. Both the producers closely watch the action and reactions of each other and formulate their policies accordingly.

In monopolistic market, producer has the power of determining the price of the product in which he has the sole right. Therefore, in many such instances price discrimination is present. Siddiqni et al. (2005 p. 161) defines price discrimination as charging different price for the same product or service from the different consumers on the basis of personal, situational or trade consideration. However UK government has taken steps to mitigate such opportunities of pricing. Mankin(2012) points out that “the government derives power over industry from the antitrust laws, a collection of statutes aimed at curbing monopoly power”. As mentioned in the above answer (for q 3.1) UK government have imposed rules like competition policy to establish antitrust laws and limited mergers to avoid monopolistic market through mergers.

In an oligopolistic market there are several types of techniques used in determining the price of the product. Namely:

Mutual interdependence: Keat et al. (2011 p342) defines this as situation where each seller is setting its price while explicitly considering the reaction by its competitors to the price that establish.

Non price Competition: Keat et al. (2011 p345) defines this as any effort by firms other than changes in the price (for example, product differentiation )in order to influence the demand.

Anti Competitive behavior/Collusion and Cartels: In this instance all companies in the market collude with each other & fix prices to keep prices high and/or hinder entry to their market.

However the third option considered to be illegal in UK with the competition policy in operation. Therefore companies are bound to eliminate arrangements which limit competition in UK market.

Using range of examples both from within and outside the context of a UK based company illustrate how market forces influence and dictate the response of organizations. Incorporate examples that illustrate the issues of supply and demand, elasticises, customer perceptions, pricing decision, labour markets and business environment etc.

There are many market forces which influence and dictate the response of the organizations.

Supply and demand

This have huge impact of companies selling price and the quantity sold.This can be illustrated using an practical example Mankiw & Taylor (2006) illustrate a simple practical example of supply and demand principal. The hot weather affects the demand curve for ice cream. It increases the amount of ice cream people want to buy(say Demand curve change from D1 to D2).The supply curve remain unchanged from as the weather does not directly affect the firms that sell ice cream. The figure shows the increase in demand raises the equilibrium price from P1 to P2 & equilibrium quantity Q1 to Q2.In other words, the hot whether increases the price of the price of ice cream & the quantity of ice cream sold.

http://www.abigailgorton.com/wp-content/uploads/2012/01/supply-demand-curve-2.jpg

Supply and Demand – Flail and Fail or Make it Work for You

Elasticises

This is Another market characteristic which influence and dictate the response of organizations is Elastisity of Demand. Elasticity is the sensitivity of a variable to change in another variable.  

Judge how the business and cultural environments shape the behavior of UK business.

Country’s business and cultural environments affect the behavior of business significantly.

Culture can be defined as a way of living which has transmitted from generation to another. Keegan (2008) points out that “a culture acts out its way of living the context of social institutions, including family,educational,religious,governmental & business institution. Culture includes both conscious & unconscious values ideas, attitudes & symbols that shape human behavior & that are transmitted from one generation to another” Therefore it is evident that country’s culture play a major role in the business.

UK was a very homogenous society formerly, but since World War II, Britain has become increasingly diverse as it has accommodated large immigrant populations..UK culture has some uniquely identifiable characteristics. British are renowned about their politeness and courtesy. This is a key element in UK culture and this will affect the behavior of UK business. Especially it affects the how organizations communicate with their customers. In British culture open display of emotions are very rare and formality in business is evident.

UK has a colorful history and a strong tradition. Supported by long established system of government & economic stability. UK businesses have an attractive base for overseas operations in terms of research skills, technology & infrastructure. That is UK business environment provide competitive edge over others in international business. Hoecklin L. A. (2000 p.11) cited ” nations can offer Unique competencies to global organizations, as Michael Porter has pointed out in his book ‘The Competitive Advantages of nations’.”.Further he points out “There are cultural advantages based on differing values & ways of seeing the world.

Task 4:

4.1Discuss the significance of international trade to UK based mining companies.

The buying and selling of goods and services across national borders is known as international trade. It provides many advantages for organizations. It increase sales and profit by allowing organization to develop their market. Further it enhances potential for expansion of business and gains global market share. Manning industry involve high capital, thereby holds a heavy risk. Therefore international trade helps to mitigate risk by increasing their customer base and reduce dependence of one market. In the resent years giant economies like UK economy came across a deepest point of recession. Therefore international trading enables organizations like mining companies to expand to low risk emerging economies in Asia and Affrica. This gives organizations an additional advantage of low cost labour material and low level of legislation

International trade not only helps to increase the customer base but also to increase suppler base .Mining involves extraction of  minerals or other geological materials from the earth. Not every mineral/geological materials found in every country. Specific countries have specific material. Without International trade mining companies won’t be able to trade current portfolio of minerals.

4.2 Analyze how the range of global factors has affected mining companies of UK. Consider market opportunities global growth and emerging market. Also look at factor concerning labour, skills financial matters, trading blocs and wider international business environment.

Economical factors bring both opportunities and treats to an organization. However, Organizations should take actions to grab these opportunities and mitigate these threats. UK economy along with other developed economies faced a recession in 2008 and still the markets are not doing well with little /slow recovery. Therefore all organizations specially mining companies involving high risk portfolios should take advantages of emerging markets. Singh (2010 p15) points out that “potential lower production and labour costs, a growing number of affluent consumers,& growing gross domestic product rates make the market increasingly attractive to multinationals.” The labour ,health and safety regulations may not be tighten as in UK which may be another reason for companies to expand to emerging countries.

4.3 Evaluate the impact of policies of the European Union on UK business Organizations. (e.g. the common fishery policy)

The European Union is a supranational political and economical organization located primarily in Europe.

Needham et al(1999) points out that European union formed one common market .This involve of free movement of goods ,trade, labour, services & capital between the group of countries. This provide opportunities to increase sales and profit by increasing the market size. However this introduces high competition with lot of competitors in same market. Organizations who have competitive edge over others will able to expand their market, while on the other hand some companies may strive hard to survive.

Further European Union have two main policies:

1) Agriculture policy

2) Fisheries Policy

Agriculture policy is a set of laws relating to domestic agriculture and imports of foreign agricultural products. This will yield following advantages to Agricultural community in UK.

Increase productivity of Agriculture Products

Ensure a fair standard of living for the agricultural Community

Stabilize markets

Secure availability of food suppliers.

 Ensure providing food at reasonable price for the consumers.

Reference

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Carpenter, M., Bauer T. &Erdogan, B. (2010)Principles of Management – Version 1.1,United State : Flat World Knowledge.

Marquis, B. L. & Huston, C. J.(2009)Leadership Roles & Management Functions in Nursing,6thEdition,China:LippincottWiliams& Wilkins

POVERTY, F. G. Fanning the Flames.

Keegan, W. J. (2008) Global Marketing Management ,7th Edition, India:Pearson Education.

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