Unit 1 - BBE

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Lahore University of Management Sciences, Lahore *

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4002

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Business

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Nov 24, 2024

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Introduction Business environment refers to all the external and internal environmental factors that might affect the function of the company as well as its employees, customers, and management. Organization study business environment to identify the can help in improving the sustainability of the company. The main purpose of this assignment is to discuss different types of business along with the business environment in which they operate. In this assignment macro and micro environmental factors for Nike will be assessed. Pestle and Swot analysis will be used to identify these factors and their impact on the company. Part 1 P1 Explain different types and purposes of organisations; public, private and voluntary sectors and legal structures. Business organization refers to a channel or medium used by the group of individuals or a person to perform various trading activities. Business organizations are of different types, and all the types have different benefits and disadvantages. For example, in the case of limited liability, the main advantage is that it can be setup easily and the red-tape level required to operate them in also simple (Completeformations n.d.). Given below is a detailed discussion about the different types of business organizations: Private company A small group of owner operate and own the privet company privately. They can also be owned by non-government organizations. These companies fail to meet the strict requirements of the Securities and Exchange Commission of public companies. Stocks can be issued by the private company, and they can also have shareholders however the shares cannot be traded on a public exchange and are also not issued by an IPO (initial public offering). The shares of the private company are less liquid, and it is difficult to determine their value. In general, the main aim or purpose of these companies is to stick with the marketing plan, policies and competitive strategies. Policies and procedures followed by private companies restrict them from sharing confidential data related to the company with the public. These policies and procedures also limit the financial transparency of the company. Public Company A public company is formed by the shareholders. Owner and organization are considered as a separate entity. A public company is registered in the stock exchange of the country. In the public company, securities are issued by IPO (initial public offering). At the initial stage of the company, a limited number of shares may be floated in the market however the value of the company is decided by the market through trading on a daily basis. Providing value to the shareholders, accessing capital and developing a good business profile is the main purpose of the public company. Charitable Organization: Charitable organizations are non-profit organizations in which people mutually work for the development and betterment of the society. The purpose of charitable organizations is different such as education, humanitarian, and religion. At times charitable organizations depend on donations from profit organizations. Charitable organizations work to benefit the society, to reduce poverty or sickness and to advance religion in the country or region.

Legal Forms of the company 1. Sole proprietorship One of the easiest kinds of the business structure is a sole trader, where a there is a only a individual is responsible for owning, controlling, right on profits and is also accountable to pay off debts. 2. Partnership This business structure includes a number of individuals, who joint-own the entity, being between two to twenty partners usually. This business includes two different kinds of partnership, limited partnership with one partner having a control over the business operations, with general partnership having a control over the business operations equally. This would lead to the other inactive partners investing equally in the business, while they do not participate in the day to day management of the business. There is a dual status executed by partnership, as per the liability structure and the funding process in the business. 3. Limited liability company (LLC) The business limited liability also has a hybrid structure, which permits the business owners, shareholders and also the partners to have a limit on the liabilities of personal abilities, allowing in enjoying the flexibility and tax benefits for partnership. As per the LLC, the members are also protected as per the personal liability of business debts, which will not be proved for the illegal, irresponsible or even unethical process, with activities carried out. P2 Explain the size and scope of a range of different types of organisations. Nike Nike is a privet organization . Nike engages in the development and sale of sports and sports lifestyle products which include footwear, apparel and accessories. Size: private sector companies are purely dealing with the private sectors which are important for the following of the laws and regulations of the businesses which are implemented by government. These organizations are also of three sizes small, medium and large business. Small businesses are basically concerned with the sole proprietorship mostly which are managed for the personal profit or the family concerns. Scopes: scope of the private sector organizations is high because they are working for the profit gaining because they are started business for this concern specifically. Revenue generation, attracting customers, employment for the people of the state and income generation are the main concerns of the private sectors. They are also having scope to gain the huge number of market share. Objective: increasing the profit margin of the business and generating high revenue and the huge number of market share. They are willing to manage the business goals and strategies so that they can gain the good fame in the business industry. The main focus of the private sectors is to achieve the competitive advantages from the market. Nike is multinational company of Unites States. Its headquarters is in Oregon. It manufactures designs apparels, shoes, and other sports equipment and accessories. It is one of the most valued

