Business Environment - Totemic Limited - Case Study Example

Business Environment Name: Course: Lecture: Date: Business Environment The United Kingdom is one of the greatest economies in the world. This assertion is supported by the fact that most of the global organizations are headquartered in the region. These include banking service providers, insurance companies, humanitarian aid organizations, manufacturing industry among other major industry players. With this regard, it is therefore prudent to assert that the United Kingdom is one of the best regions where the impacts of business environments to organizations can be examined. In this research, totemic Company will be used to study the same and analyze the different factors that are influenced by the business environment in any given industry. Brief historic background Totemic Limited is ranked number 45 out of 100 best companies in the United Kingdom according to the 2014 the United Kingdom Sunday Times survey. The company has one of the most amazing stories in the history of financial services. Interestingly, the company began as a small office in a small garage to the current great global financial service provider. The walk to its current position has however not been an easy one as it is with many other companies. It started as an independent financial advisor and later ventured into advising the civil servants (). The company mostly focused on individuals serving as nurses, police officers, union members and the armed forces (). Some of the current services provided by Totemic include debt management, mortgage and protection advice as well as insurance. Understand the organizational purposes of businesses (learning outcome1) • Mission Totemic is a community that exists to inspire individuals to achieve personal greatness and make a difference (). • Vision The company is dedicated to solving individuals’ financial difficulties ever since its inception. • Aims and Objectives The company aims at providing financial support and advice to its clients in the United Kingdom as well as globally. • Market Share Ethical Issues Ethics is guidelines or rules of conduct that the society is expected to uphold in order to develop a harmonious existence (Gibson, 2011). These guidelines only suggest what humans can or cannot do and mostly they are based on societal values and cultures. Laws, on the other hand, are legal frameworks that have punitive consequences when they are violated. When laws are broken, there may be fines charged or other associated penalties. This is not the case with ethics. While laws are rules and regulations that have defined penalties and consequences, ethics are simply social guidelines founded on moral ideologies and standards (Gibson, 2011). Legislation in some cases may permit some actions that are not ethically justified. For instance, the law demands justice while ethics promotes forgiveness and reconciliation. Ethical considerations in technology applications Innovation and the technological advancement in business have offered solutions to many problems. However, the adoption of some technical applications has led to infringement of other peoples’ rights. Issues of privacy and information security are some of the common ethical concerns arising from the developments in IT (Gillers, 2012). Through the internet, organizations can track buying habits of their customers, collect personal information about them, and also monitor their movements. This takes away the right to privacy. Under the guise of enhancing security, organizations can obtain more information from their customers and employees than it is ethically acceptable. The use of security cameras and surveillance of workers’ activities infringes on their right to privacy. Security cameras also capture images and activities of non-employees such as suppliers and visitors among others. This creates an ethical challenge and infringement on the right to privacy (Gillers, 2012). Legal and ethical guidelines for using internet information Access to internet information is a crucial moral issue. Globally, efforts to limit the use of internet information and reliance on online data in legal matters are being pursued. For instance, the use of ‘cloud computing’ in legal practice has been a controversial endeavor. There are several ethical issues arising from the adoption of Virtual Law Office practice, VLO (Gillers, 2012). If an attorney decides to set up a VLO, he or she may be required to take additional steps to prove his or her adherence to ethical obligations (Gillers, 2012). Storage of confidential information in the ‘cloud’ poses a significant risk to consumer privacy. How legal and ethical principles apply to organizations In the current IT environment, the legal and moral principles are necessary to consider. The development in IT has created a myriad of legal and ethical issues. For instance, it is hard to measure and determine the extent that the right to privacy can be infringed. As a security protocol, employees are required to surrender too much information (Gibson, 2011). Their movements and activities are continuously monitored, therefore, compromising their right to privacy. It is illegal to use or access personal information without the owner’s consent. Nonetheless, organizations use the data collected from their customers to monitor their response to the market trends (Gibson, 2011). This raises the ethical issue of right to private information. Shareholders The company has eight major shareholders although in this report we lay emphasis on the first five. They include Lianne E. Tapson, Gordon P. Rann, Lesley E. Rann, Philip Rann JNR and Rachel Duffey (). Command economic system The government can control inflation by increasing taxes such as the income tax and the value added tax (Gibson, 2011). This will ultimately reduce spending due to the high prices of commodities and the reduce purchasing power. A reduction in the total spending will definitely cause a low supply of the currency in the market. This will in return reduce the level of inflation. Just like in the monetary policy, the fiscal policy reduces inflation by reducing the growth of demand. The two policies cause demand pull inflation (Gibson, 2011). Monetarism and the supply side policies Monetarism is a process of reducing inflation through controlling money supply in the economy (Gibson, 2011). Inflation is greatly influenced by money supply. The demand and supply still exists in the money market, when there is plenty of money in circulation, the demand for it decreases. On the other hand, when the money in circulation is limited, the inflation rate reduces. Rising costs of goods and service is another cause of inflation. This is mainly dues to lack of competence and the supply side policy can control such a situation. This policy is mainly aimed at increasing the long-term competitiveness of the economy and also enhances productivity (Gibson, 2011). For instance, dormant govern corporations can be privatized to increase their productiveness. Major world economies utilize the monetary policy in combating inflation. Such counties include the United Kingdom and the United States of America (Gibson, 2011). Monetary policy seeks to reduce the overall rate of consumer spending in an effort to reduce the supply of money in the market. Through increasing the interest rates, the central bank can influence the rate of borrowing and savings. When the interest rates are high, many people will avoid borrowing. This is due to the high repayment price. Consequently, the low rate of borrowing ultimately leads to low levels of spending hence encouraging saving. This type of inflation control is known as the demand pull inflation. Higher interest rates can also increase the exchanges rate (Gibson, 2011). This will have the following effect on the