Assignment 2 Introduction
My aim in writing this assignment is to figure out the subject of business environment. It is necessary to notice factors in macroeconomics and microeconomics. The beginning of this assignment is to present clearly impacts of the macro environment upon business activities in PESPLE model. I choose TH True Milk to illustrate illustrate for this model. Next, I will determine determine the internal strengths and weakness businesses by SWOT model. On the other hand, I also research Porter's five forces model in a competitive market through ACECOOK company. The last is government policy on trade policy, fiscal policy polic y and monetary policy. I choose ch oose specified business as PVEP to illustrate. LO3 Use contemporary examples to demonstrate both the positive and negative influence/impact the macro environment has on business operations Task 4. Identify the positive and negative impacts of the macro environment has upon business operations, supported by specific examples. 4.1 Introduction: PESTLE framework
An organization is necessary to have PESTLE model which helps them to identify a panoramic view of the business environment. PESTLE is abbreviated by factors such as, political, economic, social (cultural), technology, legal, and environment protection. Those factors have strong strong influences
in
operations
of
organizations
because
organizations must rely on their impacts to propose the best suitable business strategies.
Firstly, we figure out political factor. When analyzing politics, we will analyze about strengths of parties in a country. But, it just applies for countries which have various parties. In particular, the political situation is stable or not. Politics will be impacts of government on business operation in country or region where organizations implement sells or investments. Therefore, organizations must put politics in the forefront analysis to ensure safe operations of organizations. Politics of countries or regions are are
initial signals signals which help help managers of 1
organizations identify the opportunities or threats for the business, because political policies are created by the actual situation. When doing business on an administrative unit, businesses will have to comply with policy of that area. For example, Islamic countries often have riots even though terrorism, bombings, so it can make stagnation in production and business. Therefore, Islamic countries should train a young generation strong enough to face the competition of industries around the world. In short, politics is the first condition for deciding the economic development of a country in general and the development of industries in particular.
Secondly, organizations need to notice economic environment. It includes three factors such as, economic conditions, economic policies
and economic systems . Organizations should recognize and evaluate economic conditions to determine how to produce and supply. Organizations must identify the essence of the economy in currently and the stage of development or the cycle of development in economy of country. Moreover, organizations should notice lever of income (GDP per capita). GDP is the market value of all final goods and services produced within a country in a given period time. Organizations will recognize developing and recession economy and have forecast GDP raise or fall in future to make suitable strategies. Next, distribution of income that is a disparity between rich and poor among the classes in society such as Vietnam, Cambodia. On inflation, this is an important factor in economic development because it makes many effects for economy. Besides, some factors also are inside economic conditions such as, balance o f payments, saving and investment, rate of saving, growth rate of GDP. Next, we figure out economic policies. Some policies of government are fiscal policy, monetary policy and trade policy which are important three policies to regulate business. Besides, government also propose policies to be impacts on economy. Economic growth and standard of living improvement are to promote the development and resolution of social problems. For example, an increase in labor factor will help provide works to fall unemployment rate. Next to, government wants to a full employment economy. It means all people who are in working age must have job stability. Especially limit natural unemployment rate. Besides, government has policies po licies about price stability or no inflation. It creates a stable investment environment and an effective allocation of social resources. On the other hand, government encourage investment to develop economy such as, lower interest rates, tax incentives, improved access to capital, encourage a higher savings ratio, help for small firms, 2
improvements to the labor force. It is worth noting that policies of government can make advantages for businesses, but it also make disadvantages for other businesses. Therefore, before doing business, organizations must identify economic policy in that area regulations. Finally, economic system includes three basic system such as, centrally planned economy, free market economy and mixed economy. Centrally planned economy is an economic system in which all decisions about production, distribution and consumption are focused on the government. Production organizations, or trade in the economy are essentially dependent on the government. This economic system will restrict development of working resource. Unlike centrally planned economy, free market economy is businesses make decision for what goods need to be produced without the intervention of the government. Mixed economy is an economy in which interaction of both businesses and the government. They play an important role in addressing the underlying economic problems of society together. For example, monetary of government create motivation for business borrow money for investment expansion.
Thirdly, social factor is cultural values and specific social factors, especially the characteristics of consumers in those areas. Social factors will divide the community into customer groups of consumption habits. For example, ethical, aesthetic, lifestyle and occupational attitudes. Companies that produce the clothing of preference and size in Europe, but sell in Asian countries, so they are unlikely to do so well. Next, when mentioning to sociocultural, it will concentrate on culture and religion. For example, Islamic countries do not allow the sell and buy pork. Besides, social concerns and priorities; level of awareness and education also affect to organizations. For example, between mature and childish people, high school and primary school students,.. They have different consumption habits. Therefore, organizations must have deeply analysis to make suitable strategies with various social factors. The fourth is technology which a factor which attach great importance in globalization progress. The world is still in the fourth technological revolution, and a series of new technologies is born and integrated into products
and
services.
When
analyzing
technological
factor,
organizations need to identify they operate in country which has the development
of
technology
or
not.
