Economic Trends Affecting the Organisation – Sample Solution
Questions:
Task 1: Economic Analysis
Selecting an UK organisation, you are familiar with: and address the followings
Analyse significant Macro-economic changes (economic changes are concerned) that have taken place in the organisation’s external environment
- Analyses of Changes in Macro Environment, so only economic changes are concerned.
- Need to discuss following factors critically: GDP, inflation, wage rate, consumer spending, tax rate, foreign exchange rates, interest rate, employment, CPI, RPI. No need of any definition of the factors, discus how the factors are affecting the business (Be critical)
Evaluate any Opportunities and Threats posed by the macro-economic changes you have identified.
- You have to discuss the opportunities and threat based on the changes in macroeconomic factors: GDP, inflation, wage rate, consumer spending, tax rate, foreign exchange rates, interest rate, employment, CPI, RPI that you have discussed for requirement 1.
- For example: Change in is interest rate is providing opportunity or threat for the company? If your answer is Threat then how?
Task 2: Legal content
Case Study – The Law of Redundancy
Following on from the themes you will have explored in answering the economics content of this assignment, you are now required to consider a hypothetical problem occurring in a fictional company, Ipswich Engineering Ltd. Even though this is a hypothetical case, you are still encouraged to make use of knowledge and experience gained from working in your own organisation and from considering its position in the economy, when approaching the task.
Ipswich Engineering Ltd is a small private company that has been established in the Ipswich area for 45 years. The company has been concerned with designing, producing and installing security gates for homes and businesses in the areas surrounding Essex, Suffolk and Norfolk. It has employed designers and electrical engineers for producing the security systems, which are fitted to the gates of residential and commercial clients at their premises by a team of installers. The installers have been responsible for fitting the security devices at the premises of the company’s clients and ensuring that the system works satisfactorily before leaving the site. Owing to the increasing complexity of organising the installations operations, the company has decided to cut down on the scope of its activities and to concentrate solely upon the design and production of security systems to client specifications and to contract out the installation projects. One of the consequences of this decision is that there will no longer be a need for the installers, some or all of whom may have to be dismissed. The employees concerned are as follows:
• Paul, who is 60 and has worked for the company for 24 years;
• Susan, who is 42 and has worked for the company for 1 year and 11 months;
• Chris , who is 27 and has worked for the company for 9 years
Susan is someone who has been recognised by the company as having the potential to be a gifted designer and the company would like to offer her alternative employment in that capacity, instead of making her redundant.
The company would like to know what steps they need to take in order to dismiss the relevant employees fairly on the grounds of redundancy. The company would also like to know how to go about offering the alternative employment to Susan and what principles of law apply to that process.
Would your answer be any different if Susan had worked for an Employment Agency and the length of employment was three years, i.e. 36 months.
Advise the company on these matters.
Answers:
Analysis of significant Macro-economic changes – an introduction
The report has emphasized on the macro-economic change and its impact on the external environment of the business of Sainsbury Plc. The evaluation of the macro-economic environment would lead this report to assess the threats and opportunity of the business of Sainsbury. The report would also discuss on the impact of the interest rate on the business of the company.
Sainsbury Plc, a well-known retail organisation in the UK, which is mainly in the business of retail supermarket. The company has also many convenient stores in the suburban region of the UK where the target market is the middle class people of the society (TheGrocer.co.uk 2014; MSN 2016). The history of the company states that according to the recent statistics, the company is placed at the second largest retail company in the UK by revenue. Sainsbury also has presence in online retail business as a part of the differentiation strategy (J-sainsbury.co.uk, 2016).
Analysis of changes in Macro Environment
Sainsbury Plc has its presence in the UK mainly; however. It has opened its business in some of the European countries until date. The major shareholder of the company is from the foreign sovereign fund from Qatar (Hellier and Butler, 2016). Therefore, the revenue and the business of the company is mainly influenced by the change in the economy of the UK. The favourable economy of the country provides the company a favourable option to grow its business. In addition to this, there are many competitors in the UK in retail segment who are competing with the company as a part of the external environment. Some of the impact of the macroeconomic changes are discussed below in the viewpoint of retail business of Sainsbury.
