The Role of State in the Economy

The assignment provides an overview of the state's involvement in the economy, including its participation in production factor markets, goods and services markets, and transfer payment systems. It also examines the challenges faced by businesses due to frequent changes in legislation and the need for automation and standardization of business processes.

Responding to the Changing Business Environment
Name Daniel Plesca
Unit 1 Responding to the Changing Business Environment
Word count 2000
Date 23-11-2020
CONTENTS
S. No. Description Page No
1.Evaluate and Analyse the factors that influence business and the responses
that can be deployed to manage these factors.
1.1: Describe the differences between the macro and micro environments and explain
the various approaches used by business managers/analysts to understand them (e.g. -
PESTEL and SWOT analysis). 3
1.2: Using a case example or scenario, identify where business performance could be
positively or negatively affected by external factors and trends. 4
1.3: Recommend responses to external factors and trends. 5
2.Appreciate how an integrated approach to understanding the business context
and decision making can support business development.
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Assignment 1

2.1: Using a case example, evaluate the role played by management in responding to a
changing business environment. 6
2.2: Using your case example, Identify and prioritise organisational changes that would
exploit positive or counteract negative business environmental factors and trends.
6
2.3: Explain the potential impact of responding to business environmental factors and
trends. 7
3.Investigate the changing relationship between the private and public sector.
3.1: Explain changes in the relationship between business, government and the public
sector. 8
3.2: Use scenarios and models to illustrate changes in relationships. 9
3.3: Identify opportunities that may arise due to changes in relationships. 10
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Assignment 2

1.Evaluate and Analyse the factors that influence business and the
responses that can be deployed to manage these factors.
1.1: Describe the differences between the macro and micro environments
and explain the various approaches used by business managers/analysts
to understand them (e.g. - PESTEL and SWOT analysis).
The simplest way present in the specialized literature that leads the scanning of
the environment is through the SWOT analysis which for the internal environment
targets the strengths and weaknesses, and for the external environment the
opportunities and threats.
The scanning of the external business environment represents precisely the
correction of the information that would allow the realization of some predictions
of the evolution of the environment that are used in the strategic management
activities.
An organization can relate to 2 general types of environments:
• internal - a specific part of the SWOT analysis (Strengths, Weaknesses,
Opportunities, Threats) is specific to him
• distant external (macro-environment) - a specific part of the SWOT analysis and
the PEST analysis (Political, Economic, Social, Technological) is specific to it.
The internal environment of the organization includes the human component of
the organization, the functional component and the organizational working
groups, the component of the organizational level:
The external environment of the enterprise means all its external factors, factors
whose existence is likely to be influenced by its behavior and performance,
affecting it in one way or another.
The analysis of the competitive context (micro-environment) is useful in
assessing the opportunities and threats generated by those elements
(individuals, groups or organizations) that directly influence the enterprise, or can
be significantly influenced by it.
The study of the competitive context (macro-environment) of the enterprise
allows to exceed the horizon of the competitive environment because it analyzes
a series of external factors that uniformly affect a large number of business
systems. These factors, which at first sight seem very distant and without
repercussions on the future of the enterprise, actually have an indirect influence
on it, while the reverse influence is limited.
The analysis of the environment of an organization is performed when it is
desired to know the degree of feasibility of the respective business.
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Assignment 3

There are a number of generic business techniques that a business analyst will
use when facilitating business changes. Thus, one of the most important
business analysis techniques is PESTLE.
This technique is used to perform an analysis of the external environment by
examining the many different external factors that affect an organization.
The six attributes of PESTLE are:
Political (current and potential influences on political pressures);
Economic (local, national and global economic impact);
Sociological (the ways in which a society can affect an organization);
Technological (the effect of new and emerging technologies);
Legal (effect of national and world law);
Environmental (local, national and global environmental issues).
1.2: Using a case example or scenario, identify where business
performance could be positively or negatively affected by external factors
and trends.
The activity of any business firm is directly dependent on the environment in
which it operates - both through controllable elements and those with indirect
influence. In addition, certain components of the business environment create
instability, increase business risks and diminish entrepreneurs' confidence in their
ability to survive.
In the external composition, the business environment of the enterprise includes
participants and factors outside the enterprise grouped in two categories: factors
that have direct links with the company and direct influences - suppliers,
intermediaries, consumers, competitors, public institutions, the general public;
factors that indirectly influence the activity of the unit - demographic, economic,
technical-scientific, cultural, institutional, natural and other factors.
Like other changes in the macro-environment, scientific and technological
advances can revolutionize the work in the field in which they take place. For
example, the mechanical clock made regular working hours possible. The
invention of the locomotive and the railroads, as well as the mass production of
automobiles, changed the way people thought about distance, the words near
and far took on a new meaning. Television has changed the way people think
about news and entertainment.
Today, digital technology, especially the Internet, is causing profound changes in
all mechanisms of society, with the most important influences on business
activity at all levels.
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Assignment 4

