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Page 1: External Business Environment By experts Writers

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External business environment

Page 2: External Business Environment By experts Writers

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TABLE OF CONTENTS TABLE OF FIGURESINTRODUCTION ............................................................................... 3

1.1 Discuss the structure and operation of Australia economy .............................................. 3

1.3 discuss income, wealth, employment and occupational distribution in relation to the

provision of business and services operations ....................................................................... 3

Importance of Hospitality industry to Australia .................................................................... 5

1.2 Analyze current government economic policy and its effect of business and service

industry .................................................................................................................................. 6

1.3 Income, wealth, employment and occupational distribution in relation to the provision

of business and services operations ....................................................................................... 7

1.4 Demographic trends that influence employment patterns in Hospitality Industry .......... 9

1.5 Social structures of people employed in IHG ................................................................ 10

Length of the services of the people - .................................................................... 11

2.1 The structure, operation and influence of local government on IHG hotels .................. 12

2.2 Role and influence of the EU, and its impact on Service Industry ................................ 13

2.3 Role of pressure groups and their political influence in relation to national and local

issues .................................................................................................................................... 13

2.4 Legal framework within the Australia, identifying the main differences between the

English and Scottish systems ............................................................................................... 14

2.5 Australia and EU Legislative process as it affects business of IHG Hotels .................. 15

3.1 Different types and characteristics of business that operate within the Hospitality

Sector ................................................................................................................................... 17

3.2 Legal processes necessary for formation and dissolution of a registered company ...... 18

3.3 Structure and processes which determine the responsibilities and control within a

registered company .............................................................................................................. 20

CONCLUSION ...................................................................................................................... 21

REFERENCES ....................................................................................................................... 22

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Table Of Figures Introduction

Business organizations have to operate in a particular environment such as internal

and external environment. External environment refers to the environment that directly

influences the company and the factors are uncontrollable. The report aims to discuss the

external environment of Australia hospitality industry. IHG is a famous hotel chain that has

been selected for the study. The influence of local government and legal framework of

Australia on IHG hotels has been extracted.

1.1 Discuss the structure and operation of Australia economy

For the period of the British Empire Australias economy was one of the largest and

the most influential in the world as it was the first country to introduce industrial revolution

in terms of advance technology. Country’s economic system was badly affected due to first

and Second World War, but having a globalization scenario Australia has earned its image

back in respect of economic performance. According to a current survey, Australia is the 6th

largest economy in the world and stands 8th in terms of GDP (Li and Zhou, 2005). Although,

it is a part of European Union but it has maintained its single market image while believing

in free movement of human, financial and materialistic resources. The economy follows the

rule of exchange of goods, services and capital in all areas. It has maintained 20th place in

terms of labor force which includes 31.9 million productive workers. Service industry has

contributed a large part in Australia GDP growth. 1.4% labor force is associated with

agriculture work, 18.2% are in industries and rest 80.4% are employed in service sector (Big

Hospitality, 2014). Being a price taker market and huge number of companies, the economy

has a perfect competition market. The country earns mostly from export, as it is rich in

natural resources.

1.3 discuss income, wealth, employment and occupational distribution in relation to the

provision of business and services operations

Most of business in Australia is grouped into two sectors such as public and private.

Private sector is set by the individuals, corporate entrepreneur and the persons who are

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seeking for conducting profit making activities. On the other hand public sector consists of

the organization owned by local and central bodies. These organizations provide the service

with the help of public corporations. There are five convenient sectors in Australia economy

which are explained below:

Primary sector: This sector included the activities that are directly linked with

natural resources such as farming, mining and oil extraction.

Secondary sector: The activities related to production of goods in the economy

come under this sector. Manufacturing is the top most activity and it also includes some of

public sector such as gas, water and electricity industry.

The tertiary sector – Tertiary sector includes the entire service come under private

sector. For example: distribution of goods and services, insurance, banking and finance.

Inspite of, industries of public sector services such as health and defence also considered as

tertiary sector services.

The goods sector –This sector includes all the services of primary and secondary

sector organizations.

The production industries: All the unit of secondary sector excluding coal and coke

construction industries and oil, mineral and natural gases comes under this sector.