Discussion of the Macro-economic factors affecting the business
Unemployment rate
The adverse economy of the UK had affected the retail business of the company for the last two years (Uk.reuters.com 2016). The unemployment rate in the country had shocked the segment very much. In 2011, the unemployment rate of the country was 8.4% when the retail business felt the heat of low revenue generation and the shift of customers’ preference of groceries (Data.worldbank.org, 2016). However, the situation has changed vernacularly where the unemployment rate has stood at 5.2% (Trimble 2016). It has been provided that improvement of the unemployment rate was one of the reason of improving the retail business segment.
Low employment rate of the country might reduce the income capacity as well as the consumable power for the entire economy. The retail business was depended on the middle income group mainly who were depended on the employment in the country. Therefore, the adverse situation of the job market might reduce the business for the retail business. Thereby, the recent development in the employment rate in the country was the opportunity for the company as it could increase its business with more purchasing power of the customers.
GDP
The complexity of the GDP provides the measurement of the material transaction capacity for the companies. The UK has improved its GDP in 2014 significantly while it laid in the negative zone in 2009 and only 1.2% in 2012 (BBC News, 2016). The country had overcome the crisis moment of the Euro economy and turnaround for having more business. It is the normal course of action for the economists to rely the growth of business with the growth in the GDP. As stated by Harchaoui (2012), GDP is the indicator of the economy as a whole. Therefore, improvement in the GDP of the country helped the business to grow as well as expectation for the future became high.
In this context, we had witnessed the recovery of the GDP growth of the UK for the last couple of years (Quandl.com 2016). It indicated the growth in business in future due to overall improvement in the business. In addition to this, the expected GDP of the country had been framed at lower than the current growth. Thereby, the future situation and expectations from the business of Sainsbury had become poor. Therefore, the strategy of the company would be changed to tackle the upcoming low growth in the economy (Business and Design 2012). The company required to expand its business in the growing economy where it could make more return from its investment. Further, the company had to drift the business in the UK market by its convenience stores where the price of the products were low. The profitability from these types of stores were high due to low investment and low operating expenses.
Interest rate and inflation rate
The business environment has two great factors in the business – inflation and interest rate. Both of them are connected to each other and moved inversely. In 2008, the interest rate of the country was 5.9% witnessing the economic crisis. Therefore, the Central Bank of the UK had lowered the rate at 0.5% for the consecutive 5 years to tackle the adverse situation in the global economy (Britishchambers.org.uk 2016). It had made the cost of borrowing low for the business. Further reduction of demand in the retail segment had made the inflation rate very low, which was not a good indicator for the development of the country’s overall GDP (Economicsnetwork.ac.uk 2016). It showed that the purchasing power had bottomed out for the general people either, or the country has experienced a deflation in the economy. However, the inflation of the country must not be very high as it increased the interest rate as well as the price of the goods (Craig and Campbell 2012). The high price of the goods became the low revenue generator in the difficult moment, which opposed the high revenue generating target for the companies. According to Findlay and Sparks (2014), higher the rate of inflation, the economy faced the challenge of macro-economic constraint in bringing the development. It could halt the improvement in the business environment as the high inflation in the economy made the interest rate high. It made the people to save much in the bank due to enjoying the high interest rate from their investment for future and the cash in hand for purchasing the new goods become low (UK economy: GDP growth, interest rates and inflation statistics 2016).
High interest rate is the indication of inflation in the economy. However, the low interest rate helped the companies to enjoy the low borrowing cost as well as the overall cost of funding the capital expenditure to expand the business. Therefore, the low interest rate was the opportunity for the company to develop the business as well as to keep low the price of the product due to low holding charge of the inventories (Tonner and Wilson 2015). The current inflation rate was an opportunity for the retail business. Therefore, Sainsbury Plc had the chance of increase its business in its supermarkets as well as in the convenience stores.