Moreover,
technological 3
achievements which are applied on business well or not. And, resource technology that they can approach easily. The impact of technological development and spending on technological development varies by industry. Communications, electronics, aviation, and pharmaceuticals are always high-tech innovations, so spending on technology development is often higher than in primary sector industries. It will help organizations can make a combination of solutions, methods, processes, skills of suitable technology strategies. Some organizations can receive encourage and sponsorship of government research and development technology. If businesses are aware of the opportunities, they will have the advantage of operating in the process. For example, government facilitate for approaching research from universities to apply in practice.
The fifth factor is legal which is the one of important elements of economy. Organization must analyze legal of economy suitable or not in economy currently because legal factor will decide a healthy or unhealthy business environment. The first condition is to ensure a fair business environment for businesses and to force businesses to be honest and responsible. Legislation will have policies that allows, does not allow or require businesses to comply. If there is just a small change in the legal system such as taxes, investment ... will affect the production and business of organizations. Next, it has policies to ensure the rights of the consumer or not. For example, to encourage organizations and individuals to apply and develop advanced technologies for the production of goods and provision of services in a safe and quality for customers and to supervise the observance of law by organizations and individuals. Besides, there are legal to protect foreign traders and encourage them to invest to raise GDP. Moreover, government will have policies to protect domestic industry such as, tariffs, quotas which will confine imports. Besides businesses and consumer protections, government always notices to protect environment. Such as, punishment policies for environmental pollutants and waste disposal are also a government regulation. For example, the number of non-toxic waste regulations that businesses can discharge into the environment. VEDAN is a specified example with violating the law when dumping industrial waste into rivers. Therefore, survival of an organization depends on level of understanding policies of legal. It is better if organizations figures out international law.
4
Finally, environment is not only important for people but also important to input factors of industries. Natural environment includes geological and ecological factors. For example, natural resources serves the mining industry, weather and climatic conditions affect to the farming industry or the livestock industry. Especially, human beings are severe
degradation
of
natural
conditions
such
as,
increased
environmental pollution, the depletion and scarcity of resources and energy, the imbalance of the ecological environment. These are large challenges for the industry in the future. Besides, differences in geographical conditions is one of all developing restriction of businesses. For example, mining industries are often located in close proximity to mineral resources and far from the processing industry. Therefore, organizations need to have aware of the savings and effective use of natural resources. The research and development of technologies must be promoted and minimize the environmental pollution caused by the activities. To sum up, when analyzing business environment, we need to concentrate on factors of PESTLE model to have more insight. It helps us to raise successful ability and avoid mistake decision. Moreover, it will be more useful if we have planned to do business in other country.
4.2 Evaluate the positive and negative impacts of the macro environment on business operations.
Macro environment is divided into 2 parts which are economic and non-economic. They will create advantages or cause disadvantages as dominating activities in business process. Therefore, organizations wants to achieve success, they need to understand clearly about positive and negative impacts of the macro environment to control business operations. Firstly, we will figure out impacts of economic environment. As mentioned above, economic environment has three important factors such as, economic conditions, economic policies and economic systems. Those economic factors have most strongly influence on business operations are usually the state of development of the economy. If the national economy grows at a high rate, it will increase output and commodity that have increased the business efficiency of organizations. When the national economy is recession, it will negatively affect businesses. For example, inflation, the level of unemployment also affects both production and consumption. When inflation is high, it will negatively impact consumption, reduce demand, reduce consumption, and discourage production and investment for organizations. Moreover, economic policies also have 5
many impacts on businesses. It is remarkable that some policies of government can affect positively to types or categories of business, but it can make negatively effects to other businesses. Secondly, it mentions to impacts of non-economic environment. It includes factors such as, demographic, technological, political, social and regulatory environment. Demographic environment involves population and population characteristics. For example, some factors are growth of population, age compositions, life expectancy, sex ratio etc. They will affect the demand for various goods and services. When the characteristics of the population change, it will make change in the structure of consumption and the demand for goods and services. Therefore, businesses must also change their business strategies to adapt. Technology environment is more and more developing, it makes operations becoming easily. Besides, this is a large challenge for organizations if organizations are operated in area that has high development of technology. Surely, those organizations will be approached and applied modern technology to make efficient productions. In contrast, organizations do not master of technology or do not adapt well, they will be pushed back and backward. Therefore, businesses must closely associate business development with the development of science and technology. Next, political environment almost just take place at countries which have two and more parties. For example, if relationship of parties are good, it has not conflict to create economic environment well to facilitate development of organizations. Unlike, if parties often have conflict, it may restrict the interrupt business operations. On the other hand, social and cultural environment are necessary knowledge for organizations to make their business suited to the cultural environment. Lifestyle, education, religion, beliefs of customers have a profound influence on the structure of demand in the market. So, an organization wants to sale product well, they need to know habit and behavior of customers. Social culture also directly influences the formation of the cultural environment of the business such as, staff contact with business partners as well as customers. Therefore, it will positively affect if organizations serve customers well and vice versa. Finally, regulatory environment is the factor that affects the business of each organization. The promulgation of the legal system is the first condition to ensure a fair business environment, creating conditions for all organization to have the opportunity to compete healthy and equal between producers and consumers. This has a positive impact on businesses doing business right. The opposite will affect the business environment and the business of the organization. Moreover, it also negatively affect the living environment, the life of consumers. Investment policies, economic development policies, structural policies of the government will create benefit or restrict the development of each sector, each economic region. 6
To sum up, factors in the macro environment bring new opportunities as well as challenges for organizations. It depends on way of reaction of each organization for factors to decide development of this organization. Because organizations cannot control, change the elements of the macro environment, they must find ways to adapt, survive and develop in that conditions.
