Business environment analysis and key factors

Business Environment

The growth of every economy depends largely on the performance of the private companies. The private sector is one that the government has no stake and their main motive is to increase their profits. In the case of UK, most private businesses are sole traders in which the ownership is for an individual doing business using limited capital. Because of the fierce competition in the private sector, businesses have to operate in a tough environment that is characterized by changing economic condition, government regulations and constant changing customer tastes and preferences Kash, 2001.

In the competitive industry, companies must ensure that they keep their operations as efficient as possible and maximizing the quality of their production without hiking prices charged to the consumers who constitute the demanders of the product. In UK, competition forms one of the basics in which private companies operate and this therefore implies that the management of private companies must assiduously and consistently conduct an environmental scan to assess the changing economic environments in order to formulate strategies that promotes the core objectives of the business.

Company Overview

A.G. Barr, the largest soft drink company that was incorporated in 1895 and which is listed in the London stock exchange will be used for this report. The company manufactures soft drinks and operates in North Lanarkshire, Scotland and Cumbernauld. The company is specifically known for the manufacture of Irn-Bru which is a popular Scottish drink. Since its formation, the company has realized tremendous growth through acquisition of other companies in the industry to become a market giant a.G., 2012.

In 2002, the first non-family CEO was appointed to steward the business towards the realization of its aims. Because of the nature of the industry that is characterized by local and international competition, Barr becomes a good organization for this analysis as the economic environment plays a critical role in the realization of its vision.

Business Responsibilities and Objectives

Barr's soft drink business is aimed at providing customers with leading soft drinks and innovation of new products that match the requirements of the customers. The company aims at achieving efficient operations and developing a brand portfolio that can promote the profit maximizing aim of the business. At the same time, Barr is concerned about the development of people and sustainability of its brands in the market. With the objective to remain competitive, the company concentrates its efforts in market research so as to record customer satisfaction and increase in sales turnover a.G., 2012.

The company also intends to continue having control in the UK market by developing strategies that are aimed at thwarting the competitors' market share in order to increase its grip.

It can be stated authoritatively, that Barr has realized most of the company's aims and has been considered a key player in the market. The company has recorded increased revenues and profits in the market characterized by stiff competition, tough economic conditions and continuous changing in the consumer tastes and preferences. The growth in operations through acquisition of other firms in the industry together with the increase in the number of brands that is sold in the market makes the company successful Neill, 2009.

The strong marketing strategies that have seen the company penetrate the industry and become a leading giant in the market. Moreover, the strategic alliances and the recognition of the consumers' diverse cultural practices and beliefs make the company realize its objectives and succeed in the turbulent and unpredictable market.

To meet its responsibility to the stakeholders, Barr PLC has engaged in continuous market research that is aimed at making the business manufacture goods that are highly demanded in the market. At the same time, the business has adhered to the set regulations that are set by the market regulators to ensure that their drinks are safe for consumption. The company has therefore made known the components of their products by disclosing the components of the ingredients that are used in manufacturing the soft drinks. In addition, the plight of the employees has been achieved through awarding employees competitive salaries and bonuses for meeting their targets. The government obligations have also been met since the company pays tax to the state and conducts its businesses under the required statutes.

Barr's Economic Environment

The environment in which that operates affects all businesses irrespective of their locations. Overall, the business environment is faced by economic factors, social factors, political environment, and technological environment. For a business to thrive in this dynamic environment, the management should continuously scrutinize the performance of the business with the aim of unravelling the deviations and taking corrective measures to ensure that the direction is not lost in the process a.G., 2012.

Barr is not an exception and has been faced by the fierce challenge in its attempts to maximize the shareholders returns in the market. Our analysis in this case will only concentrate on the economic environment of the business and will compare the performance against those of competitors and the industry in general.

The revenues and profits that are earned by the business depend entirely on the economic environment. The economic environment affects the revenue centre of any business and must therefore be continuously looked at to ensure that the business income does not deteriorate. In the case of Barr, the company's revenues for the financial year 2012 increased by 6.6% to £237 million from £ 222.4 million in the 2011 financial year a.G., 2012.

This supported the increment in profits by 6.2% and ensured that the shareholders record an increase in their earnings per share by 24.8%. The company's major brands performed well making the company increase its total profits. The major revenues were derived from the exotic juice brands, Rubicon and KA. Simultaneously, the balance sheet figures remained stronger with the improved returns on the capital employers and strong cash flows that were generated. The following factors affected the company economically:

Raw materials constitute the largest percentage of the cost that is incurred in the manufacturing of a product. In the case of the manufacture of soft drinks, the company major raw materials like sugar, fruit pulp, PET, minerals and other materials made the company management be placed under pressure to ensure that the company's, margin are not reduced in large proportion. The gross margin therefore reduced from 51.6% in 2011 to 50.6% in 2012 attributed to the increased raw material costs. At the same time, the cost of production went high because of the increased fuel prices in the international markets. Energy also forms part of the business costs and any slight increase in its cost will translate in increment in the cost of the final product. The business in its efforts to realize the profit motive therefore had to reduce the costs by increasing the level of efficiency in its operations.

