External Environment: PricewaterhouseCoopers (PwC)
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Published: Tue, 17 Jul 2018
Globalisation refers to the growing economic integration of the world, as trade, investment and money increasingly cross international borders (which may or may not have political or cultural implications) (Schifferes, 2007). Over the past years, there has been a great increase in globalisation. The aim of this study is to analyse the international business environment of an organisation and the impact of globalisation on business organisations.
The organisation chosen for this study is PwC. PricewaterhouseCoopers (trading as PwC) is a multinational professional services firm headquartered in London, United Kingdom. It is the world’s largest professional services firm and the largest of the ‘Big Four’ accountancy firms measured by 2012 revenues (Wikipedia, 2012). The Big Four firms are PwC, Deloitte, Ernst & Young and KPMG.
1 ENVIRONMENTAL ANALYSIS
The business environment can be divided mainly into two groups: internal and external. The external environment can be either micro or macro. There are several tools that can be used to analyse these environments.
Internal Environment: Consists of the strengths, weaknesses and core competencies of an organisation. It can be analysed using SWOT analysis, Value Chain analysis and Three Circles analysis.
SWOT analysis is the main tool used in analysing the internal environment. It is an acronym for Strength, Weaknesses, Opportunities and Threats.
Value Chain analysis attempts to understand how a business creates customer value by examining the contributions of different activities within the business to that value.
Three Circles analysis involves examining customers’ needs, company offerings, and competitor’s offerings in order to clearly articulate what the company’s competitive advantage is and how it differs from those of its competitors.
External Environment: It refers to the business environment that an organisation has little or no control over but directly affects its operations. The following tools can be used to analyse the external environment:
PEST Analysis. This tool used in analysing the forces affecting the macro environment of an organisation. It is an acronym for the political, economic, social, technological, environmental and legal forces.
Porter’s Five Forces Analysis. It is used to analyse the attractiveness of an industry by considering five forces within the market.
Stakeholder Mapping. It is used to identify stakeholders and their level of power and interest in an organisation. This enables the company relate with each stakeholder.
1.1 ANALYSIS OF THE MICRO-ENVIRONMENT (PwC)
Threat of new entrants: To succeed in the professional services industry, some requirements include:
- Huge capital investment
- Years of experience
- Brand loyalty
The industry is already dominated by strong firms with these qualities doing well both locally and internationally; new entrants are not a threat.
- Bargaining power of suppliers – is high. They are big, rich and their alumni areÂ everywhere, throughout institutes, regulatory bodies, government, their clients’ boards and even within almost every other accountancy firm (Prizeman, 2011).
- Bargaining power of buyers – is low. To obtain the best in professional services, there are very few options to choose from.
- Threat of substitute products – No substitute; professional services (especially auditing) are required by law. Except when smaller firms offer the same services at cheaper prices, which is not a major threat.
- Rivalry – The industry is highly competitive especially among the ‘Big Four’ accountancy firms.
1.2 ANALYSIS OF THE MACRO-ENVIRONMENT
The PEST analysis of PWC is given below:
Political – There are several laws that govern the firm’s activities. PwC offers services such as tax advisory and assurance services which are a very sensitive part of business. They should be treated with utmost care else face severe penalties. For example, they were recently fined £1.4 million for failures concerning reports on client-money accounts at JPMorgan Chase & Co. (JPM)’s London securities unit (Moshinsky, 2012). Also, these regulations are changed or updated from time to time; therefore, PwC has to ensure they are always in compliance with the law. Furthermore, regulations on payment of taxes, financial statements and auditing make PwC continuously relevant in the market.
Economic – The recession in UK and other countries has affected the sales, profit and growth of several companies, including PwC. Therefore, some companies hire other firms which provide the same services as PwC but charge less, so as to reduce costs. This has also affected PwC’s profits.
Socio-Cultural – Due to the highly professional services the organisation offers, it requires several highly skilled employees. Finding such individuals and retaining them is not an easy task, especially when other companies keep trying to win them over; offering them better employment packages.