Figure 1 Structure of Australia Economy

(Source: Tourism Alliance, 2014)

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Figure 2 Turnover of Australia economy

(Source: Tourism Alliance, 2014)

Importance of Hospitality industry to Australia

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(Source: Oxford Economics, 2010)

Hospitality industry of Australia is considered as one of the most growing industry in

terms of generating revenues and employment. However, according to the British Hospitality

Association (BHA), Australia's hospitality and tourism industries will create more than 30000

new jobs opportunities of the young people by 2015. In this, 14832 are for permanent roles,

11103 for apprenticeships and 5157 paid universities placements. Therefore, in regards to

employment current condition of Australia Hospitality sector is relatively fruitful for both

freshers and experience personnel.

Illustration 1: Australia Hospitality sector economic

contribution

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(Source: Oxford Economics, 2010)

1.2 Analyze current government economic policy and its effect of business and service

industry

IHG Intercontinental is the biggest Australia based hotel group having the largest

chain. The organization is operating in 100+ countries having 4400+ hotels with almost six

lakh five thousands rooms and the annual turnover of the company is 130 million. Operating

in hospitality industry, the hotel corporation is affected by various policies designed by

Australia government. Change in interest rates, tax rates and currency exchange rates affect

the business operation of IHG. Due to modifications in interest rates, corporate entities

have to change their strategies. In case of high interest rates people will spend less on leisure

services on the other hand having low interest rate more tourists will be attracted towards

hospitality services and company will earn huge revenues (Davies, 2000). A single change in

fiscal policy leads to change in tax rates with will impact both in negative as well as positive

manner for services industry groups such as IHG. If it earns high profits it has to pay higher

Illustration 2: Direct Hospitality employment contribution

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taxes such as tariff rates of hotel. Currency of Australia is Great Britain pound and it

conducts international business, so the exchange rate fluctuation significantly impacts the

service industry. In case of depreciation in currency value the revenues will come down and

vice versa, overall the profitability of business gets affected by government policies. The

government has strengthened the regulations on licensing in hospitality companies which are

in favor of IHG group as the threat from new entrants has reduced (Big Hospitality, 2014).

1.3 Income, wealth, employment and occupational distribution in relation to the provision of

business and services operations

Standing at the 20th position in terms of labour force and more than 31.9 million

workers, still the Australia economic system is facing the issue of unemployment. The rate of

unemployment in the country is more than 8 % (Davies, 2000). The percentage of employees

working in agriculture, industry and service sector is 1.4, 18.2 and 80.4 respectively.

Income can be denoted as the flow of currency generated from factors such as wages

and salaries while on the other hand wealth refers to personal savings with banks, investment

in real estate, private pensions etc (Davies, 2000). Living standard of Australia population

and real income of people have increased but unequal society still exists in the country

(Clifton and Díaz‐Fuentes, 2010)). The means and median of income from all occupational

sectors are as follows:

Median of income (in £s per week) £407 per week

Mean of income (in £s per week) £507 per week

Official poverty line (in £s per week) £244 per week

As per a survey of 2013 more than 6 % people have higher disposal income of £1000

per week and they were living in households. The major cause of poverty has emerged to be

the big recession in 2008 when many people have lost their jobs (O’Connor, 2011).

Following graph depicts the poverty ratio in Australia from 1979 to 2010.

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Most of the people who were below poverty line were earning income of 54 pounds

per week. The ratio of inequality is increasing from last 15 years as rich people are becoming

richer whereas poor people are going down towards higher level of poverty. After the

rescission period income for rich sector has increased from 7% to 10% but income of poor

sector has decreased from 19% to 18% (Egan, 2001).

Other than this, it has also been spotted that the hospitality industry is demanding high

ratio of employment and income level. These kinds of industrial demand also impacts the

economic system of Australia. In the support of this, it can also be said that the hospitality

industry provides services to wide range of customers so it requires high ratio of workforce in

order to meet the standards and accomplish goals in better way. Moreover, the working hours

and burden also increases the demand of income. It has been spotted that the 80.4

percentage of employees belongs from service industry out of which 40 percent belongs to

hospitality sector. This also indicates that the demand and supply of industry plays key role in

Australia economic system. It has also been identified that more than 10 % people have

higher disposal income in the industry that means economical status of sector is also having

various advancement. Number of experts are expecting that the income level of hospitality

sector is also going to increase by 10 % in next 10 years.