Application o
The application of the PESTLE framework:
TH TRUE MILK Joint-stock company operates in the field of milk production. TH Group was established with the financial consultancy of North Asia Commercial Joint Stock Bank. TH Group is gradually developing to become the leading manufacturer in Vietnam providing clean and natural food products. The success of TH group now certainly thanks to the sustainable development strategies from the leaders. Besides factors micro environment, macro environment also contribute important role in success of organizations in general and TH group in particular. We will apply the PESPLE framework to figure out clearly impacts of external environment for TH TRUE MILK. Firstly, we will research impacts of political factor to TH group. TH TRUE MLIK operates in the territory of Vietnam which has stable politic. This is one of the favorable factors in doing business because it makes safe in activities. This is a good condition for Vietnam to attain high economic growth rate and equal growth. Besides, an stable politic also is to ensure the cooperation of domestic and foreign of TH true milk. For example, a cooperative agreement on the implementation of a project to invest in the construction of a dairy cow bre eding complex and high technology milk processing and greenhouse production of vegetables and fruits in Kaluga Province (Russian Federation) in 2016. It shows belief cooperation with co untry has stable politic. Secondly, a stable politic also helps to develop economy of Vietnam. Vietnam's rapid economic growth has a positive impact on domestic purchasing power. TH True Milk always receive great numbers in revenue.
7
(Source: TH TRUE MILK., 2017) Besides, Vietnam is facing the risk of inflation again. Prices of basic commodity recovery combined with Article Valuation of education and health services has put pressure on domestic inflation. Therefore, people may cut down on milk consumption. On policies, monetary policy in 2016 is flexible and tight. The State Bank of Vietnam still follows the target of stabilizing inflation and is cautious with this goal. We can see economic environment brings opportunities which are more and more widely milk market for TH true milk. But, it also brings challenges for them.
(Source: General Statistics Office) Thirdly, the more economy develops, the more standard of living improves. Therefore, they will have more demands in the foods. For example, in the reality of Vietnam, most of elite people and a small part of normal people have habit of drinking milk in everyday. It is benefit for dairy company in Vietnam in general and TH true milk in particular. The need to improve health and beauty are more and more increasingly. Because being awareness of this issue, TH true milk 8
company has diverse products which are commitment from 100% nature. This is strategies which affect tastes and preferences of customers. The awareness of benefits from dairy products of people who have high education also affect milk output in production. In short, social environment in Vietnam also brings advantage for TH true milk. The fourth is technological factors. In condition of undeveloped technology as Vietnam, TH bought all the technology of dairy farming in Israel and the world's leading dairy processing. For example, electronic chip (AfiTag) are tagged in food of cow. It is an electronic device capable of collecting data related to the health and status of cow. Afimilk (Israel) automatic and computerized milking center. This system allows automatic milk quality inspection. If quality assurance is not guaranteed, then immediately the milk is eliminated.
(Source: THtruemilk., 2017) The fifth is legal factors. Government always has the policies which protect domestic organizations. For example, tariffs and quota policies for milk imported into Vietnam are high, and there are plans to raise more in the future. It helps to ensure supply quantity of TH true milk. Moreover, TH true milk will raise competitiveness for imported milk. Government policies in the development of dairy industry are accelerated. TH company has the opportunity to expand even more in the regional integration. Therefore, policies help TH closer to dominate the domestic market and competitive strength with foreign dairy products. If not make optimal use of such policies, TH company will be passed by opponents and lost market. The point are remarkable for TH true milk that the regulation of the content of melamine in milk. Some other dairy companies produce in excess of allowable limits of melamine, it also affects belief of cu stomers. Consumers will be wary of buying dairy products, this will increase the risk of decreasing sales. Therefore, TH should be respectfully in the production and distribution and improve awareness of customers. Finally, environmental factor is an important effect to business operation. Milk factory of TH True Milk are located in central Vietnam. In particular, Nghe An province are affect by harsh 9
climate which is often dry, drought. Especially, it is frequently affected by typhoons and floods in recent years. These factors are unpredictable, so factory can be damaged when they take place incidentally. Unlike, there are rich materials, large grass hill which are benefit for production. Such as, the dairy farm is located next to the river, so it is very convenient for watering grass. Besides, these is available materials, so TH company is minimized production costs.
(Source: THtruemilk., 2017) To sum up, suitable strategies help TH true milk positively deal with impacts of factors of macro environment. Surely, TH true milk will overcome large challenges to have higher positions in the milk field. 4.3 How the organization goes through the transformation process and overcome resistance to change in response to the changing market environment.