sports brand across the globe. It sells its products in many nations and operates on a national level. It is a profit making business and is a listed firm in USA. Thus it is in the manufacturing business and it provides one of best sports apparels, shoes and equipment. It tries to manufacture the best sports apparel which can help the people and athletes in improving their performance. AMERICAN RED CROSS. One of the philanthropic company in the United States which provide help in the crises, instruction and calamity alleviation is kwon with the name of the ARC (The American Red Cross) (Red Cross, n.d.) Size: these organizations are depending upon the people who are involved in them and the area where the business is operating regarding their sizes. Voluntary organizations are basically working for the welfare of the society and they are willing to do something for the well-being of the people so that they can move in the society easily. Scopes: they have the scope of working for the people and providing them services according to their needs. In the organizations, activities are based on the level and number of the people who are needy in every concern. People who are living with life needs are the basic market of these organizations. The scope is very high in the social welfare sector for these organizations. Objective: these are totally non-profit organizations which are dealing with the high potential of their aims and goals. They are dealing with their activities which are utilized for the welfare of the people of the society. Their objectives are to maintain the business framework according to the needs of those people who have right to live happily in the country. general wellbeing nursing programs, water wellbeing, emergency treatment were the programs which were provided by the Red Cross after the First World War. A very affective and attractive development was noted in the prospect of the company at that time. veterans related administration was focused by the management of the Red Cross and the main objective behind that focus was to improve the projects of the company regarding the nourishment training, home look after the wiped out, mishap avoidance, and security preparing (Red Cross, n.d.) NHS: NHS is a public funded health care system that operates in UK. They deliver health and care services of higher standards and ensure that valuable public resources are used effectively to get the best outcomes for individuals, communities, and societies for now and for future generations. It core purpose is to make healthcare services accessible for all irrespective of wealth, so most of the care services ranging from routine checkups, treatments, specialty care to emergency treatments are done free of cost with exception to few services for all residents of United Kingdom. Size : Some of the public companies are based on the aim of government importance and specific sectors. Organizations, which are considered as public companies, operating in three main levels that are local, National and State level. They all are of different sizes which are small, medium and large sized organizations. National level organization is working for the long term and the dealing with the state regulations.

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Scope : there are different phases in the society which is based on the public sector organizations. These are based on the scope of the business and the state is dealing with the business norms and rules and regulations. The scope of business is very high. Objectives : private sector businesses and organizations are working for the profit gaining and generating high revenue. This is important for the income concern. On the other hand the nationwide and the public sector organizations are dealing with the business for the welfare of the society and the people of the society. National Health Service is a Large Public organization . its Missions is To build a healthy community by supporting qualified healthcare providers dedicated to working in areas of the United Kingdom with limited access to care. To deliver effective and efficient health care services in accordance with the standards and policies which are: accessible, sustainable, equitable and affordable. P3 Explain the relationship between different organisational functions and how they link to organisational objectives and structure. Organizational function All the operations being performed by the organization depends on various functions like research and development, IT, finance, customer service, marketing and sales, administration, human resources, production, and operation. Marketing is thought to be a link between the organization and the market to meet the expectation of the customer. Marketing function helps the company like Nike to create awareness about its products and service among the customers. Marketing activities like market research also provide information to the company for activities like new product development. Nike has successfully created a competitive business environment by adopting competitive pricing strategy, and its distribution system allows the customer to access the products and services easily. Nike has been able to grow and expand its business and generate high profit in the UK market due to high demand. Finance function of Nike is related to the expenses and use of organizational resources for various activities; the finance function provides useful information related to the financial performance of the company. Finance function also helps in allocating funds to different departments based on the budget and also measures the use of financial resources against the budget. It also ensures that there are adequate funds to meet the requirement of the business and to manage the cash flow. Internal auditors monitor the performance of all the departments. Accounting, on the other hand, tracks the day to day transactions being performed by the company. These transactions include purchase, use of business resources internally and externally, and sales. The advanced human resource system at Nike help it in managing and looking after all the employees. The aim of HRM at Nike is to manage all the employee so that it can achieve maximum efficiency and high-performance rate. Different responsibilities of human resource management include recruitment and selection, job design, job analysis, compensations, training and development, reward management and performance appraisal. The production function at Nike is outsourced to outside companies who follow the rules and specification of the company. operations department ensures that all the functions of the company are running smoothly.

At Nike , the corporate objective developed and implemented are supported by a corporate strategic action plan. This corporate strategic action plan involves various organizational functions. Higher managers prepare the action plan and then take ownership and full responsibility for the plan. Every function then uses the objective to prepare the functional strategic action plan with sub tasks and deliverables that are prepared with the information provided by the manager. Nike has adopted bureaucratic leadership to manage all the functions. In this leadership style managers or leaders develop and decide the strategy to achieve the objectives and employees have to follow this strategy to meet the goals in the set time frame. SECTION A Choose two organisations identified in your first research and conduct SWOT analysis on behalf the management and explain your findings to the senior management SWOT ANAYSIS NIKE Strengths Strong Brand Awareness – Nike is one of the most recognizable brands in the world as its name alone is memorable, easy to pronounce, and very unique. Its swoosh symbol is easily recognized by everyone. Nike has captured approx. 31% of the global athletic footwear market. Huge Customer base – Nike has millions of customer from around the world who loyally follow Nike’s trends, participate in Nike events, and even provide customer feedback. Due to its huge customer base, Nike’s market cap has grown to $115.19 billion as of 2018. Iconic Relationships – Nike’s long-term partnership with Michael Jordan has proved to be beneficial in terms of sales for the company. Their collaboration resulted in “Air Jordan 1 Shoes”. Additionally, Nike teamed up with the famous basketball player to help design the “Air Jordan 1 Shoes”. Low Manufacturing Cost – Most of Nike’s footwear is manufactured in foreign countries. In the year 2018, Vietnam produced 47%, China produced 26%, and Indonesia produced 21% of total Nike’s