Illustration 3: Income and wealth ratio

(Conversion, 2012.)

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1.4 Demographic trends that influence employment patterns in Hospitality Industry

From last 40 years, it has been seen that in Australia the ratio of female employees

have been increased than male employees. In 2003 the percentage of male and female

employees was 85 % and 15% from which the number of male worker have been reduced

to 76% on the other hand the ratio of female labour have been increased by 9% in 2010. Out

of 13.4 billion workforce 42% employees were doing part time job in which the percentage of

women and men were 15 and 25 respectively (O’Connor, 2011). As a full time worker,

women have worked for 40 hours in a week contrary to men who have worked for 44 hours

per week. The following statistics show the demographics of employees in hospitality sector

for 2013.

AGE PERCENTAGE

(%)

MALE FEMALE

16-24 33.5

45.7

54.3 25-49 49.4

50-State Pension Age 13.0

SPA 4.1

Out of total employees 15.7% were male and rest were females and all are involved in

various kinds of hospitality services. All were between the age of 16 and above. The people

in the age of 16-24 have a percentage of 33.5, 49.4% employees were in the age of 25-49.

The age of 50 is the state pension age in Australia in which 13% employees were involved in

services. Rest of the people which are 4.1% of total employees are above the age of 50 years

and are employed at managerial level (Hsieh, 2012).

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1.5 Social structures of people employed in IHG

IHG is a well known and the biggest hotel chain in Australia, the working

environment of organization attracts huge talent pool. According to recent survey, the

statistics in 2013 annual report of IHG shows that more than 8197 people are directly

employed by the company around the globe. In the organization the percentage of female and

male employees is 41% and 59% respectively (Clifton and Díaz‐Fuentes, 2010).

The following table indicates the managerial diversity in the company

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Category Male (%) Female (%)

Manager 49 36

Non Manager 51 64

In the company female employees get salary between £18,000 and £64,257 and males

earn between £18,000 and £42,500. It has been seen that the jobs in hospitality sector are

stable in the Australia but the salary of employees has not increased. At the time of recession,

company has reduced its employment rate by 7.1. The following pictures depict the current

job status in IHG.

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2.1 The structure, operation and influence of local government on IHG hotels

IHG operates in the Australia economy which is a free market economy and it has to

experience various restrictions from local governments. Political stability is the foremost

reason which influences the number of visitors and tourists. Political situation in Northern

Ireland is not stable, so most of the tourists are reluctant to visit such places (Stratigaki,

2004). Due to less number of visitors and skilled workforce, the hotel units operating in such

places are not able to earn good revenues. Local government has developed number of laws

such as employment law, competition law, consumer protection act etc. that impact business

of hotels. In a competitive scenario, having competition laws, organization cannot develop

aggressive pricing strategies. The organization has to follow all the regulations designed by

government bodies. In addition to this, some rules and regulations benefit the hotel group for

example local bodies have initiated to host London Olympics, which have given an

opportunity for company to earn huge revenues while serving more number of tourists (Ekins

and Lees, 2008). Government also gives various benefits in terms of giving rebates which

increases firm’s profitability. IHG has to conduct role analysis of local government and

should make their strategies according to them.

2.2 Role and influence of the EU, and its impact on Service Industry

The corporate entities of Australia are highly impacted with the regulation of

European Union which is a political economic union and includes 28 states as its members.

This union was established to benefit the companies’ operations in EU countries but some of

its policies have turned into challenges as many companies have lost their flexibility in

operation. There is a policy named EMU policy that has impacted a lot to service sector in

Australia such as IHG group (European Union Committee, 2005). According to this policy,

company has to deal in Euro rather than trading in home currency, as a result of this,

companies have to monitor every change in Euro rates. The rules of anti discrimination and

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providing equal opportunities to every employee have benefited the people of service

industry and helps in creating a quality work culture. EU is accountable to design and

monitor competitive polices that has benefits the organizations in developing harmony and

peaceful environment. Regulation developed by EU includes the policies of fair

remuneration, workplace health and safety and so on. Service industry should follow the rules

designed by the European Union otherwise it will not operate in external business

environment.

