Business Environment


The business environment is affected by the internal as well as external factors. These factors put an impact on the strategies of the company. In order to make the employees of organization productive it is important for the company to develop a good business environment.

This report focuses on varied organizational purposes of a business and further analyzes the national environment in which the business is operating. Moreover, the behavior of organization in its market environment is evaluated briefly.


How economic system attempt to allocate resources effectively

Decisions regarding resource allocation are significant because there is scarcity of resources across the world. Difficulty in allocating of resource can be solved with the help of economic system at work (Burke, 2013). Economic system is comprised of labor, distribution, products, services etc. Problem of resource allocation is universal and persists in every nation. Allocating resource is an important aspect for every country as it has to tackle the issues like what, how and for whom the goods and services are to be produced. There are varied economies where the resources are allocated in different manner.

The command economies do central planning for effectively distributing resources. . The problem of scarcity is resolved by government or any agency which are appointed by government through the method central planning. The government here command or direct the resources which are to be consumed in a specific manner. For instance, government can use its power to force citizens for paying taxes.. The command economy has an advantage over the free market economies as it can bring in a more coordinated system of distributing resources at the time of crises such as natural disaster or wars. Free rein market also fails in allocating resources efficiently so in the final resources are allocating by  government to counter balance such failures (Fernando, 2011).

The free enterprise economy is the one in which there is limited government interventions and is linked with private ownership for the means of production. The system follows the decentralized form, where individuals look forward in pursuing their own goals without government restrictions. There is a mutual relationship between the producers and consumers and it relies on the market to solve the economic problem. Resources distribution is done on the basis of interaction of self-directed and free market forces. This system interprets that, what to produce is determined by consumers, how to produce is determined by producers and who receives the produce depends on the buying power of consumers. The resource allocation is determined through self-interests in the free market economies. In case of command economy, there is a restriction on allocation of resources by the government. In free market economy it is influenced by the various interactions of market forces (Haigh and Brubaker, 2010).

Mixed economy is a combination of command economy and free market economy. The market economies have a distinct privatized sector in which  the resources are allocated on the bases of market forces. It also consists of a distinct public sector, where the resources are allocated mainly by the government in sectors such defense, fire services and police. Health care is a sector which is a combination of both the elements that are market and planning.

The Transition economy was developed after collapsing of command economies in 1980's. These economies are those which move from command economy to free market economy. This economy has been isolated from the global economic community during era of centrally planned economy. Here, the distribution of resources pattern has been shifted from command economy to free market economy.

The public and private sector initiative is a new concept where the economy is held by both public and private enterprise. The resources are shared on the basis of joint agreement. This is a modern method in which private sectors are given the opportunity to share the risk with the private sector (Diefenbach and Sillince, 2011).

Private Finance Initiative- PFI is a method of giving  funds in major capital investments where the private organization have been contracted to manage or complete the public projects. The resources are thus allocated by private sector in fulfilling public projects. The efficiency of allocating resource in an economic system can be seen in the manner in which they can achieve their economic objectives.

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Purpose of different type of organization and extent to which Nestle meets the objectives of its stakeholders

A business organization has to make effective decision regarding its coming establishments for overall prosperity or its sustainability.. The organization is comprised of group of people who helps in accomplishing a predetermined goal or collective objectives. The purpose of the company is defined in different types of organizations (Alm, Sennoga and Skidmore, 2009). The private sector is the one in which organization operates in maximizing its market share and sales in market. The public sector is those entities which operate on a larger outlook and work effectively  to make profits taking by considering shareholders’ interests. While those organizations which are developed in fulfilling the mutual interest of groups r to derive social benefits are known as cooperative organization. On the other hand, Non-Government organizations are voluntary associations which are built to serve specific problem or purpose with the aim of making profit.

This report focuses on the business environment of Nestle which is a Public limited company. This Anglo-Swiss condensed Milk Company stresses on providing safe, quality and nutritional food to gain maximum sales and considerable share of the market.

Nestle understands the importance of maintaining an effective dialogue with its stakeholders and helps in  creating shared value and delivering its commitments more efficiently. Nestle has undertaken varied global engagement activities with its stakeholders which are coordinated by the Nestle Public Affairs team and are delivered through continuous stakeholder communication (Burke, 2008).

