In this assignment we aim to understand the meaning of "Business Environment" and why it is important for an organisation. In order to understand the importance of the Business Environment we have carried out a study on Apple Corporation, whereby we investigated the micro factors which are internal to the company; and macro factors, which are external and are beyond the control of the organization. These factors together make the business environment of the organisation and help in long term strategic decision making within that organisation.
According to Brooks and Weatherson "The business environment can be defined as a broad and embracing term which encompasses any and all influences which are external to the organisation in question". The Business Environment consists of -:
The macro environment refers to all those trends and forces which are external to the organisation but can impact its ability to achieve its objective. The macro environment consists of political, economic, social, technological, environmental and legal factors. These factors cannot be altered by the organisation; however they can influence the organisation in a number of ways. The macro environment helps to scan the threats and opportunities within the environment and help the business develop strategies which can help the firm gain a competitive advantage and to sustain in the market in the longer run. (Palmer and Hartley)
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1. Political Factors:
Political factors play an important role in organisational decision making. The government as a legislator passes laws which can affect an organisation and also determine the economic condition of the society. It also passes laws which determine the market condition, the production possibility and demand for the product. For example an increase in tax will lead to reduction in net disposable income which in turn would impact upon demand for goods and services.
Governments provide frameworks under which companies have to operate. These structures usually define what a company can do and what not and these would determine the business possibilities for them. For example the lowering of trade restrictions by a government can lead to new business opportunities for the organisation overseas. As such it is vital for management to be attuned to the political environment at all times.
2. Legal Factors:
The organisation exists in wider society therefore in order to protect the rights of consumers and to ensure that the organisation operates ethically, the government passes certain rules. Changes in law can alter the relationship the firm maintains with others in society. These include the supplier, employee, customers etc. Therefore, it is important the organization remains aware of all existing laws and regulations that pertain to it and the specific industry that it is involved in. Some Common Law acts passed by the British Government and which have had a direct effect on companies include the Consumer Protection Act and The Misrepresentation Act.
3. Economic Factors:
Economic factors have a direct impact on any business organisation, as the demand for goods and services is determined by economic conditions. The demand for goods and services increases during boom period as there is increase in net disposable income and vice versa therefore it important for the organisation to analyse the economic trends time to time and thereby respond to changing demand patterns. The level of employment, rate of income are some of the important variants of economic conditions as they reflect the level of demand, the purchasing power. Rise, stability, continuity and fall are some of the important cycles that affect the prices off all goods such as raw material, credit, final goods, etc. In addition to the level of perceived wealth and confidence is also an important determinant of demand for some high value services. Also the change in fiscal and monetary policy will also determine the interest rate the flow of funds which in turn will impact upon the demand for goods.
4. Environmental Factors:
The eco system refers to the natural resources which are required by the organisation as an input in order to produce the final commodities. The global environment is becoming an increasingly important concern due to climate change and threats to sustainability. It is important for the organisation to understand how the environment is viewed in society as it impacts upon the company's profit in the longer term. Consumers are becoming more environmentally conscious and ready to reward the companies who they believe to be socially responsible. Also, even though individual as a limited impact upon the organisation which they believe to be socially unethical but they can be mobilized by the environmental social groups with the mass boycott of the products. Therefore, it is important for the organisation it is important to take these factors in to account in order to sustain in the market in the longer run.
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5. Technological Factors:
Technology refers to scientific advancement which helps in our day today life . With the growing competition it is important for the organisation to be aware of new technogies which helps in innovation and helps in gaining competitive advantage. It has often been seen that the organisation which doesn't change with the change of technology or don't innovate often fail to exist in the society in the longer run. Today, every organisation have its own research and development team which work towards designing a new innovative technique. The innovation in technology allows the company to offer new goods and services to the consumer before its competitors and allows organisation to lower down the prices of its existing products thereby widening its market. Innovation in technology provides the company new methods of distribution and innovative techniques to communicate with its target market. Also, advancement of technology has allowed the companies to reach out to its customer around the world and use different method of distribution. However, while developing business strategies it is important for the organisation to consider how the use of particular technology can lead to reduction in price of goods and services.
6. Demographic Factors:
Demographic analysis is the study of the social structure or population in which the organisation exists. The buying behaviour of consumers always differs in accordance with age group and sex. The people of similar age group have similar demand of products. The demographics of the society play a two way role of the organisation as it is the people who provide the labour and resources for the organisation and also create the demand for goods. The demographics of society reflect the sex ratio, age, income, etc. This in turn can be used as a tool to understand the target audience and their needs with the study of their buying patterns and develop future strategies which help to cater them in a better way.
7. Social Factors:
The society can be seen as a big group within which there exist small social groups who together hold certain beliefs, values and attitudes which is also known as culture.Cuture is a dynamic and continual process and changes with time. Therefore, it is important that the organisation takes into account the new developing ideas and values as it is these social group which generate the demand for products. The social environment usually reflects the changing taste, buying behaviour, change in needs which is the effect of changing attitudes and beliefs i.e Social Conditioning (Brooks and Weatherson). It has often been seen that the people who hold similar attitudes and beliefs have similar demands for products .Therefore the study of social groups will develop strategies for future. Also, the concept of corporate social responsibility is becoming increasingly important. Society from the point view of business expects the organisation to take make society better by virtue of being in existence. (Refrence.com)
Micro environment refers to the individual and organisation which have ability to impact on the organisation's profitability directly or indirectly. The micro environment usually consists of Customers, Suppliers, distributors, the media and most significantly, employees. These factors have direct interest in the company and with interact on a daily basis .Although, micro factors are external to the company, but the company can influence them to certain extent.