In the development of e-business, e-commerce is proving to be the business
model for the 21st century.
Business automation and their rationalization have led to a reduction in staff. The
middle management level has been eliminated in many organizations. Managers
or staff at lower levels have been empowered to make decisions that middle
managers previously made.
Information technology has therefore had the effect of flattening hierarchies
within organizations and widening the scope of control.
1.3: Recommend responses to external factors and trends.
The efficiency of an organization depends on the ability of its leaders to use
available internal resources (material, financial, human and informational) to
adapt to trends and changes that occur and to exploit the opportunities of the
external and internal environment.
Unfortunately, most companies do not understand that change can be a good
opportunity. They ignore the changes or resist them until it is too late.
Starting from the physiognomy, complexity, dynamics and possible influences of
the external environment on the activity of the enterprise, three main forms of it
are distinguished:
 the stable environment, specific to the slow and easily predictable changes of
its factors, which raises for the enterprise few problems of adaptation and
strategic orientation;
 unstable environment, characterized by frequent changes in its components. In
the face of such an environment, the company must adopt a prospective attitude,
to evaluate, as precisely as possible, the changes, in order to be able to create
possibilities for adaptation and implementation of successful actions in the
activity;
 the turbulent environment, characterized by frequent changes and in
unpredictable directions, both in its components and in the relationships between
them. Such an environment is relatively hostile to the company, making it difficult
to adapt and sometimes even survive.
Based on the presented, it results that the business environment constantly
generates uncertainties, threats and opportunities for the company.
2.Appreciate how an integrated approach to understanding the business
context and decision making can support business development.
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Assignment 5

2.1: Using a case example, evaluate the role played by management in
responding to a changing business environment.
Until the mid-1970s, the Kodak name was synonymous with yellow boxes in
which products were sold on the market - boxes symbolizing the quality of the
film, as well as simple cameras for photography enthusiasts.
The company hired high school graduates and colleagues for life, and they
showed a similar loyalty to Japanese companies. There were no strikes, and the
corporate culture was family-type. Miss then the world changed very fast for
Kodak.
Consumer requirements have shifted from simple cameras to more sophisticated
products. The electronics revolution has offered many alternatives to consumers.
Kodak has responded slowly to changes in the external environment. The decline
in classic cameras and the popularity of electronic cameras have made Kodak
aware of the profitability of manufacturing and selling instant cameras. For this
type of camera Kodak entered into a great battle for patents with the Polaroid
company.
Losing this battle legally, he decided to lay off 500 employees.
At the same time, Kodak registered a serious external competition for both
photography and film, with the appearance of new competitors such as: Nikon,
Fuji, Minolta. Due to these difficulties, the company had to reorganize, laying off
1200 employees and reducing the last incentives by $ 230 million.
Under these conditions, managers began to pay more attention to the external
environment. They have accelerated the process of assimilating new products
and modernizing older products and acquired several innovative companies. At
the same time, they formed joint ventures in several fields and risked entering the
field of biotechnology and electronic publishing. As a result of these changes, the
economic and financial results of the company have improved considerably. This
case highlights that the external environment of the company is dynamic,
according to the ratio of consumer requirements, manufacturing technology, etc.,
and the non-adaptation to its requirements generates economic and social
difficulties. Managers measures to adapt to the requirements of the external
environment; the organization can significantly improve its economic and social
performance.
2.2: Using your case example, Identify and prioritise organisational
changes that would exploit positive or counteract negative business
environmental factors and trends.
The importance of analyzing all aspects of the external environment in starting
and running a business is revealed by the following case study:
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Assignment 6

IKEA, a Swedish furniture company, is known in the world because it offers good
quality products at a convenient price. The furniture is delivered disassembled in
its component parts and is easy to assemble. A success factor of IKEA's activity
are the exhibitions with sales.
When IKEA decided to enter the US market, its first choice of location was
California. But a closer look at this market has revealed some problems.
California's quality standards were very strict. Consequently, the company was
forced either to test the market very well, which took a long time, or to produce
special furniture markets for Californians.
Another obstacle was the distance from the state of California. Because IKEA
products are generally made in Europe, they must be transported a long
distance. As a result, IKEA representatives have begun exploring the possibility
of expanding on the East Coast.
After being coldly greeted in Boston and Washington, they were well received in
Philadelphia. In addition, the Philadelphia area (including Delaware and southern
New Jersey) had other advantages: a large number of young families and
relatively low housing prices.
Ikea opened a store in the suburb of Plymouth Meeting, in 1985 with almost
130,000 customers in the first weeks. Since then, IKEA has opened stores in
Washington DC, Baltimore, Pittsburg, Elizabeth, New Jersey and Long Island.
There are also 5 IKEA stores in the Los Angeles area. Expansion into the
California market was eventually possible due to several factors: the
establishment in the American market made IKEA products easier to adapt to
California standards; another factor is the relocation of production. Thus, 50% of
the furniture sold on the American market is produced in the USA, thus reducing
transportation costs and facilitating changes in technical requirements.
The success of IKEA was due to the special attention it paid to environmental
factors. Although many influences of environmental factors could not be
changed, managers acknowledged that they had the opportunity to make several
options regarding the environmental conditions in which they would operate.
2.3: Explain the potential impact of responding to business environmental
factors and trends.
The knowledge of the characteristics and mutations of the environment is
achieved, mainly, through the organizational structure of the management, with
the help of the informational system and of the forecasting management methods
and techniques.
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Assignment 7