Nowadays, global is facing risk of fluctuations in the economy. The higher the internationalization trend becomes, the more global economic problems emerge. These are major challenges for countries in the world in general and Vietnam in particular. Therefore, domestic and international business first requires the managements and organizations to pay attention and the law firmly. On the basis of a firm understanding of the legal system of each country and the agreements between countries, that will be the foundation to allow the organizations to make the right decisions in choosing the country, business area. Organizations operates in the international business environment, it requires to have certain knowledge of the economy. The knowledge of economics will help traders determine the impact of a country's economic policies on its business. For example, economy of Vietnam also receive positively and negatively fluctuations in the economy of the world. An organization in Vietnam as TH True Milk also needs to have strategies to adapt to the transformation of Vietnam’s economy. The first strategy of TH True milk was to change the awareness of customers. Although product of TH true milk was born after the products had dominated the dairy market. But nowadays, TH True milk is accounting for 50% market share because their strategy is to create products that are different from what already. The second strategy 10
is development of resource. When established, TH company must hire both professionals and farmers to operate technology in the initial start-up to adapt international standards of quality. After 4 years of training human resources in Vietnam, the company really believes in technology transfer. In order to improve the technical level of the employees, the company always changes the best machines and computer systems. The three strategies is to hit on consumer psychology in marketing strategies. Businesses in different periods needs to have suitable strategies to go through, survive in a difficult period and obstacles in the market LO4 Determine the internal strengths and weaknesses of specific businesses and explain their interrelationship with external macro factors Task 5 Conduct internal and external analysis of specific organizations in order to identify strengths and weaknesses. 5.1 Applying SWOT analysis to evaluate internal environment
***A case study of ACECOOK company o
Introduction (business activities/ main products/ vision/ mission/ objectives)
ACECOOK is a noodle produce business in Japan and is established in 1993 and officially put into operation in 1995, in Vietnam. After many years of operation, ACECOOK Vietnam Joint Stock Company has grown to become a leading food products company. ACECOOK operates in the field of producing high quality noodles and fast food products. Because ACECOOK is a leading food products company in Vietnam, it has large vision, mission and objectives. Their vision is “To become a leading manufacturer of foodstuffs in Vietnam whose management ability
is commensurate with globalization. To bring new culinary consumption concepts to local and foreign consumers through supplying high quality products”. (ACECOOK Vietnam.,2017). Their mission is “ Satisfy consumers’ demands. Bring happy life and sub stainable growth to employees. Attain a strong position and supports in over the world”. (ACECOOK Vietnam.,2017). On
objectives in 2017, the company also planned for exporting boost. Our goal is to raise export 11
revenue ratio from 8% to 20% in upcoming years. Besides, the sector of cup noodles and instant food from rice, instant vermicelli has seen very good growth rate; therefore, the company shall continue to invest in development and expansion of this potential sector in the future. (ACECOOK Vietnam.,2017).
(Source: (ACECOOK Vietnam.,2017) Table 1: SWOT analysis
Strengths
Organizational
Human
Company
Physical capital
Financial
structure
resources
image
ACECOOK are
ACECOOK
ACE is large
After 14 year
From the
operating in
has abundant
company, so
development in
moment of
decentralized
resources.
company
noodle fields in
establishment
organizations.
The
image is
Vietnam,
is joint-
In particular, it
company has
deserve
ACECOOK has
venture
is divided by
brought
attention.
built 7 factory to
organization.
areas. Each
stable and
ACECOOK
serve for
Now,
area has a
potential jobs brand is
production to meet
business
factory and its
for workers
well- known
quantity supplied
changed to
departments.
in Vietnam.
in many
for market. ACE's
joint-stock
resources
12
Besides,
It includes
parts of the
working offices are
company. It
ACECOOK
professional
world, so
often modified and
can be
also organize
workforce
this has
expanded.
issuance of
based on the
and Dynamic
contributed
Moreover,
shares to
product such
departmental
to the
ACECOOK is
raise capital.
as, each area
resources.
company's
business of Japan,
Besides,
has noodle
Young and
image.
so it inherited
ACECOOK
factory and
dynamic
Therefore,
modern facilities
can get help
spice factory.
staff, well-
ACECOOK
and machines.
from the
Each
equipped
always has
Therefore, it
parent
Department
staff in terms
action for
ensures quality of
company in
keeps specified
of
environment products and save
Japan.
mission in
knowledge,
periodically.
efforts of labor.