The stakeholder convening is organized by external specialists to ensure that, it receives independent feedback and reviews. The group of stakeholder network is wide. There are some stakeholders which are central to the success of the company like customers, employees, government, communities, NGO's, shareholders etc.

Responsibilities of Nestle and its strategies employed to meet them

Each business organization has a different set of responsibilities towards its stakeholders. Nestle has also employed varied means and measures to fulfill the same. The different responsibilities it share are-

  • Developing an enhanced communication of long term vision of Nestle to its stakeholders. The stakeholders are encouraged to focus on effectiveness in delivering outcomes (Strong and Volkoff, 2010).
  • Nestle uses advocacy and convening power with its government as well as with the industry to promote health and nutritional level.
  • Nestle bring into knowledge of its stakeholder about its more ambitious targets as a mean to influence the best practices across the world. The stakeholders are affected by the profits of the company and thus nestle target on the growth of stakeholders.

Impact of varied policies and other regulatory mechanism on Nestle

The fiscal policy is the government decision regarding its spending and taxing patterns. If a government wants to stimulate its growth in economy it is likely to increase its spending on goods and services. This will help in increasing demand for goods and services and bringing in employment. The fiscal policy of Europe is strong though most of its decisions are related to spending remain in the hands of government.

Monetary policy on the other hand has better significance than the fiscal policy because it has a higher level of flexibility. Government uses this policy to control the flow of money in the market (Palmer and Hartley, 2008). The present policy of the government focuses on maintaining price stability and lowering the rate of inflation. The change in EU policies had  minimal impact on Swiss as these do not adopt the euro and so the policies do not  affect its business position directly.

The social welfare policies of Nestle have helped in recognizing its responsibilities towards making a positive impact on its society. It has been committed towards the promotion of the principles of human and labor rights and ensuring a safer workplace for its employees. The different social activities such as tackling the problem of deforestation and providing fair rates on milk sourcing have created an impact on improving its food qualities and safety.

With establishing industrial policy to aggravate the economic crises, some companies are playing very active role as compared to the other global competitors.  The EU industrial policies are framed after undertaking varied measures and recommendation from different companies. Nestle is among one of them who takes part in formation of such policies.

Competition policy seeks to provide remedies to the firm activities outside its jurisdiction. The different acts that have an impact on Nestle activities are Fair Trading Act (FTA), Competition Act, Restrictive Trade Practices Act and Resale Prices Act. These acts ensure the quality maintenance as well as eliminating monopoly activities (Jones and Vagliasindi, 2013.). The UK competition Network (UKCN) has been created to provide more transparent and strong competition across the whole country.  UKCN has been promoting fair competition and safeguarding interests of consumers.

Similarly, Competition Act 1998, has been established with the main restrain companies from adopting restrictive practices and abolishing abuse of a dominant market positioning. The main purpose of enacting thus law was to harmonize the UK with EU competition policies. The changes made in Competition Law in relation to insolvency and bankruptcy was made through the Enterprise Act 2002.

Market structure determining the pricing and output decisions of Nestle and its response to market forces

Nestle has been following a monopolistic competition (Xahir, 2012). This market structure of Nestle defines that, all the seller produce same product with different attribute. . All the producers in that industry can set its prices and quantity without affected the whole of marketplace.

Pricing decision- This structure emphasize on long term pricing framework. It helps in setting initial price for the products. There is a deliberate movement of prices over the product life cycle. Three type of pricing strategy which a company working in such environment follows are  Price Skimming, Status Quo Pricing and Penetration pricing. Nestle out of these follow Penetration pricing to market its product. In this case, the Nestle reduce the price of the product initially to reach the mass market.

Output decisions- For quoting the price it is important for the company to make good pricing decision. If the firm is looking forward to establishing a high price for a particular product then it   must ensure that, the quality and its quantity are matched suitably. Along with that packaging also plays an important role in setting the prices for products.

Market forces- The marketer needs to understand varied trends and changes in the market place to set a target. Nestle planning to go for profit maximization objective should make suitable investments. Company should careful analysis before setting of prices. This indeed requires proper understanding of demand, cost and profit (Lambin and Meyfroidt, 2011). Once pricing goals are set then, Nestle estimate the demand, cost and profit for its product. The firm needs to determine the level of pricing and according decides the prices for its products.

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Industry together are classified into different market structures that include perfect competition, monopoly, monopolistic and oligopoly.