Foreign exchange rate
The business of Sainsbury was mainly based in the UK market. Thereby, the business was not exposed to the foreign currency translation. However, the materials of the retail business were sourced from the outside of the country as many of the suppliers are foreigners. Thereby, the volatility in the foreign currency could make the business of Sainsbury risky due to adverse situation in paying the suppliers in foreign currencies (El Ouadghiri, Mignon and Boitout 2015). Further, the funding of the company was mainly from the foreign sovereign funds. Therefore, the company had to bear the risk of transaction risk associated with paying the dividends to the shareholders. The global economy was the main reason of risk associated with the foreign currency.
The current exchange rate of GBP with the third world country had appreciated much (Dichev et al. 2013). The current exchange rate of GBP was 1.4341 to USD, 1.32 Euro and 9.44 Yuan (Bloomberg.com 2016). Therefore, it was an opportunity for the company to expand its business in those geographic region while the business in the USA and other European countries were still risk due to amid volatility in the exchange rate of GBP with Euro (Gov.uk 2013). The higher appreciation of the GBP of the UK had provided the opportunity in the foreign countries for Sainsbury Plc as it had to invest less in pound while the return might be higher if the economy of those countries survive the situation in future. Additionally, the company also enjoyed the low supply cost as it could pay lesser amount of GBP to its suppliers. It was also observed that the situation was adverse for the company while taking supply from the domestic suppliers as the expenses become higher (Rose and Krausmann 2013). Therefore, the risk of unavailability of the supply remained in this case due to dependability on the foreign suppliers became high.
Corporate tax rate
Corporate taxation was one of the factors among the macro-economic environmental assessment as it could influence the business in financial way. The recent tax rate for the big corporation based in the country was around 20% per year as decided by the UK government (Heritage.org 2016). However, the tax rate had been reduced constantly since 2012 as the country felt the heat of the Euro zone debt crisis then after the global recession of 2008 (Higgins, Omer and Phillips 2014). The reduction of the corporate tax was witnessed in the consecutive years by 1% each and had stood 20% in current year.
A low tax rate was the opportunity for the retail sector to improve the profitability as well as capture the market share in the UK. The country was going through low interest rate regime since 2012. Therefore, it had brought the chance of investing in the capital expenditure in the foreign countries to expand the business globally. The tax rate in the USA 35% while in Japan, the tax rate for the corporates was 38% during the period. Thereby, we could see that Sainsbury had the chance of developing the business as well as selling the asset sells unused in the operation. It might help the company to increase the funds in the hand of the management to develop the business and might improve the sentiment of the investment cycle in the third world (Rohlin, Rosenthal and Ross 2014).
CPI
The CPI is the measurement of the inflation in the consumer goods and service where the change in the price of the goods can send the message of impression on the business (Gudgin, Coutts and Gibson 2015). The consumer price of the goods and the services has included the consumer goods, which are used as the household for daily life. However, it cannot tell us the exact price influencing factor for the retail consumers due to its limitations. The index is mainly based on the urban price of the consumable goods and services. Therefore, the situation in other parts of the country could not be achieved from this index value (Lin and Qiao 2015).
The current CPI value of the UK was below 2% due to low oil prices in the international market. The index was in the sky during the adverse situation like 2009 and 2011. The CPI was higher than 5 at those times. Therefore, comparing with the past situations, we could say that Sainsbury could make its revenue high due to low CPI helping the customers to consume more (Cornelsen and Normand 2013).
RPI
RPI is the retail price index of the country that shows the true measurement of the retail price of the products. The value of the small low retail price helps the consumers to buy more due to increasing their affordability. In this respect, the RPI of the UK has included the general household tax of the home, mortgage cost of the consumers, insurance payment and other tariffs those are required to pay for living in the society (Rose and Krausmann 2013). Thereby, the RPI has the more precision factor in understanding the affordability of the consumers from time to time.