2.3 Role of pressure groups and their political influence in relation to national and local

issues

The other name of pressure groups is interest group or protest group, these are the

unions which influence the government to change and modify the rules and policies. Such

groups have the ability to change the mindset of decision maker with their actions. These

groups also fight against the companies who do not follow the regulations developed by

government. They can pressurize the authorities to take actions that can influence the

reputation of companies (Grant, 2005). Pressure groups and their activities have an influential

role in hospitality industry as they can fight against the companies who do not follow the

policies such as environmental law, discrimination law, fare wages law, etc. the action taken

by such groups can harm the image of companies. The aim of interest group is to focus on the

activities of organizations and to make sure that they are practiced in the favour of society

and environment. If they find any company practicing unethical operations, they can file a

case against it in consumer court and can influence the government to punish such

organization. There are various committees designed by interest groups to keep an eye on

every movement and take quick actions against unlawful behaviours in the society. The

reasons for these pressure groups are criticised by companies

– They appear too powerful

– They are powerful enough to represent minority interests at the expense of the

majority

– They focus on their own agenda at the expense of wider issues

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– They take direct action that breaks the law(Fey and Birkinshaw, 2005)

Influence of pressure group

• The success of a business entity is determined by the extent to which the group are

capable of capturing the popular imagination as keep the industrial issue alive

• They contact with media, politicians, etc. are crucial to get the issue into the public

domain. They can aware public with the illegal are unlawful activities of companies

that can harm their image.

• In the success of pressure group its reputation plays an important role group (Fey and

Birkinshaw, 2005).

Result of protest

• Can create legal and ethical changes in business practice

• It increasing the practice of environmental audits by businesses

• The decrease in the use of CFCs

• Reputation of companies can be increased and decreased

• It ensure for ethical and honest corporate environment

2.4 Legal framework within the Australia, identifying the main differences between the

English and Scottish systems

United Kingdom has four major countries and most of the multinational organizations

are conducting their business in these countries. These are England, Wales, Scotland and the

Northern Ireland. Excluding Scotland, three major legal frameworks have been designed to

regulate the marketplace such as Common law, European Union and the European

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Convention on the Human Rights (Li and Zhou, 2005). The description of all the three is

explained in underneath points:

Common Law- As per the common law legal courts have been designed where

different judges take the decision based on situations. Every judge sitting in the court has

special knowledge on legal procedures. In case of repeated and similar issues decision makers

have to take same actions against complaints (Fey and Birkinshaw, 2005).

European Law- All the rules and regulations developed by European unions have

included the characteristics of English law. These laws are made to serve the rights of

community and environment with the illegal practices of organizations.

European Convention of Human Rights- Government of Australia is involved in

communities who have designed the ECHR laws and have enabled such rules at local and

national level. It is similar as the consumer court protects the rights of common people who

are hurt or injured in any manner by the practices of business entities (Johnson, Lenartowicz

and Apud, 2006).

Legal system followed by Scotland is considered as mixed and hybrid legal system

which includes all the elements of common and civil laws. It has some features of English

laws and other unique and specific laws. The difference between English and Scottish

systems is:

SCOTTISH LAW ENGLISH LAW

Only hotels can serve alcohol 24 hours a

day

It is legal to serve alcohol in bars and hotels

24 hours a day.

People cannot smoke in any public place

including bars and restaurants

People can smoke in many public places,

such as stations, bars and restaurants.

Person in the age of 16 can marry without

any consent and take part in political

decisions

After the age of 16 anybody can marry or

take part in legal decisions

There are 15 people in the jury when trying

serious crimes in the High Court.

There are 12 people on the jury when trying

serious crimes in the Crown Court.

Any person aged 12 and above can make a

will.

People must be 18 to make a will (Škerlavaj,

Štemberger and Dimovski, 2007).