Moreover,
business
expertise. In
ACECOOK
Such as automatic
shareholders
operation.
addition,
also note to
machines, steamer,
of company
Namely,
specialist
awareness of
frying pan, boxing
will
ACECOOK has positions will customers.
machine. Besides,
contribute
7 agencies and
have longer
So, company
it makes more
capital to
11 factories in
training
often carries
preeminence than
large
all country.
periods of
out
competitive
investment
This division
more than
propaganda
rivalry. Such as X-
projects of
allows business
three years,
and care
ray machine to
the company
entry market in
five years or
activities for
ensure food safety.
in the needs.
areas which are
seven years.
customers to
faster than
ACECOOK
create good
other
also supports
images.
businesses.
the training
Beside,
Depend on
of fresh
charitable
customer
graduates, so
activities has
demands in
it has a
been
areas are to
strong appeal
happening
for young
exalted. 13
produce
resources. In
Company
suitability.
order to
also built
create
brand on
believes for
media.
its staff,
Company
ACECOOK
usually wins
Vietnam has
the "high
acquired
quality
accident
Vietnamese
insurance for products". thousands of employees. Weaknesses
Although
Because
Some
The charter capital
No
ACECOOK has requirement
counterfeit
are so much.
information
benefits in
of
goods
Company must
many structures
ACECOOK
imitate the
spend so much for
in a company
highly, it
brand of
the cost of
as mentioned
must train
ACECOOK.
technology.
above, it also
new
Then, Some
Especially, X-Ray
causes
employees in
customers
machines are
disadvantages.
long time.
and
bought with more
Such as, there
Work in a
competitors
than 200 billion
is no close
large
rely on it to
VNĐ.
cooperation
business
be
between
environment,
negatively
branches to
high salary,
impact the
create unity in
but
company
the enterprise.
employees
image. For
The division of
are under
example,
branches by the
high
“Hao Hao”
region creates
pressure. So,
noodles are
the
it makes
fired and bad 14
disadvantage of
spend much
smell when
geographic
money.
burning.
distance.
Some departments of the company require employees to know Japanese. So, this is a limitation to people with high qualifications but do not know Japanese
Opportunities Impacts
ACECOOK
If the
The level of
Business can
positively from
is a good
developing
science and
mobilize
domestic and
environment. business
technology in the
external
international
So, it can
become, the
world is more and
capital when
business trends,
make
better image
more growing.
they
ACECOOK
attractive
becomes.
Especially, parent
need.
will have a
resource.
Image of
company is Japan
Moreover,
change for the
Especially,
ACECOOK
where there is high
ACECOOK
most suitable
resource has
is more and
technology.
can
structure
high degree
more
ACECOOK
attraction to
organization.
and
increasingly
Vietnam will have
select objects
experience.
in awareness
a chance to receive
to cooperate
of
model technology
to
increase
customers.
revolutions.
the
size
really
create
15
of
physical resources. Threatens
In the future, if
The unfair
Image of
If
business
company do not competition
company
regularly check on financial
have suitable
of bad
will reduce
the physical factors management
strategies when
competitors
if company
of the business, so of
there is an
in the
do not have
some minor errors individual, it
economic
industry.
timely
of the machinery can affect the
transformation
That is the
responds for
can interrupt the company's
process in
penetration
the sabotage
production process. revenue.
domestic or
of
from
It even affects the
international, it
destructive
external
supply
will be a threat
people who
environment. business.
to lag behind
come from
and even
other
lagging out of
businesses.
the market.
Staff may
of
not Uncertain
an
the
reveal the secret of the business for their purposes.
(Source: author) 5.2 Introduction:
“Porter’s five forces model”
- Competitive forces in an industry
16
“Porter’s five forces model” is perfect competition model for industry. The model helps
businesses identify competitive ability and competitive strategies to maintain and increase profitability in business. This model is necessary for businesses because it helps them to understand the forces in business environment around that can affect their p rofitability. It depends on the strengths of five forces: Intra-market rivalry, potential entrants, substitute markets, customers and suppliers. In particular, intra-market rivalry is businesses which operate on the same the field. If the field has more and more businesses joining, power of each business will falls because customer may use products from other businesses. In contrast, if only a few businesses has operation in the field, their power will be huge. Some necessary factors need to notice such as, number of competitors, difference in quality, price change, customer loyalty. On supplier, they affect to business by quantities of materials or price of material which businesses buy. If businesses have many suppliers, they will have less impact because businesses has alternative choice. In contrast, if businesses have few suppliers, they will have more impacts to businesses. Some factors are necessary to notice in supplier force such as, number of suppliers, the size of the supplier, ability to find replacement products replacement cost. Customers are factors which are directly impacts to the cost of products. It depends on the cost of the customers willing payments for products or services. Therefore, businesses need to notice customers number, loyalty of customers, price sensitivity of customers. Threat of substitute is products or services which have the same usability. If specified product or service has many products or services which has the same usability, its power will be reduced and vice versa. Hence, businesses are necessary to notice to 17
price of substitute products. Lastly, threat of new entry is competitors which may appear in the future. If it has strengths, it will able to dominate the market because these businesses have a certain reputation on the other fields. Hence, the available businesses need to notice product protection, technology protection, barriers of entry, advance awareness of their products.
*** A case study of ACECOOK company
- The application of the Porter’s five forces model to evaluate competitive market. Noodle market is being seen as necessity in Vietnam as well as in the world. ACECOOK is one of those businesses that has a strong position in the noodle market in Vietnam. It is accounting for 50% market share and the most diverse products. It shows that ACECOOK are keeping perfect strategies and competitions. In competitive environment, ACECOOK also refer to “Porter’s five forces model”. Firstly, it mentions to potential entrants. Potential entrants are businesses which have not appeared in this industry yet. But future, it can expand and entry in the field of noodle and affect to available businesses. In particular, UNILEVER group may be competitor of ACECOOK in the future. UNILEVER are operating in the field of products for family. Some famous brand are believing by customers such as, KNORR seasonings, KNORR porridge, LIPTON tea,… they are products close with the noodle. Therefore, it is no exceptions that UNILEVER will entry noodle industry.