The retail price of the goods indicated the consumption by the customers’ from time to time in household as well as in the financial products. Thereby, the excess money in hand of the customers could be understood in this way (Santos 2013). The recent RPI of the UK is high indicating the high purchasing power of the consumers and favour the business of Sainsbury Plc.
Conclusion
From the above report, it can be concluded that the macro-economic factors can influence the retail business of Sainsbury significantly. The different factors can impress the retail business of the company separately. However, there is also chance of influencing the retail business with accumulating all or the multiple the factors.
References
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Bloomberg.com, (2016). GBP to USD Exchange Rate. [online] Available at: https://www.bloomberg.com/quote/GBPUSD:CUR [Acceed 27 Jan. 2016].
Gov.uk, (2013). Pocket databank: economic indicators - ssPublications - GOV.UK. [online] Available at: https://www.gov.uk/government/statistics/weekly-economic-indicators [Accessed 27 Jan. 2016].
MSN, (2016). MSN Food UK. [online] Available at: https://food.uk.msn.com/ [Accessed 27 Jan. 2016].
Quandl.com, (2016). UK - Economy Data - Data from Quandl. [online] Available at: https://www.quandl.com/collections/uk/uk-economy-data [Accessed 27 Jan. 2016].
TheGrocer.co.uk, (2014). Sainsbury's shifts to a mid-low model pricing strategy. [online] Available at: https://www.thegrocer.co.uk/channels/supermarkets/sainsburys/sainsburys-shifts-to-a-mid-low-model-pricing-strategy/371978.article [Accessed 27 Jan. 2016].
Trimble, J. (2016). Headline Economic Indicators | UK Data Explorer. [online] Ukdataexplorer.com. Available at: https://ukdataexplorer.com/headlines/ [Accessed 27 Jan. 2016].
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Cornelsen, L. and Normand, C., 2013. Impact of the Irish smoking ban on sales in bars using a large business-level data set from 1999 to 2007.Tobacco control, pp.tobaccocontrol-2013.
Gudgin, G., Coutts, K. and Gibson, N., 2015. THE CBR MACRO-ECONOMIC MODEL OF THE UK ECONOMY (UKMOD).
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Task 2
Define Redundancy.
The redundancy is a term associated with the employment law in the UK. The requirement of reduce the labour force in the workplace has made this law important as well as the popular among the employers. The redundancy is not associated with the disability of the employees due to physical problems, gender, pregnancy (during the maternity leave for the women), higher age of the employees etc. The law of redundancy has clearly stated that the employers have to follow the rules of the redundancy in the country in a strict manner, otherwise it would be considered as the unfair dismissal of the employees. The decision must be based on the some of the real life data and facts to prove the redundant of the certain employees. The disciplinary requirements in the workplace plays a crucial role in employment redundancy as it is the maximum case for becoming redundant for an individual in work place (Hepple 2013). Further, the rule also states there are some of the standard method to make someone redundant in the work. The employers have to comply with the payment of the redundancy and notice period to the employees before making them redundant. Additionally, the numbers of redundancy also play a role in this case – up to 20 employees can be redundant from an organisation with consulting with the employees separately (Doiron and Mendolia 2012). However, if the redundancy is made in a mass scale or more than 20 employees altogether, then the employers need to consult with the trade union as it comes under the collective redundancy (Citizensadvice.org.uk, 2016). In addition to this, it is also mentioned in this law that without consulting with the employee or the union, the dismissal becomes unfair – even for a genuine redundancy situation.
Has there been a redundancy on the facts of this scenario?