Weaknesses Poor Labor Conditions in Foreign Countries – In the last 20 years, Nike has been consistently targeted regarding their poor labor conditions. These issues include child labor, low wages, and horrific working conditions that were deemed “unsafe”. Retailers Have a Stronger Hold – Nike’s retail sector makes Nike weak due to its sensitivity against pricing. About 60-70 % of Nike’s stocks are sold directly to retailers. With retailers serving as their core customers, Nike does not put up a fight against their pricing structures whatsoever. Pending Debts – Although Nike’s income statements prove to be prosperous, a quick glance at their balance sheet could paint a different picture. Nike is still facing financial threats. Currently, they have a total debt of $3.49 billion. Dependency on US Market – Even after having established itself globally, Nike still relies on the U.S Market in terms of sales and revenue. In the year 2018, about 42% of Nike’s sales came from the U.S, while the rest of 58% came globally. Despite its fame, Nike depends on the U.S for substantial sales and growth. Opportunities Emerging Markets – Although Nike already has a presence in many foreign countries, there is still plenty of opportunities for Nike. This is because external markets like India, China, and Brazil are gradually flourishing. Innovative Products – Although Nike has produced many products, there is still a lot to innovate. Nike has extended its reach in technology in association with fitness and health. Products like wearable technology that monitors physical activities, is the first step in building innovative technology products. Combining technology with athletic wear can prove to be beneficial as it is an aspect of the fashion industry that still hasn’t been explored much. Efficient Integration – The supply and production of Nike’s products depend on independent manufacturers. The brand can either acquire a few of these or make some of its own for a more efficient and streamlined supply chain. Threats Counterfeit Products – Counterfeit products can significantly affect the revenue and reputation of Nike. The company deals globally and the risk of counterfeit products has become higher. A number of merchandisers and retailers offer counterfeit Nike products at lower prices. The low-priced products are made from low-quality materials but still have the Nike label. This can tarnish the image of the brand as the customers might feel that Nike has started producing products that have low quality. Increased competitive pressure – Although, Nike is a dominating the athletic industry, competition, and new emerging brands are still potential threats to the company. With higher competition ratio, Nike has to spend more money on marketing and advertising. Nike spent almost 3.5 Billion dollars specifically on marketing in 2018. To overpower competition, Nike’s safest bet is to design innovative products that are tailored according to the needs of athletes. Marketing Budget Pressure – Companies like Under Armor and Adidas are spending more on marketing and advertising campaigns, increasing the pressure on Nike.

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In your conclusion, use PESTLE to explain the impact of macro environment on any of the business. This should be supported by examples and references. Political factors In addition, the US-China trade war by president Trump and Xi Jinping threatens the profitability of Nike as its cost of imports and exports to China could rise affecting its profit margins. In this trade war, US and China exchanged worth $34billion on each other’s goods with Trump threatening additional tariffs of $200billion worth of Chinese goods if the trade war escalates. Trump is considering to tax imports ranging from shoes, clothes and consumer electronics that threatens the well-being of Chinese companies like Yue Yuen Industrial Holdings Ltd and Li & Fung Ltd that supply goods worth $450billion to American companies like Nike and Walmart every year. The trade war could also ruin Nike’s relationship with its suppliers causing a ripple effect (Whitely and Wei 2018). Economic factors Low interest rates have for long supported growth in the athletic footwear industry as the cost of borrowing funds is low. The high interest rates in the US affect the profitability of footwear companies. The federal reserve increased prime rates and raised the benchmark rate between 1.5% and 1.75% which is a challenge for footwear companies that need loans to expand and grow because it will cost them more to borrow. Even though interest rate increases have been small, they increase the footwear producers’ cost of funds that affects the profitability of footwear companies like Nike, Nike, Adidas, among others. In addition, US have high economic growth which gives Nike an opportunity to improve its profit margins. The 4.1% annual economic growth in the UK has brought many opportunities such as decrease in unemployment rates and increase in consumer spending that grew at an annual rate of 4% up from 0.4% in between January and March of 2018 (Rushe 2018). Also, unemployment rates dropped to 3.9% gaining over 164,000 jobs in April according to report by Department of Labor (Bayly 2018). With the low employment rates, most consumers have the confidence to purchase Nike’s products which improves its profitability. 2.3 Social factors over 55% of Americans say they lived a healthier lifestyle in 2017 compared to 2016, and 45 percent say they have made dramatic changes to improve their health through healthy diet, getting enough sleep and regular exercises. But while 74 percent of the people say regular exercise is part of a healthy lifestyle, just 53 percent say they do so regularly. The number of Americans joining fitness clubs has steadily increased over the years averaging to 57.25 million in 2016. The increasing number of people that are joining fitness clubs and gyms influences demand for fitness products particularly exercise apparel, shoes and equipment. Therefore, Nike can utilize this opportunity to improve its revenues by targeting the growing population of health-conscious consumers that are joining fitness clubs (Statista 2018). 2.4 Technological factors , Nike recently introduced augmented reality technology into its Paris flagship store that enables customers to design their own customized sneakers using the NikeiD booth. With this technology, customers can customize sneaker color details on the tablet attached to video-mapping devices using the NikeID online service. SmartPixels connected the video mapping with NikeID’s configurator so customers need only place an all-white sneaker in the device and they will see the colors