(Source: Unilever.,2017) Secondly, Although ACE COOK has variety products, it is also facing threat of substitute products. The first thing to mention is the porridge which is a preferred product of almost people. 18
Beside self-cooked porridge, there is porridge packed of businesses such as, REEVA, VIFOOD,.. That is products which are preferred by children a nd older. Next, “PHO” is traditional food which
is preferred by almost people. Especially, it has great appeal for foreign visitors. And some products are same kind such as, vermicelli, crab noodle... We can find easily it anywhere on the roads. Moreover, some substitute products to noodle for breakfast such as, sticky, bread. Furthermore, some foods are affected by foreign such as, pasta, soup,.. But general speaking, the product of ACECOOK in particular and the whole industry in general are more affordable than some of all above. Therefore, it is suitable for people who living in developing co untry as Vietnam. We can see some substitute products of noodle through image below.
(Source: author) Thirdly, customers are certainly important force because it decides survival of business. Therefore, the business always face power of customers and ACECOOK has no ex ception. Market share of ACECOOK is 50%, so it demonstrates that ACECOOK has a powerful customer systems. It concludes wholesalers, retailers and distributors. Therefore, it is also under large pressure from customers. The first is prices which are the bargain of customers. It will involve to competitors. When another business debut a product which are cheaper and the same quality. It hits customers popularly. Certainly, they will choose this new product. Therefore, price psychology of customers 19
are necessary to care. The second are impacts from badness. Fake goods, smuggled goods enter the market with the packaging of ACECOOK. It makes customers who has misunderstand about them. Consequently, customers may change other brands. Therefore, customer care and propagate the program of ACECOOK are more and more increasingly to create belief of customers. The larger the scale are, the more pressure are. So, ACECOOK has never stopped to raise awareness of customer issues. Moreover, suppliers also has large effect to ACECOOK. Previously, ACECOOK gotten difficult to find input material when business was being established. Meanwhile, ACECOOK must import material from Japan with high prices. Now, these problems also improve, but sometimes ACECOOK also face pressure from supplier because they will require increasingly prices. The largest pressure from supplier is quality. If the cost is to exploit material raises, but suppliers cannot raise prices for businesses. A problem which are lower quality, will happen. It is one of threat to quality products of ACECOOK. Therefore, finding good and reputable suppliers are necessary issue. Some suppliers are suppling materials for ACECOOK such as, Saigon Trapaco, Trung Nam joint-stock company, Binh An wheat flour company,… Lastly, that is intra-market rivalry. As noted above, noodle market are stronger and stronger, so there are a lot of businesses competing with each other in this field. Although ACE COOK are keeping strong position on market, it also has threat of competitive rivalry. In particular, MASAN is one of large competitors which is ranked second in the noodle industrial Vietnam. Masan has spectacular attack and successful with the advertisement "hit the fear" of consumers. The most famous product of MASAN is OMACHI with promotional slogans such as "potato noodles, not afraid of heat". That is a smart strategy that is a potential threat of ACE COOK. Moreover, VIFON is the oldest noodle business in Vietnam is also large competitor. As well as ACECOOK, VIFON also has the strength to produce a variety of products ... VIFON selected the media slogan is "do not use the color composite". It also focuses on consumer psychology.. That is some threat of ACECOOK from competitive rivalry in noodle industry.
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(Source: author) To sum up, according to 5 forces above show that ACECOOK is a large business, so the threats of it are not small. But, ACECOOK always has smart and suitable strategies to survive in long time. Task 6 Explain how strengths and weaknesses interrelate with external macro factors 6.1 Introduction: Government policies
+ Trade policy (Tariff/ Quota/ Exchange rate) + Fiscal policy (Tax/ Government spending) + Monetary policy (Interest rate/ Money supply) Macroeconomics include all factors of national economic. It has directly or indirectly affect to businesses. Therein, along with other factors, government policies are a key tool which has roles in business regulation. The government policies may affect the competitiveness and profitability of businesses. There are 3 mainly factors in government policies such as, trade policy, fiscal policy and monetary policy. Firstly, it mentions to Fiscal policy. Fiscal policy is the way the government which affects to economy by taxes collection from the people and uses it to spend for the activities of the state. There are many types of taxation, but direct and indirect taxation are common types. In particular, direct taxation earns tax money from taxable income. Taxes will be different because of dependin g on the level or scale of the person or business taxes. Moreover, indirect tax is a tax which is added to the price of goods and services. For instantly, indirect taxes usually depen ds on enterprise to tax the consumers such as, value-added tax (VAT), hydrocarbon tax, tobacco tax, alcohol tax, import duties. Besides, there are other sources. Such as, national or social insurance, rental of land or property, and to be divided from joint stock companies. Next to, government will use sources to invest in the activities which make country become better. It is called “government spending”. 21
(Source: Campbell, D. & Craig, T., 2005) The image above shows government expenditure in US. According to it, government always focuses on the various fields to comprehensive country development. Especially, government investment in the field of social security investments holds an important position. It shows that is the security of the people in above all things. Besides, the spending for health, education, and infrastructure.. also is equally attention. The two main activities of the government are revenue and expenditure. It will have cases that happen in the fact. If taxation is more than expenditure, the state budget will be surplus. In contrast, if taxation is less than expenditure, the state budget will be deficit. If taxation is equal to expenditure, state budget will be balance. Secondly, monetary policy is a change of circulation of money which is created by Federal Reserve System (Fed), central bank, currency board. Some actions of monetary such as, modifying the interest rate, buying or selling government bonds, and changing the amount of money banks are required to keep in the vault… Government proposes monetary policy to affect monetary
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variables by two basic way such as, interest rate and money supply to regulate the economy. The interest rate is a certain percentage and it is derived from a loan between the parties.