Technological – This could act as a threat or opportunity to the organisation. New inventions, changes and advancement in technology provide an avenue for PwC to improve its operations and stay ahead of the competition. Computers, software, phones, internet, intranet etc are important resources to the firm. But keeping up with the rapid changes in technology is almost impossible.
1.3 IMPACTS OF THE INTERNATIONAL BUSINESS ENVIRONMENT
Political – Regulations governing PwC’s activities differ from country to country and these are updated from time to time. These include employment laws, tax policies and competition laws. As an international organisation, this affects the firms operations because PwC has to ensure that all its operations including strategies and values are in line with the laws in the several countries it operates in. For examples, in most countries, the law requires that accounting firms to be locally owned and independent. This has affected how PwC is structured.
Economic – The global recession cuts across the several countries PwC operates in; this has generally affected the firms operations and flow of income. The industry, professional services, is a highly competitive one with other members of the Big Four (top four countries offering professional services) striving to be the market leader and several other firms seeking growth in the same industry. Also, the rise in unemployment as a result of the global recession has made it difficult to obtain employees with the necessary skills and experience required in the firm. Lastly, the increase in free trade among nations of the world makes it possible for PwC to continue to expand and increase in several foreign countries.
Socio-Cultural – There are several ethics that govern how people and organisations operate. These ethics differ from country to country. PwC believes in excellence and integrity. This could be difficult to uphold because in certain countries. For example, bribery has become generally accepted in some African countries even though they know it is wrong. PwC employees could get involved in this, which would affect their ability to judge fairly, be excellent and uphold integrity.
Technological – Some countries are not as technologically advanced as others. This can slow down PwC’s operations in some of these countries. For example, internet connection is not as stable and fast in Nigeria as it is in the UK. Fluctuations and temporary breakdown of internet service can have adverse effects on the company’s activities. A team in Nigeria might not be able to meet up the deadline of making a certain presentation, if there is no internet service needed to carry out research and development on that topic.
2 IMPACT OF GLOBALISATION ON ORGANISATIONS
2.1 EXTENT OF GLOBALISATION
The Industrial Revolution led to the globalisation of today. It started in UK and spread to other parts of the world. Changes in agriculture, manufacturing, mining, transportation and technology had great effects on the world economy. Globalisation began to grow as a result of the increase in world trade in the 1940s. When it became evident that the Great Depression in the early 1930s was due to the restrictions and barriers to free trade in the world, countries began to lift and/or reduce restrictions to trade. This led to the development of several trade agreements among countries. Furthermore, the continuous advancement in technology has also led to the constant increase in globalisation.
PwC is one of the many firms that has benefitted from the increase in globalisation. It has a network of firms that spread across 771 cities in 158 countries. Free trade between UK and these other countries has made it possible for PwC to move its resources (especially capital and manpower) to these countries, blend in with diverse cultures and set up a network of firms that has made PwC become the global market leader in professional services.
2.2 EFFECTS OF GLOBALISATION
The benefits and opportunities that globalisation brings to organisations especially PwC are:
Larger markets: Globalisation has made it possible for PwC to expand not only within UK but to other countries as well, enabling the organisation to emerge as the world’s market leader in its industry.
Foreign investments: Globalisation provides an avenue for PwC to increase its investments by investing internationally, which also leads to increase in returns.
Increase in profits: Access to larger markets and increase in investments has lead and will continue to lead to increase in returns, revenue and profits for PwC.
Movement of labour: Globalisation allows for free movement of human resources among countries. This provides an opportunity for PwC to hire professionals from one country to work in another country. Thereby enabling firms to have access to skilled workers regardless of where they are located.
Exchange in culture: The world is full of diverse cultures. An international firm like PwC has access to inputs from people of different cultures, beliefs, customs and backgrounds. This enables the firm to learn more and be versatile.
Competitive advantage: Operating in the international market gives PwC an advantage over other similar companies operating locally. Larger markets, increased investment, increase
Employment opportunities: Globalisation enables PwC to provide employment opportunities in several countries especially the underdeveloped and developing countries it operates in. This is a great way to be socially responsible and impact the communities.
Globalisation also has a number of challenges that affect organisations. Some have been explained in 1.2 and 1.3, others include:
Less developed countries: Operating in countries that are underdeveloped or developing can be difficult sometimes. This is because they might not always have the resources available to make the business as productive as it should be.