projected on the sneaker, in real time, as they select them on the tablet. This helps to increase customer satisfaction as the customer gets his/her desired sneaker design. However, even though Nike’s customizing tool (NikeiD) is in usage, the number of sneakers one can customize in augmented reality is limited as customers can only customize in AirMax, Epic Low and Cortez sneaker models (Nelson Jr 2017). Legal factors The low corporation tax rate in UK gives Nike a chance to improve its profit margins. The UK has the lowest corporate tax rates at 19% with the UK further proposing to cut it to 17% to free up £5bn a year for other spending activities. Low corporate taxes can help many companies like Nike to improve their profit margins due to decreased tax expenses. Environmental factors To reduce environmental pollution through dumping in landfills, Nike has incorporated recyclable material in 75% of its products. Nike creates its products by transforming plastic bottles and manufacturing scraps into new materials that can be reused to manufacture shoes through Nike grind program. Besides reusing, Nike also manufactures some of its most products in a sustainable way and air is one of Nike’s most sustainable innovations . This technology consists of pressurized air (nitrogen) inside a flexible bag (called a Nike Air sole unit) that sits in the midsole beneath the heel, forefoot or both to provide the sensation of walking, or running on air. This provides lighter and stronger shoes minimizing Nike’s usage of recycled materials (Nike 2018a). Critically evaluate the impacts that both macro and micro factors have upon business objectives and decision-making The policy of health and safety that are from the government are to be looked for the safety of the customers. In SWOT analysis strength of the company are linked with the social environmental, technological, political, legal and as well as economic analyses of the company. Every analysis that is related to SWOT analysis is always in the linkage to that of PESTLE analysis. According to Worthington and Britton (2014, p.45), the strength of the company is proportional to the advertisements, collaboration with different companies, maintaining cleanliness is all recognised by the PESTLE analysis. Advertisement and all other activity that are done by the company are for the benefits of the company as they directly or indirectly help to grow the economic state of the company. Political supports are the main factors that are necessary for implantation of any business in the desired area. Without the help and cooperation from the political point, the business would not stand up and hence result in the economic condition. Political support thus makes itself to be the strength of the company and the reverse of it becomes the weakness of the company. According to a proper environment which may comprise of high quality Nike Shoes attract the customers and the customer's visit would result in the strengthening of the company and without the customer it becomes the weak point for the company. In the weakness of the company, it is equipped with the poor product development and improper franchise management that are the non-profitable area of the business. The young and energetic people are influenced to get service from the company and this is the social condition of the company that gradually increases the economic condition of the company.) the technology used for

the activities related to promotion of brand, the products and providing services to the customers are related to the technology and the positive effect that are yielded from it make the revenue of the company reach to a higher altitude and however in case of the negative effect comes out from the technology aspect the business growth gets affected towards the loss for the company. All the analysis with respect to PESTLE and SWOT that are creating positivity to the company are the reason to raise the economic condition and the negative effects from the analysis tools may ruin the business. Thus the relation has to be maintained between the analyses of the various tools for the benefit of the company. Conclusion From the pestle analysis, we realize that various political factors such as US-China trade war threaten the profitability of Nike as it may face heavy taxes on its imports and exports to China. On the other hand, high economic growth and low employment rate in the US can influence demand for Nike products as consumers have high spending power. However, Nike’s major threat is rising competition from adidas that has led Nike to lose market share in both apparel and footwear markets as analyzed in the porter’s analysis. None the less, Nike still accounts for most of the market share in the market with high customer loyalty and through innovations it can gain a bigger market share.

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Unit 1 - BBE

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