Operation and effect of interest rate are shown by the image on the right. It shows interest rate do not make effect to money supply curve, because it is controlled by central bank. Besides interest rate will affect to money demand curve. It shows that money demand curve is downward sloping. It means if interest rate falls, money demand will raise. For example, businesses have trends borrow for investment. If interest rate rises, a fall in consumption and deferring investment will happen. In other aspect as between banks and depositors. When interest rate of banks raise, people tend to deposit money into banks to earn interest. It makes reduce money circulation in the market. They are applied when government wants to raise or reduce the amount of circulation money. Moreover, government will control money supply by four tools. The first is “Open-Market Operations (OMOs)” where the government opens for the purchase or the sale of government bonds. Moreover, this is the most important and popular tool. When needs of raising money supply, government (or central bank) will buy government bonds. Conversely, if government want to decease money supply, government (or central bank) will sell government bonds. The second is “Reserve Requirements” (rr) which are regulations of central banks for commercial banks.
Commercial banks must adhere to requirement about cash and loans. When needs of raising money supply, banks must make more loans. In contrast, when needs of reducing money supply, banks must make fewer loans. The third is “Discount rate”. This is the interest rate which the central bank regulates loans of commercial banks because commercial bank can borrow reserves when they are low on reserves. When needs of raising money supply, government can reduce discount rate. Therefore, central banks encourage other banks to borrow more reserves. Then, banks can make more loans and money supply will raise. And, when needs of reduce money supply, the process works in reverse. The last is “interest rate on reserves” which has just created in recently years. It is used for affecting the amount of reserves that banks hold and the money supply. When needs of increasing the money supply, banks must reduce interest rates on deposits and vice versa.
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Lastly, trade policy which is standards, goals, rules and regulations that pertain to trade relations between countries. It includes the actions such as, trade, quotas, import and export. It involves in close and open economies. A closed economy is dependent and does not have imports, exports. Conversely, an open economy is called international trade which have interaction with other countries in the world. Moreover, trade policy also involves in balance of trade. If imports are more than exports, it will happens trade deficit. If exports are more than imports, it will happen trade surplus. And, if exports and imports are equal, trade will be balanced. Trade policy depends on the world price (Pw), which is dominant price in the world. If domestic price are less than the world price, exports will expand under free trade because other counties tend to buy affordable goods. In contrast, if domestic price are more than the world price, countries will tend to import goods because of not having comparative advantages. International trade will affect to small countries which are a taker price because of not having effects on the world price. Next to, trade policy has welfare effects of trade such as, direction of trade, consumer surplus, producer surplus and total surplus. All of them will change based on the world price. Lastly, trade policy which is standards, goals, rules and regulations that pertain to trade relations between countries. It includes the actions such as tariff, quota, exchange rate. It involves in close and open economies. A closed economy is dependent and does not have imports, exports. Conversely, an open economy is called international trade which have interact with o ther countries in the world. Moreover, trade policy also involves in balance of trade. If imports are more than exports, it will happens trade deficit. If exports are more than imports, it will happens trade surplus. And, if exports and imports are equal, trade will be balanced. Trade policy depends on the world price (Pw), which is dominant price in the world. If domestic price are less than the world price, exports will expand under free trade because other counties tend to buy affordable goods. In contrast, if domestic price are more than the world price, countries will tend to import goods because of not having comparative advantages. International trade will affect to small countries which are a taker price because of not having effects on the world price. Next to, trade policy has welfare effects of trade such as, direction of trade, consumer surplus, producer surplus and total surplus. All of them will change based on the world price. There are three tools which government uses to regulate the economy. The first is tariff which the limit on the quantity of an imported good. Imported tariff is to contribute to the development and protection of production of domestic and to contribute to the revenue of government. There are many ways to tax imported goods. Trade policy usually uses two basic ways such as, either calculation depend on the quantity of imported 24
goods in the prescribed amount of money or calculation is on a percentage (%) for the total value of goods. This is one of those ways to restrict trade. The second tool is quota which is another way to restrict trade. It is the regulations of government on the quantitative of a certain imported goods in a certain time. In quota, the government does not right to tax. Because quotas make restrict domestic prices of goods, foreign suppliers and their importers will have large profits. Government applies the import management by quotas for the protection of domestic production, the efficient use of foreign currency funds and the fulfillment of commitments with foreign countries. The last is exchange rate which is the price of a currency is calculated in the currency of the other country. For example, the exchange rate between USD and VND, people in Vietnam has to pay about 22.000 VND for $1 in US. Every business in trade needs to forecast change of exchange rate to management of working capital to ensure a safe, effective and growing businesses. On the other hand, import of goods may be restricts when a limit to the amount of a currency that can be bou ght. To sum up, this is factors and tools of them which government use to regulate organizations. Organizations should identify to comply and it will be better if organizations know how to develop business based on these policies. 6.2 Evaluate the impacts of government policies on organizations and business to make decisions . o