Exposure to the international market: Globalisation means the firm would be exposed not only to local forces but international ones as well. The firm has to deal with competitors, markets, trends, political, economical, socio-cultural, environmental and legal issues at the international level.
Cultural differences: Operating internationally exposes the firm to diverse cultures. To be effective in these countries, PwC would have to adapt to their cultures, rather than impose its own, yet without losing its unique touch. This is quite tasking.
Criticisms: Critics have pointed out negative effects of globalisation; PwC has to avoid being part of the problem. Criticisms include: loss of culture to stronger ones, exploitation of less developed countries and increase in unemployment in developed countries.
2.3 STRUCTURES OF INTERNATIONAL ORGANISATIONS
Organisational structure consists of activities such as task allocation, coordination and supervision, which are directed towards the achievement of organisational aims (Pugh, 1990). It could be functional, divisional or matrix depending on the type that best suits a company’s operations. An organisation that operates internationally must carefully select a structure that would accommodate its operations both at home and abroad. Structures of some international organisations include:
Walmart Stores: Walmart is a multinational retailer corporation headquartered in the US. It has a divisional structure with three main divisions; Walmart Stores (U.S.) Sam’s Club (U.S.) and International stores (Hitt, 2008). This structure helps Walmart to focus better on each division. Narrowing the focus really allows the company to perform more effectively because they are allowed to pinpoint specific areas needing change and adjust appropriately (George and Jones, 2005).
Starbucks: It is a coffee company headquartered in the US. It has a matrix structure combining divisional and functional structures. Divisions are based on the regions the company operates in; China and Asia Pacific, Americas and EMEA (Europe, U.K., Middle East, Russia and Africa) (Starbucks, 2011). The functions are designed to consolidate functional activities into teams that have a shared vision and goals to support the business (Shultz, 2008). An advantage of having this kind of organisational structure is maximized communication channels (George and Jones, 2005).
Unilever: It is a British-Dutch multinational consumer goods company. It has a matrix structure, divided based on product segments (2), functions and the regions it operates in. Unilever developed and implemented this organisational structure for their company to improve communication and to take advantage of resources that are available to them (Hitt, 2008).
PwC: PwC runs as a network of firms rather than a multinational company due to laws in different countries requiring accounting firms are to be locally owned and independent. Each firm runs its own structure but all report to PricewaterhouseCoopers International Limited (PwCIL) that coordinates the activities of all partner firms.
2.4 INTERNATIONAL OPERATIONS OF PWC
Networking: All PwC firms operate as a separate legal entity; thereby allowing them to operate independently. Although not to be referred to as a multinational company, its operations are not different from multinationals except that, PwC firms have autonomy to operate and do not send money to the Global Headquarters.
Support from other members: All firms in the network count on each other when they lack necessary information or expertise for a project.
Internet: Free access to information to all members via PwC’s global portal network; employees in different countries can relate with and gain from each other.
Same methodology: PwC firms all over the globe have the same approach to work from pre-project planning to post-project assessment.
Charges: Whenever someone from a firm helps another firm in a different country, the person is per hour spent.
Quality Assurance: To ensure that member firms are committed to quality and strictly abide by standards /policies, PwCIL quality assurance team constantly conducts a PwC-wide quality control check.
Globalisation is here to stay. As the world continues to encourage free trade, organisations will continue to expand internationally. Therefore, in order to thrive in the international market, organisations have to make the most of the international business environment. Environmental analysis enables the organisation to understand its strengths and weaknesses, as well as opportunities and threats to the company. This enables the firm to understand the impact the international environment has on its operations and adjust accordingly.
Criticisms to globalisation should not prevent free trade, but educate organisations on the better ways to operate internationally. Important to note is the organisational structures of a number of multinationals: matrix and divisional structures.
TASK 2 – CLASS PRESENTATION
Corporate social responsibility (CSR) is a process with the aim to embrace responsibility for the company’s actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere who may also be considered as stakeholders (Wood, 1991).