The fact of the case stated us that Ipswich Engineering Ltd has the chance of making the employees redundant due to its decision of closing the installation division. In this respect, the installers of the companies would become redundant from the current business horizon of the company. Therefore, it could be seen that there was a clear redundancy in the operation due to closing one of the operation in the business. Additionally, it could be said that Ipswich Engineering had the three division – designing, production and installation of the security systems. The three divisions had different working responsibilities and the output. Therefore, the resources required for the three departments were different for the three divisions. The installation division was engaged in the operation of installing devices in the residence of the customers and the offices. Thereby, they could not contribute other departments with their experience or their skills. So, the company can make the entire division of installation redundant for closing down the installation operation.
Can the employer dismiss based on that redundancy?
Redundancy refers to the process in which employers reduce their workforce for increasing business profitability. However, this process is complex and the company should consider the established legislations of government (Gov.uk 2016). Therefore, it can be said that the employees can dismiss employees based on the redundancy act of government. As the company is closing the section of product installation, it is obvious for the company to eliminate the employees associated with this particular job role (Moneyadviceservice.org.uk 2016). On the other hand, the company can also offer new job role to these employees for complying with the redundancy act. In case of the employee is not having adequate knowledge about the offered job role, then the company will be able to discontinue the employee from the existing post by giving a prior notice. In case of Paul, he is working for 24 years and his age is 60. Therefore, according to the redundancy Act, dismissing him from his job is an unethical practice of the organization (Wilkinson 2013). On the other hand, Susan is working with the company for 1 year and 11 months. As he has adequate knowledge in designing products, the company is liable to offer different post to him (Taylor and Emir 2015). Chris is working for 9 years and he is 27 years old. Apart from that, he does not have knowledge in product designing. Therefore, the company can dismiss his employment by complying with the act of redundancy.
Has the employer’s requirement for employees to carry out work of a particular kind ceased or diminished, or is it expected to cease or diminish?
As per the given scenario, Ipswich Engineering Ltd is planning to cease the department of installation process and focusing on the production of designing process of security system. As the company is focusing on ensuring that the system is working successfully after the installation process, the operation process of the company is becoming very complex (Horn 2011). Therefore, the company has planned to reduce the role of operation department for reducing organizational cost. It directly tends the company to reduce employee, those who are related to the installation department. However, the consequences of this particular decision have created different legal issues for the organization (Law 2015). As the process of discontinuing emplacement of employees is a complex process, therefore, the company is planning the procedures before taking the final decision of diminishing the installation department (Schömann 2015).
If the employer decides to dismiss, would it be mainly for this reason?
The main reason of taking the decision of dismissing the employee is that the company is taking down the entire department of product installation. However, in this situation, the relevant employees were not having any disciplinary report against them. Therefore, there was no other reason of terminating the employee those who were associated with the installation job (Rudman 2013). In case of Paul, he was working for last 24 years and he was at the age of his retirement. Therefore, the company was unable to dismiss his employment according to the redundancy Act UK (Geddes et al. 2013). Susan was having sufficient knowledge regarding designing of security system; therefore, the company was bound to offer him alternative post within the company (Beck 2013). If Susan was working for an employment agency and the work duration of his was 36 months, then the rules and regulations of redundancy remain same for him. In case of Chris, his age is 27 years and he is not having knowledge in product designing and production. However, there is no other reason of dismissing his employment but the company can give his a notice for searching another job by following redundancy Act (Moneyadviceservice.org.uk 2016).
Is Susan, who is 42 and has worked for the company for 1 year and 11 months entitled to redundancy pay?
The case study is showing that Susan is 42 years old and working for the company for 1 year and 11 months. Therefore, according to the Act of redundancy pay, if an employee is working more than 1 year, then the company is bound to pay them the redundancy amount at the time of dismissing employment. According to this Act of redundancy, Susan is entitled for redundancy pay (Horn 2011). Apart from that, as he is capable with designing and production job, the company should offer him alternative job role at production department before dismissing his employment. If Susan was a employee under an agency, then also he was able to retain the redundancy pay. The process of availing the redundancy pay is same for the direct employees and agency employees both.
Is it correct for Ipswich Engineering to consider suitable alternative employment for Susan? If yes, explain how the company can go about it?