Apple co. was established in Cupertino California by Steve Jobs and Steve Wozniak in 1976. The company has been a pioneer in the computer industry. However it came to existence in the late 1990's with the introduction of the iPod portable music player. The company was initially known as Apple Computers but was rebranded as simply, "Apple" in 2007 to reflect the ongoing expansion of its product line. Due to its innovative designs, advertising campaigns and technology the company today has created a unique reputation in the electronic industry. The company has a devoted customer base for its products and holds a market share of around 10% in for its' entire range of products. In 2010 the company posted record revenue of $15.7 billion and net quarterly profit of $3.25 billion, or $3.51 per diluted share which truly reflects the ongoing success of the company. (Apple.com).
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Nonetheless, Apple has also faced many challenges; and macro factors have been at the forefront of those challenges. Below is a PESTEL analysis which will highlight how the company has dealt with these factors.
As explained earlier the natural environment is becoming a major concern in society. In 2006, the company was accused by environmental group 'Greenpeace' for using non recyclable hardware products and also use of toxins like BFR's and PVS within the hardware of the iPhone and in its laptops. Also, the company was criticized for ignoring its waste products which end up in foreign dump yards and was burned by children collecting scrap metal in the Third World. The burning of this waste product not only created a serious health problem with its harmful gases but it also contaminated water resources which became a major environmental concern. Greenpeace in its Guide to Greener Environment 2006 rated Apple 2.6/10 for its waste reduction policies (Wikipedia.com)
In order to respond to it, the CEO released an immediate plan to completely eliminate the use of PVC and BFR's for its various products in 2008. In 2009 all products of the company were PVC, and BFR-free. Also, in October 2009, Apple replaced the cold cathode fluorescent lamp (CCFL) backlit LCD displays with mercury-free LED backlit LCD displays and arsenic-free glass from all its computers and laptop. With active changes taken by the company, it has been able to obtain EPEAT Gold status for all its Laptops and Computers. The company today is actively involved in recycling projects. It has recycled around 13 million pounds of waste in 2006 and aims to recycle 19 million pounds of waste per year which is much higher in comparison to its competitors. Also today, the company publishes reports on its' use of materials and has gained a higher position in the Guide to Greener Environment.(Apple.com)
2. Social Challenge:
In 2006, the company faced a major social challenge whereby it was accused for the poor working conditions at the manufacturing units of the iPhone in the Third World. Apple has various contractors around the world who manufactures its products and Foxconn is one of them. Faxconn is a company based in China which utilizes cheap labour to assemble an array of electronic products. In 2006 it became a major concern as a number of employees at Foxconn committed suicide. Investigations revealed that the employees were ill treated, discriminated and harassed by their employer. Also, a report revealed that the Foxconn employed over 200,000 employees who lived and worked in company premises and were forced to work 60 hrs a week with the wage of $100 a month from which they were expected to pay for food and the rent. This clearly showed exploitation of labour on the part of Foxconn.(Ft.com)
In response to the problem Apple did its own investigation in the factory in order to ensure that the working conditions were acceptable. Also, as a result the company started yearly audits at all its manufacturing units in order to ensure the working rights of their employee. However, the situation again arose in 2010; earlier this year, 10 Foxconn committed suicide. As a result the company has been threatened with a boycott of its product by various labour activist organisations. In order to deal with this matter, Apple has independently evaluated the contractor manufacturer and is said to be taking measures to address these tragic events. The company has also decided to move its manufacturing units from Shenzhen to north and central China even though this move will result in Apple contractors paying higher wages.
3. Legal Challenge:
Legally Apple Company has been challenged many a times by its customers as well as by its competitors and to overcome it has been a biggest challenge for the company as it may have severe impact on its reputation. It has been accused many a times for unwillingness to honour its warranty which has put it in legal problem. Recently there have been four law suit filed against the company and its partner AT&T in Delaware and California put forward by its customers who faced major reception problem in their latest I phone 4g due to its faulty antenna design. The company have been charged with serious allegation which include general negligence, defect in design, manufacturing design and assembly, breach of express of warranty, breach of implied warranty, breach of implied warranty for merchantability, breach of implied warranty for fitness for particular purpose, deceptive trade practices, intentional misrepresentation, negligent misrepresentation and fraud by concealment.
In order to overcome the problem of 4g problem the company has decide to provide its customer free case which helps to strengthen the signal and is also refunding the money to those customers who have already purchased the cover. Also, the company has decided to rectify the software which is causing reception issues in all its future production and would also provide free software update to all its existing 4g customers. (Apple.com)
4. Economic Challenge:
Apple Company had decided to open its service centre in 2006 in Bangalore in order to deal with the issues faced by its customer in its various gadgets. It had major expansion plans in India and had planned to employ over 3000 employees by 2007. The company had employed over 30 employees. But due to huge labour cost the company pull out its hand from the project and hand to dismiss its employees.
The company decided to continue providing tech support from other countries which had cheap labour cost. Also, company tied up with HCL which is also taking care of distribution of Nokia in order to capture the flourishing Indian market.
5. Technological Challenge:
Apple Company has always been a pioneer in technology in both the computer industry as well as in the cellular devices and MP3 player. It has always used its technology to differentiate from its competitors and to gain competitive advantage over others. It's the only company in electronic industry which provides both hardware and software unlike its competitors like Dell, and HP who specialize in either one of them. The constant innovation has allowed it to reduce the price of its existing products thereby widening its market and helps to explore new market for its product. Also, it I using advanced technology like digital asset management which help in understanding the consumer psychology and helps to cater there needs in a better way. However, technology at the same time is becoming a major challenge in its latest release of 4g the company has been accused for ineffective technology due to reception problem in the phone which is caused due to ineffective software development.