IMPORTANCE OF CORPORATE SOCIAL RESPONSIBILITY
According to Von Tunzelmann (1996), corporate social responsibility is important in business because:
- It is a way of motivating and building pride in employees and managers.
- It contributes to the development of a “healthier” community (e.g. through a better qualified workforce or a reduction in the level of crime), thus creating a more favourable business environment.
- It assists in identifying new markets and anticipating societal and consumer preferences.
- It allows differentiation from competitors.
- It leads to an enhanced reputation – helping the company to be “well-liked” in the community.
- It encourages a climate of trust and goodwill, facilitative of business.
- It helps in overcoming problems associated with the implementation of operational plans.
- It helps in maintaining public confidence in the legitimacy of business operations.
- It minimises the prospects of future regulation.
MORAL AND ETHICAL ISSUES
Ethics refer to the moral principles that guide or influence people’s actions and behaviours. The most important resources in any organisation are the people in it; therefore, it is necessary pay attention to the principles that guide people’s conducts. Organisations that operate internationally are faced with several moral and ethical issues, described by Mehalu (2011):
Utilitarianism – in this view you approach an ethical problem using the question, “Which course of action will do the most good and the least harm?” This view is based on the ideas of Jeremy Bentham and John Stuart Mill (18th and 19th Century). Actions are considered good or bad depending on the extent to which they make the greatest number of people happy. So suffering of a few is okay as long as it maximises the overall good.
Rights view – in this view you ask the question, “Which alternative best serves others’ rights?” This view is based on the ideas of Thomas Jefferson’s Declaration of Independence (USA) and John Locke and Immanuel Kant. Actions here are judged according to whether people’s rights have been served and may be seen in terms of keeping within the Law. (E.g. shareholders’ rights are written in Law).
Theory of justice view – in this view you ask the question, “What plan can I live with which is consistent with the basic values and commitments of the community in which I live?” This view is based on the ideas of John Rawls and Alasdair MacIntyre (late 20th century). Actions are judged according to the enforcement of widely-held views of justice and virtue. (E.g. protecting the needy; looking after the community).
Integrative social contracts theory – in this view you would ask the question, “What course of action is possible in the world as it is now?” This view is based on the ideas of Machiavelli in which actions are judged according to pragmatic consideration and practicalities. Decisions are made according to the current situation and with reference to what ought to be done. So you would be both pragmatic and idealistic as the need arose.
CORPORATE STRATEGY AND ETHICAL RESPONSIBILITIES
Although corporate social responsibility is important and beneficial to organisations, sometimes there are conflicts between corporate strategy and ethic and social responsibilities:
Profit Sharing: The aim of most organisations is to maximise profit; shareholders want maximum returns on their investment. But focusing on moral and ethical activities can reduce the extent to which profits can be maximised. This can create a conflict when deciding how to draw a line between profit sharing and contributing towards CSR.
Corruption: Sometimes, managers or employees are faced with unethical issues that could help in achieving corporate strategy. For example, falsifying or hiding sensitive parts of a financial report to make company records look good. Or giving bribes to get vital information about competitors. Being morally or ethical may seem to have negative impact on a firm in the short-run, but in the long-run, it is still the best option.
Competition: PwC is the market leader in the professional services industry; the company strives to maintain that position for as long as forever. The industry has a very high level of rivalry; therefore, in order to maintain that position, PwC has to constantly be ahead of the competition. In implementing this strategy, PwC has to ensure that ethical, moral and legal steps are taken. This is not always easy because it yields slower results. For example, PwC could decide to directly or indirectly bad-mouth other firms to their clients so as to win them over. Or release private information regarding its clients to prospective ones in order to win them over.
Recruitment: Finding a balance between the organisation’s commitment to improving the society by reducing unemployment and achieving corporate strategy by employing high quality staff is not always easy. PwC’s has a rigorous recruitment process which does not leave room for private interest as ‘everything is done right’. But it also seeks to improve the society by hiring and training.
LEGISLATION AND CORPORATE SOCIAL RESPONSIBILITY
Corporate social responsibility (CSR) is guided by a number of laws, regulations, standards and principles:
The Global Compact: The Ten Principles: CSR in PwC is based on a set of principles listed by USB (2012):
Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights within their sphere of influence; and
Principle 2: make sure that they are not complicit in human rights abuses.
Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;
Principle 4: the elimination of all forms of forced and compulsory labour;
Principle 5: the effective abolition of child labour; and
Principle 6: eliminate discrimination in respect of employment and occupation.
Principle 7: Businesses should support a precautionary approach to environmental challenges;
Principle 8: undertake initiatives to promote greater environmental responsibility; and
Principle 9: encourage the development and diffusion of environmentally friendly technologies
Principle 10: Businesses should work against all forms of corruption, including extortion and bribery.
CSR in PwC is also governed by a number of national and international norms and standards. Four pre-dominant ones explained by Stanislavska et al (2010) are:
SA 8000 SOCIAL ACCOUNTABILITY – Social Responsibility: It is a certification norm which sets requirements in the area of child labour, forced labour, BOZP, discrimination, work hours, right to congregation and evaluation. It was created by Social Accountability International (SAI), a non beneficial non-governmental organisation in the US. The SA8000 specifies the requirements for corporate social responsibility in 9 areas: Child Labour, Forced and Compulsory Labour, Health and Safety, Freedom of Association & Right to Collective Bargaining, Discrimination, Disciplinary Practices, Working Hours, Remuneration and Management Systems (SA 8000, 2012).
AA 1000 ASSURANCE STANDARD: AccountAbility’s AA1000 series are principles based standards to help organisations become more accountable, responsible and sustainable. They address issues affecting governance, business models and organisational strategy, as well as providing operational guidance on sustainability assurance and stakeholder engagement (AA1000, 2008). It also includes: constructing socially responsible strategies; methods of communication with involved parties; ethical audit; choice of indicators and CSR reporting etc.
ISO 26000: International Organisation for Standardization (ISO) is an independent organisation concerned with the creation of international standards for industry. ISO standards are voluntary mechanisms managed by market and as such they can be realized by private economic organisations. ISO 26000 aims to assist organisations and their network in addressing their social responsibilities and providing practical guidance related to SR, identifying and engaging with stakeholders and enhancing credibility of reports and claims made about SR. Furthermore, the standard aims to: emphasize performance results and improvements; increase customer satisfaction and confidence; promote common terminology in the SR field; be consistent, and not in conflict, with existing documents; treaties, conventions and other ISO standards (Castka and Balzarova, 2008).
Some PwC firms have been accredited with a number of other ISOs including ISO 14001 – environmental management systems and ISO 27001 – information security management system.
OECD GUIDELINES FOR MULTINATIONAL ENTERPRISES: The Guidelines are recommendations addressed by governments to multinational enterprises. They provide voluntary principles and standards for responsible business conduct consistent with applicable laws. The Guidelines aim to ensure that the operations of these enterprises are in harmony with government policies, to strengthen the basis of mutual confidence between enterprises and the societies in which they operate, to help improve the foreign investment climate and to enhance the contribution to sustainable development made by multinational enterprises (OECD, 2011).
Code of Conduct (PwC, 2011): PwC also has a code of conduct based on its core values (excellence, teamwork and leadership) that govern corporate social responsibilities in all its firms around the world. It covers topics such as behaving professionally, respecting others and corporate citizenship. It also includes a summary of ethical questions that should guide employees:
- Is it against PwC or professional standards?
- Does it feel right?
- Is it legal?
- Will it reflect negatively on you or PwC?
- Who else could be affected by this (others in PwC, clients, you, etc.)?
- Would you be embarrassed if others knew you took this course of action?
- Is there an alternative action that does not pose an ethical conflict?
- How would it look in the newspapers?
- What would a reasonable person think?
- Can you sleep at night?
No firm operating either locally or internationally should ignore the importance of corporate social responsibility. Although sometimes it may seem to be in conflict with corporate strategy, in the long run, it is of great benefit to any firm. Proper attention should be paid to the laws and regulations that govern CSR. There are many of them; as much as possible, organisations should seek to abide by all of them. Also, companies can develop their own code of conduct based on these laws and its mission, vision and values. This would make it much easier to abide by.
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