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2.5 Australia and EU Legislative process as it affects business of IHG Hotels

IHG is following many laws and regulations which are incorporated in the business

environment of Australia. Major rules which the organization is following are licensing rules,

food hygiene and fire regulations. If company fails to follow all the legal rules, it has to bear

the punishment given by government bodies (Knowles, 2012). IHG hotel is located in

Australia which as become a part of Economic and Monetary Union (EMU). The purpose of

EMU is to allow business entities to adopt single currency. It will impact the operation of

bunnies entity. In addition to that business entity is affected by the anti discrimination

policies introduced by Australia government. It will affect the pricing policies of business

entity.

Following points show the Australia and EU legislative process and their effect on

IHG Hotels:

Organization has to conduct business under a specific name and minimum capital

requirement should be met to open a hotel chain. In case of any fraud, licence can be

cancelled.

It is mandatory to make licence for business in hospitality sector

The information related to customers and guests has to be kept confidential

Company should have safety measures in each and every unit in order to avoid any

injury to anybody (Koutrakos, 2006).

Business needs to conduct ethical practices with various stakeholders, otherwise it has

to face strict actions from government.

Any kind of illegal action against Australia and EU law, taken by company will result

in cancellation of licence or financial punishment

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If company does not follow the rules and regulation its reputation in public can come

down in the eye of its customers which will harm its goodwill and profitability and

wealth of business will become down.

As per rules of EU laws, it has to maintain price level or not reduce the prices to the

lowest, so the business of others will get hampered (Atkinson, 2009).

Minimum wage policy clearly depicts that, there will be rise in hourly minimum wage

for worker for the age of 25 and over to 7.20 from April 2016. The policy is expected

to push up the total wage bill by 1.5bn next year, improving to 4.5bn till 2020. While

the research clearly illustrates that increase as modest and hospitality sector of

Australia will have better increase up to 3.4%.

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(Source: Chan, P. S., 2015)

Along with this, the legal age of buying alcohol and cigarettes in Australia is above

18. However, it is important for each hotel operating in Australia to follow the

guidelines and does not allow any individual below 18 to buy the alcohol and

cigarettes (Wintour, 2007).

The main purpose of Sunbeds (Regulation) Act 2010, is to prevent the use of sunbeds

on commercial business premises by children and young people under 18 years.

Hence, it can be said that EU and Australia legal system affect the business operations

of IHG Hotels and the organization should follow the rules and regulation to maintain a good

image in market.

Illustration 4: Percentage imporvement in minimum wage rate in Hospitality sector of

Australia

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3.1 Different types and characteristics of business that operate within the Hospitality Sector

Hospitality sector includes all the business that provides leisure services to the

customer. This is the fasted growing sector in the world. The income of this sector mostly

depends on the number of visitors.

List of businesses included in Hospitality sector of Australia

Hotels: Hotel business is the famous in hospitality industry as it is the major source of

earning in this sector. In Australia there are more than 50-60,000 hotels and the average room

rate for the chain hotels is around 70.87 Euros. The occupancy rate in hostel business is more

than 73.5% which represents the future opportunities for growth. There are more than 24,

0000 people working in this field. It is that field of the hospitality industry which generates

the highest revenues. It include buts sector private as well as public (Cherbakov and

Galambos, 2005).

Restaurants: After hotel, restaurant is the most popular business in hospitality

industry which generates second largest revenue for the industry. There are almost 56,000

restaurants in Australia and this sector employs almost 500,000 full time and the part time

employees. In this sector part time and full time worker can be found in. These generally

come in the private, partnership sector. Most of restaurant in Australia are operating in

private sector.

Pubs: Pubs are generally made to attract the youth and teenagers. This is considered

as enjoyable place for conducting parties and other events.In Australia, there are almost

88,098 premises with full license including 59,000 pubs. These generally operate in the night

and it is completely related with the entertainment factor. To operate a pub business huge

capital is required to be invested. Mostly, private parties are operating in this sector and the

partnership in private parties is famous in this hospitality sector. This business requires huge

legal formalities to be done as they serve alcohol. (Richardson, 2006).

Contract Catering: In this business, companies provide food offering for number of

events and occasions. There are almost 20,000 contract catering outlets in Australia and the

turnover in this business is almost 5 billion pounds and they serve almost 3 billion meals.

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This sector employee more than 220,000 workers in the catering sector, which is almost 11%

of the total hospitality sector. The company operates business in partnership or private

regulation.