General evaluations on business in economy
In the field of business, businesses not only under pressure from customers, shareholders, labors,.. but also are influenced by government. Government always proposes policies in the attempt to decease problems of economic recession. Policies of government depend on operations of business organizations in market economies. Hence, businesses must change operation way after government change policies or add new policies. In particular, the first is to mention impacts of fiscal policy of government. Government will use this policy by taxation and spending to achieve goals such as, economic growth, job creation, price stability. On taxation, organizations must declare and pay tax for the government at appointed time. It will tax on revenue of sales, service supplier of organizations. Moreover, government will affect to businesses by Fiscal policy expanded and tightened. For example, when government expand fiscal policy, it means government raise spending. Hence, government also contribute the increase of total demand for goods and services. Hence, organizations and businesses also expand business and more supply to the market. The second is impacts of monetary policy of government. Almost government refer to tightening monetary policy to curb inflation and macroeconomic stability. But, tightening 25
monetary policy also causes difficulties for organizations. Such as, there is a number of barriers to business when accessing to bank loans. For example, high interest rate when government want to fall money demand. Hence, if organization must pay with high interest rate, efficient of business operations will fall. Even though, If the organizations cannot afford anymore, debts for banks will increase rapidly. Therefore, organizations must choose suitable business plan which are the most necessary in difficulty from banks. Especially is high interest rate, organizations need investment capital with the most efficient and avoid rampant investment.
The barriers of organizations in accessing capital from banks 50
46.2
45
39.9
40 35 28.5
30 25 20 15
7.3
10
9.6
5 0
No need for a loan
Complex procedure
High interest rate
No capital symmetry
Additional charges apply
(Source: General Statistic Office) Lastly, trade policy of government link between production and consumption, and it creates a chance to domestic organizations collaborate with foreign organizations. Impacts of trade policy of government usually involves in organizations which have large size. Especially, organizations operate on imports and exports. Through trade the organizations can increase its production efficiency. For domestic organizations, when import tariffs are applied, surplus of producers (or organizations) will raise because their products are sell with higher price. Government also receives revenue from import tariffs. Besides, organizations will tend to invest in innovating production technology to increase their competitiveness in domestic and foreign markets. However, if the government tax too high in long time, businesses will try to evade taxes. On quotas, it will predict quantity of imported goods. On the other h and, exchange rate is the leading concern of organizations. They always desire to maintain permanently exchange rate because it will make reduce risk when their products, services to the world market.
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Choosing a specific company to illustrate the explanations.
o
PETROVIETNAM EXPLORATION PRODUCTION CORPORATON (PVEP) operates in the large field as oil exploited, so it also has strong impacts of government policies. On fiscal policy, PVEP always has impressive tax contribution for budget state. In particular, PVEP is one of organizations which are in top tax contribution for the state in recently years. It also shows that government depends heavily on large organizations. The remarkable achievements in production operation and business activities and strong promotion of social responsibility, so PVEP has contributed significantly in the implementation of Government's macroeconomic measures to maintain the increase economy. On monetary policy, PVEP has close coop eration with commercial banks. VIETCOMBANK and PVEP have commitment to maintain comprehensive, long-term cooperation. PVEP always has recommendations about interest rate problem. In particular, that is adjusted interest rates to match the financial balance of PVEP. Besides, renewal of loans take initiative in arranging capital for investment projects. On trade policy, PVEP has made efforts to expand its investment in overseas exploration projects with the Government's policy. Statistic of tariffs, quotas,.. of PVEP are limited.
Conclusion
According to this assignment, we will see importance of macro and micro environment. Organizations must rely on PESTLE to have suitable strategies and know how to respond timely to economic events. Besides, organizations should identify factors of SWOT and Porter's five forces to propose alternative strategies. Finally, organizations must make decision based on policies of government.
References
Books
1. Campbell, D. & craig, T., 1988. Organisations and the business environment, 2nd edn. London. 2. Worthington, l. & Britton, C., 2006. The business environment, 5 th edn. United Kingdom.
Websites
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1. General Statistics Office. 2010 [Online] Available at: https://www.gso.gov.vn/ . Accessed : Oct 22, 2017. 2. Acecook ,(2017). Acecook Joint stock company. Available at: http://acecookvietnam.vn/. Accessed : Oct 22,2017.
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