According to the redundancy act, a company should follow a three-step process while taking decision of taking down a particular department. The three-step process includes the following- 1) The Company should consult with the employees before enabling the particular strategy. 2) The company should give option to the employee for moving in to a different job role. 3) The company should give a notice period to the employee for finding new job. In case of Susan, it can be evident from the case study that he is having adequate knowledge in manufacturing products (Rudman 2013). On the other hand, the company is having two different operation processes such as manufacturing unit and installation unit. Therefore, while following the three-step process, the company should offer the post of a designer to Susan. Offering Susan the designer post will be beneficial for the company, as he is capable with product manufacturing and designing. However, the other employees do not have sufficient knowledge regarding this job role. Therefore, it can be said that, the company can communicate with Susan and give the proposal of changing his job role within the company (Beck 2013). If he agreed with the management decision, then the company can change his designation. In either case, if he does not agree with the management’s decision, then the company should give him a notice period for searching another job.
Explain what steps should Ipswich Engineering Ltd take in order to dismiss Paul and Chris fairly on the grounds of redundancy?
In order to dismiss Paul and Chris fairly on the ground of redundancy, Ipswich Engineering Ltd should follow the following steps.
Consultation with the employees
In the first step, Ipswich Engineering Ltd should consult with Paul and Chris regarding the current organizational situation. Moreover, the company should also communicate with them regarding organizational decision regarding ceasing the department they belongs to (Hepple 2013). It helps the management to take their decision regarding this matter. As these employees are working with the company for long time, the company should consider regarding their future activities within the organization (Flynn et al. 2013). Therefore, the company should consult with Paul and Chris regarding this matter before taking the final decision of dismissing the operation of installation process (Prassl 2013).
Option for moving to another department
As per the redundancy Act, the company should offer the employee alterative positions to the employees. In this step, the company should evaluate the efficiency level of the employee related to the other job role within the organization (Woodcock et al. 2014). It helps the company to reduce sudden changes within the organization (Eamets 2013). In this process, Paul is 60 years old and working for last 24 years. He does not have any knowledge regarding design and manufacturing process. On the other hand, Chris was working for last 9 years and he is not accustomed with the design and manufacturing process (McKay et al. 2013). In this context the company should pay the actual redundancy pay to these employees before terminating their employment with the organization. Therefore, the following step should be applies for these two employees (Sargeant 2009).
Notice period
After following the above-mentioned steps, the company should give Paul and Chris a notice period of 1 week for searching suitable job. The entire process is fair and complying with the redundancy act of UK government (Bisom-Rapp and Sargeant 2013). In this period, the employees can search another job and easily maintain their professional life as it is. Apart from that, the company should also pay the redundancy pay to both of these employees at the time of dismissing employment (Dawson 2009). As Paul is senior employee of the organization and at the stage of his retirement, the company should continue his employment until his retirement stage (Eamets 2013). Otherwise, he can claim an unfair practice of terminating his employment before completing the entire working life (Hall and Edwards 1999). He can also claim that the company has terminated his employment due to reduce unnecessary wages after his retirement and paying him a onetime amount, which is known as redundancy pay (Li and Moon 2003). The total amount of redundancy pay is far lesser than the amount payable after retirement. Thus, the company should continue employment of Paul for the rest of his employment life (Rudman 2013; Anderman 1992).
Is an agency worker entitled to the same rights as of employee?
In case of agency workers, the redundancy act will remain same. Therefore, it can be said that the company or agency should offer alternative job role to the employee on the time of dismissing his or her employment. Apart from that, the employee will be entitled for the redundancy pay after 12 weeks of employment (Sargeant 2009). The pension enrolment will be same for the agency employees (Ashcroft 2008). The other facilities will be entitled for the employees those who works under agency after completing 12 weeks of employment (Deakin 1986). Therefore, it can be said that the employees those who are working under agencies can get the same benefits like he permanent employee those who are working with direct company (Schömann 2015).
References
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