The stretched consumer budget also affected the business economic performance. To ensure that the revenues grow, businesses have to ensure that they record increase in the amount of products that is sold to the market. Because the UK citizens form the market, a stretch in their budgets will make them reduce the quantity of the drinks that are purchased. This will therefore reduce the total amount of sales made. To avert the potential decline and losses, the management has engaged in continuous marketing of the final products making Barr continue to record increased revenues Botha and Kourie, 2008()

In addition, the rate of inflation also plays a major role in the economic environment. Inflation can be defined as the general surge in the prices of consumers' goods and services within a period. In the case of the manufacturing companies, cost-push inflation causes a major threat on their margins making the businesses record decline in its profitability. To mitigate the impact of the increased prices on the final prices of their drinks, the management of Barr ensured source its inputs from the lowest suppliers and made their tendering process competitive. However, in doing this, the management ensured that the quality and tastes of the final products remain high.

The amounts of taxes that are paid by the businesses also affect the amount of profits and revenues posted. Taxes forms part of the economic environment and are mandatory expenses that even the management lacks control on. Businesses pay different kinds of taxes, which affect directly the final prices of the products. In the year 2012, Barr effective tax rate was at a lower rate of 20.5% compared to the effective tax rate of 25.8% in the year 2011. The corporate tax that is charged on the net profit was reduced by 2% making the business record positive growth in the amount of taxes remitted. This is attributed to the increase in the amount of property sold which attracted tax credits from the government. Another tax that is paid by Barr is the value added tax that is a withholding tax. The increase in the VAT had an adverse effect on the prices in a market where consumers are very sensitive with price changes.

UK National Environment

In UK, the allocation of resources is purely based on the forces of demand and supply. This form of economy is a free economy in which competition is embraced and firms have to become efficient to increase their level of competitiveness. The government only intervene to provide the necessary infrastructure and to ensure that consumers are not exploited by the businesses. Besides, the government will formulate policies that ensure fair competition and collect revenues for the country development agenda. With these, businesses must ensure that they operate within the law and abide by the regulations that are set by the state. Barr Company can therefore conduct business in a competitive industry without government interference on what form of business to do or the amount of prices to charge on their products. The management has large latitude of choice to make on how to produce, what to produce, and who to receive the output of the process. This has therefore given Barr an opportunity to determine the strategies to use to win the confidence of their customers in the highly competitive marker.

Government policies and its Effects on Business

The government through their economic policies also affects the operations on any business within the jurisdiction. In the case of Barr, both the monetary policies and the fiscal policies that are formulated by the state will affect the way to conduct business and the amount of profits the company will post. Monetary policies are the policies that are formulated by the central bank to determine the money supplied in an economy. The tools used in controlling the money supply, as interest will influence the cost of doing business hence affect the capital structure of the firm. When the interest rates rise, the cost of borrowing increases hence leading to an increase in the interest expense of the business Kangas, 2003.

This would reduce the amount of profit that a company will report. The reduction in the level of interest rates by the government for instance led to reduced interest expense in 2012 making the business increase the profit. Monetary policy may therefore make the company change the capital structure decisions.

Fiscal policies are the government policies that are formulated to control the amount of money available with the public through altering taxes or increasing the amount of government expenditure to stir economic performance Shubik, 2009 .

An increase in the amount of taxation will deprive businesses their profits and reduce the earnings available to the shareholders. For example, the increase for government VAT, made Barr record decline in the profit posted. On the other, hand the government extension of credit allowance to firms also made Barr realize a reduction in the tax expense. At the same time, government through alteration of their expenditure will affect the level of demand of goods or could increase the price levels. When the government increases the amount spent, Barr will realize an increase in the goods consumed making the profit rise.

Market Structure

The competitive nature of the business in the soft drink industry determines how the operations of Barr are conducted. The fact that the market is competitive ensures that the Barr make efficient their manufacturing process. Competition has also made the company reduce the cost of operation to make the company sell their products at low cost Welford, 2012.

The forces of market and supply and not any other means therefore determine prices. It has also ensured that the quality of the soft drinks n of Barr meet the high quality to ensure the public prefers them. The business has also had to operate within the set legislation and rules to make the company avoid unnecessary costs.

In a competitive industry, the market forces will also influence the types of products manufactures by the businesses. Businesses, Barr included, will have to remain innovative on the manufacturing of products to meet the consumers need. The business will have to be competitive in their sourcing of goods and in making payments to their suppliers and employees as a way of retaining their customers and keeping secret their strategy from competitors 2003.