economy, it makes imports cheaper, it will cause a decline in the demand for exports and it will also reduce the cost of exports. Exchange rate policy seeks to keep the local currency’s value high to reduce inflation. The UK used this policy in the 80s. This policy however will has some other repercussions which including exposing the country to an economic recession. On the other, an increase in the wage bill causes a rise in the level of inflation. This is because high wages will increase spending and consequently an increase in the price s of goods and service. Controlling the wage growth factor can significantly reduce the level of inflation by reducing the purchasing of the consumers. Macro-economic policies are largely dependent on the Philips curve. This curve represents the relationship between unemployment and inflation. According to Philips curve, unemployment can be directly linked to inflation in a number of ways. One of them is wage growth. According to Philips, government spending will generate growth in the economy (Gibson, 2011). Mixed economic system A mixed economic system is an economic system that features characteristics of both capitalism and socialism. A mixed economic system allows a level of private economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims (Gibson, 2011). Inflation is generally defined as the increase or decrease in the prices of goods and services in an economy. The rate of inflation has varied impacts on the economy but one of the most dominant effects is that it reduces or increases consumers’ purchasing power. Inflation is basically the value of a currency. It is the monetary value of a currency that allows the exchange of goods and services. Several economic policies have been used over the years to control or solve the inflation problem. These policies include monetary policy, fiscal policy, monetarism, supply side policies, exchange rate policy, and wage control among others. Free enterprise economic system When the economy falls, the Federal Reserve’s respond with an interest rates cut to encourage more borrowing. This means that interest charged on loans becomes relatively low hence more people are able to borrow. This consequently follows an increase rate of investments. Generally, it is suffice to say that interest rate is the value or cost of money. Just like any other product in the market, the law of demand and supply in the money market applies as well. The cost of money therefore rises with the decrease in its supply and fall with the increase in the same. The supply of money in the market is influenced by trading government securities. This includes government debt or treasuries that the public have invested in. Money market and capital market are closely related though they have notable differences putting into consideration the period by which they both mature. Money markets are financial securities that have a short term maturity period normally a year or less (Miranda, 2012). This is considered to be the safest way of investing compared to capital markets. The securities invested according to Miranda (2012) include treasury bills, purchase agreements, bankers’ acceptance, federal funds and many other financial transactions. Due to the low risks and high liquidity attached to these securities, the returns on the same are relatively very low. Money market is a way through which investors store money for future need or use. Capital markets are on the other hand the opposite of money markets in that they are markets for financial assets which can take quite along time to reach maturity (Akran, 2010). The financial instruments that drive the capital markets take at least a period of more than a year to mature as pointed by Akran (2010). Transitional economic system Characteristics and valuation of stocks and bonds Either to finance using debt or equity is one of the most crucial decisions that managers face when they want to raise capital to finance their business activities. Equity and debt are the two major sources of raising business capital in today’s economy, and each has its own advantages and disadvantages. Therefore, the way a business raises its own funds has a huge influence on the competitiveness of a business. To start with, debt financing includes loans that have to be repaid with interest over a certain period (Chhokar, Brodbeck, & House 2013). A firm can borrow either short-term or long-term loan from banking institutions or government agencies. Tax advantage is the first benefit since the interest on loan is deductible. Second, future obligations of repaying the loan are limited since business ownership is not transferred to the lender. The disadvantage of debt financing is that it leaves the business vulnerable to closure when its cash flows become irregular and it is unable to repay the loan. The business becomes unattractive to potential investors making it difficult to raise additional capital. On the other hand, equity financing is received from investors through a transfer of share ownership in the business. The main benefit is that the business does not have to repay these funds. Investors can reclaim their financing from the profits made in the future (Chhokar, Brodbeck, & House 2013). Second, when high profile investors are involved, the credibility of a business increased. The main disadvantage is that investors receive part ownership of the business, and thus become part of decision makers. Therefore, business owners can lose control of the business. Moreover, relying excessively on equity financing is an indication that the business has failed to utilize its capital productively. Risk and return for common stocks versus corporate bonds Historically, studies have shown that the higher the risks, the higher the amounts of returns associated with an investment. Safe investments are exposed to low risk as well as lower returns on investment. Therefore, different amounts risks are applicable to common stocks and corporate bonds. Diversification is thus an important aspect if investors want to reduce the amount of risk (Stahl, Björkman, & Morris 2012). For instance, among the three types of investment, corporate bonds essentially have the least type of risk. Nevertheless, irrespective of the dividend payments that are done regularly, the amount of returns offered is still low. On the other hand, the highest investment risks are exposed to common stocks, but the potential returns are generally high. The chart below indicates the potential growth of $1 invested in stock that has been listed in the S&P 500 Index (stocks) in relation to $1 dollar invested in the bonds market and listed in the Barclay Capital U.S Aggregate Bond Index (Stahl, Maznevski, Voigt, & Jonsen 2010). While it is not possible to guarantee future performance using historical performance, the table indicates that investment in stocks outperforms significantly investment in bond during this period. Returns on stocks versus bonds (Taras, Kirkman & Steel 2010) Stocks seem to have major advantages if an investor has substantial amount of time before he retires. This is because there will be enough time for the market make adjustments and correct any negative factors that tend to reduce the stock value. On the other hand, an investor who wants a short-term strategy, the best option to consider is bonds (Schein 2010). This is because although bonds cannot outperform stocks, they are protected against market fluctuations associated to the ups-and-downs that are experienced in a conventional market. One of the major disadvantage of hiring the French managers instead of keeping the existing UK managers is that the company risks losing its organizational culture. The French managers have an existing preconceived mind and ideas on how to manage the business. 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