Perfect Competition- here there are number of sellers and buyers persisting in this industry. Here firms usually produce same type of products and consumers have all the accurate details in relation to their pricing. Here competitive pricing decision may be followed as many are competing to gain a considerable market share.

Pure monopoly- A pure monopoly industry infrastructure consist of a single producer of a product or service which has no close substitute. Firms belonging to such sector can use price skimming strategy to continue as market leaders of the industry.

Monopolistic Competition- Such industry have a mixture of characteristics of both competition and monopoly. Such firms sell differentiated products from its competitors and as such can use status Quo strategy for selling their products and gaining a greater market share of industry.

Oligopoly- In this few firms together form small cartels and manipulate price on the basis of decisions of such cartels. Here pricing strategy is determined by the group of cartels and market share is ascertained accordingly.

How business and cultural environment shape behavior of Nestle

The behavior of any organization is shaped and is influenced by its competitors. . Also, the cultural environment has a greater impact on the behavior of the organization. The culture of the company states how employees behave with other people. It includes aspects like satisfaction level, team spirit, innovation undertakings etc. Nestle organization has developed an environmental management system where it emphasizes in integrating value into the culture of its organization (Capon, 2009). Its culture stresses more on bringing in the corporate social responsibility. This emphasizing is continued to develop its internal changes and incorporating the pressures from the outer world.
Nestle has helped in evaluating the attitudes and behavior of the customers. An effective relationship can be seen between the customers, employees and employers of the organization.

Nestle focuses on the food, nutritional, health and wellness of the company (Neely and Kennerley, 2003). In order to enhance the cultural environment, the firm has adopted strategy of increased consumer engagement, identifying the people, culture value and attitudes and to bring in operational efficiency in its working. Thus, these strategies are adopted to be the leader in health, nutrition and wellness and industry which will further leads to greater financial performances by bringing esteemed trust of stakeholder. The leadership is one main strategy which creates value for its shareholder and at the same time creates value for its society (Islam, 2010).

Evaluating the significance of international trade, economic integration and global market as well as its implication

The international trade is exchanging of goods and services beyond the geographical boundaries of the country. Globalization and liberalization are two key components of economies which enhances the trade level within the economy to a more advanced level. The advanced market of Europe within the countries has helped in maximizing the sales and profits of the company. The inflow of market opportunities with the domestic barriers has increased and with the integration of economies it has resulted in wider employment opportunities (Mowday, Porter and Steers, 2013).

To analyze the impact of global factors on NESTLE PEST analysis can be used as follows-

Political factors- changes in regulation of government on different aspects like food standards and marketing actions. Changes in global rules and standardized practices also have a due impact on company.

Economic factors- the changing inflation rate, GDP growth, economic levels, income levels etc affect the sustainable position of company in the market.

Social factors- Varied needs, preferences, tastes, lifestyles, cultural changes etc of consumers determine the company sales, profit and revenue.

Technological factors- innovation and growing advancement in technology has made it imperative for company to stay abreast of the knowledge about such advancements.

The economic integration means union of the economic policies between the integrating states or countries. This is done for the purpose of determining whether full or partial abolition of tariff or non-tariff restriction on trade can be done. This initiation is undertaken before the process of integration of economies. The mutual understanding is enhanced between the economies and help reducing varied trade restrictions which are put on the business. Nestle will gain more opportunities of gaining more profits through this integration.

The globalization promotes international trade and influence economies in undertaking economic integration (Foss and Knudsen, 2013). The interchanging and integration of countries provide more independent and free trade. The globalization has creating positive impact and brought various advantages in nestle such as-

  • Greater availability of resources.
  • Cheap labor
  • Advanced technologies
  • Greater market share
  • Enlarged customer base etc.

EMU is the new and remarkable monetary experiment which was established to bring varied benefits to the European Union members (Why is competition policy important for consumers, 2012). The EMU policy has put a greater disadvantage on the euro zone market. These EMU policies have a greater impact on those companies which are  majorly involved in trade. As Nestle is one of the giant companies involved aggressively in international trade is affected by these EMU policies to a great extent.

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Business environment makes an impact on the operation and activities of companies to a great extent. The current report has identified  various structures and its impact on pricing as well output decision of Nestle. It also affected various policies such as competition, fiscal and monetary on Nestle. In order to foster success and growth of Nestle, the significance of international trade, economic integration and globalization can be used by the firm up to great extent.


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