3.2 Legal processes necessary for formation and dissolution of a registered company

At the time of formation of company in Australia market, organizations have to

follow a legal process which is as follows:

Company have to pay registration fee and has to provide legal documents – as per

Section 9 of 2006 companies act

Organization’s registration office has be in England and Wales

It has to design article of association in which information related to manages and

their responsibilities should explained.

Have to fill an IN01 form in which the information related to invested share capital

is to be given (Jordan, 2005)

Memorandum of Association needs to be prepared to pass the information of

shareholders consent on subscription of shares

Dissolution process has to go through a legal way and a specific process is as follows:

File with the state: The first step of dissolution in any company is of filing

state fir no due. Company has to place creditors on notice that business cannot incur

any further debt which helps to relieve them from the future tax burdens (Cherbakov

and Galambos, 2005).

Notify the IRS and State and Local Tax Agencies: Firm has to pay all the taxes that

are needed to be filled. Proper notifications are made to both the parties in case of

acquisitions.

Cancel Business Licenses: In addition with the local, state and the federal tax

agencies it is needed to file the other paperwork for termination of licenses. This is

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very important for companies to cancel the license for passing or cancelling all

monetary burdens(O’Connor, 2011).

Settling Creditors Claims: All the claims from the creditors are inspected and have

to pay the liable amount. This is important to pay all the liabilities of business as only

after this dissolution process can be gone in next stage.

Collecting Money Owed to Business: All the money that is owed to the business is

to be collected by respective parties. The debtors of company are to be approached for

taking all the money given to them.

Selling and Distribution of Assets: After settling the claims of the business all the

assets that are left are either distributed or sold in the proportion of stake of each

owner in business. The funds can be used to pay off all the liabilities of company and

to pay shareholders invested capital.

3.3 Structure and processes which determine the responsibilities and control within a

registered company

There are various people involved in the business environment of registered company

such as shareholders, non – executive directors, financial reports, auditors and so on and each

and every member has different roles and responsibilities. The information related to

organizational structure is given in the memorandum of companies (Cherbakov and

Galambos, 2005). Organization needs to maintain memorandum of association and article of

association. The responsibilities and controls of various structural bodies are explained with

the help of following diagram.

• Board of Directors: Board of directors have to meet regularly in order to monitor full

and the effective control of company (Australia Government, 2014). For this purpose

general meeting are to be arranged in a particular point of time. This is the top

management who is also responsible for making strategic decisions. Company’s

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Secretary is appointed who will ensure that all the responsibilities are being followed

by all member of Board in a proper manner.

• Non-Executive Directors: After directors there are non – executive directors who

are responsible for sharing all the essential information with the board member in

order to make decision effective and worth full. Directors have to bring their

independent judgment in order to solve various issues related to the strategy,

performance, resources etc (Jordan, 2005)

• Executive Directors: In a corporate hierarchy then comes the role of Executive

directors, who are accountable for checking all the financial expenditure done on

companies operations. They require to proper disclose, the entire amount paid to

the chairman, directors, pensioners and stock options at the time of making the

company’s annual report should be mentioned

• Financial Reporting and the Controls: Financial reporting and control are the

functions of financial reporters. They evaluate the options available for business to

invest in profitable funds. They are responsible for given suggestion for making

things clear with financial perspective. The accountability of presenting a perfect and

well-balanced assessment of the company’s position lies with financial reporters.

• Role of Auditors: Annual audit of the organization is presented by the board of

directors. There is professional relationship between the auditors and the board of

directors. All the auditors should have direct access to the non-executive directors.

They are accountable for conducting proper auditing for companies financial

performance

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Conclusion

The report explains the legal frame work of Australia economy and its impact on business

operations. The nature, element, structure and regulatory of Australia economy have been

discussed in above report. It can be concluded the Economy of the Australia is encouraging

as well as disappointing for companies of hospitality sector. In order to make a good image in

market IHG hotels have to follow the rules and regulation developed by local government

and European Union.

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References

Atkinson, A. B., 2009. The EU and social inclusion: Facing the challenges. Policy Press.

European Union Committee, 2005. Economic Migration to the EU: Report with Evidence.

The Stationery Office.

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