Based on the information on the characteristics and mutations of the
environment, the management elaborates development strategies and policies
and adopts decisions of adaptation to the requirements of the environment.
Therefore, the design of the organizational structure, the information system, the
strategic decision-making process and management systems and methods
requires addressing the environment of the organization. At the same time,
knowing the endogenous factors that influence the company's activity requires
addressing the environment.
Favorable opportunities can also appear after identifying trends. The trend
represents a direction or a series of events that follow one another at a certain
speed in a certain period of time. For example, a major trend today is to increase
the share of women in the workforce. It has profound implications for economic
development, family life, professional life, political power, preferences for certain
goods and services. Identifying a trend, its probable consequences and
determining favorable opportunities for the company are absolutely necessary
skills today.
In order to remain competitive, companies must be constantly up to date with
new technological discoveries in order to provide the products and services
requested by consumers. Therefore, information, whose technology is itself
subject to rapid and progressive changes, becomes indispensable to any
manager. He can thus anticipate the benefits or social problems generated by
the implementation of new technologies, respectively to make the most of the
opportunities and look for solutions to solve the critical aspects.
3.Investigate the changing relationship between the private and public
sector.
3.1: Explain changes in the relationship between business, government
and the public sector.
Despite many challenges, in 2008-2009 several governments implemented
regulatory reforms aimed at facilitating the business environment, more than in
any other year since 2004.
The reformers focused on making it easier to start and operate a business,
strengthening property rights, and improving the efficiency of resolving
commercial disputes and bankruptcy proceedings. But most reforms in 2008-
2009 were part of long-term efforts to increase competitiveness and encourage
job creation by improving the regulatory environment for businesses. And most
have been achieved in developed economies.
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Assignment 8

Economic life knows a multitude of processes and phenomena, of behaviors and
strategies of economic agents, of reactions and mechanisms that are manifested
in response to the dynamics of market variables.
Moreover, each field of activity and thus also the economic agents are under the
greater or lesser incidence of some public policy instruments.
In other words, the participants in the economic life in order to face the economic
exigencies must respect not only the laws of the market and the competition, but
also the requirements imposed by the intervention of the public power in the
respective field.
The market operates on the basis of objective, unwritten economic laws. Their
violation by the economic agents, respectively the ignorance of the law of supply
and demand, of the competition attracts failures in the economic activity.
The existence of monopolies, the manifestation of externalities, the capitalization
of public goods in the conditions of imperfect information and high transaction
costs require the involvement of the state on the market.
The role of public intervention is to increase economic efficiency or to strengthen
the principles of equity, so that economic activity generates additional positive
effects.
The state is present in economic life in many ways. There is no market economy
in which the public sector, more or less not to be found, directly or indirectly,
among the factors that influence and guide the economic agents, respectively
their activity. In general, the public sector is linked to state intervention in the
economy and government activity.
Public regulations are materialized in the control exercised by the state over
public utilities in order to satisfy the economic interests of the monopoly,
simultaneously with the public interest. The regulations may target the level and
structure of the price, the quality of the services provided, the entry and exit of
the market.
3.2: Use scenarios and models to illustrate changes in relationships.
The intervention of the state in the economy is necessary in a differentiated way
and only through actions meant to solve a series of problems with particularly
complex implications on the socio-economic development of the society as a
whole.
In the countries of Central and Eastern Europe, which are in the period of
transition to a market economy, the state must be actively involved in the
creation of the market economy system through programs on:
• liberalization of the economy;
• macroeconomic stabilization;
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Assignment 9

• control of the money supply;
• achieving budget balance and privatization.
The recognition of the state in the economic life complicates and simplifies at the
same time the functioning of the economic activity. The involvement of the public
sector in the economic activity helps the efficient and equitable development of
the economic flows and is reflected schematically by the appearance of other
economic circuits.
The government obtains revenues from the activity of producing economic
agents. These are profit taxes and other taxes levied in the form of public
payments such as parking fees or utility payments.
The state also obtains revenues from the activity of consuming economic agents.
In this case, household income taxes are included. Also, the state provides some
goods and services like any bidder on the private market and obtains income for
this activity.
There is a link between the state and the economic agents, through the financial
sector or the capital market. Of course, the state obtains income from capital
market transactions, i.e. it borrows and enters into competitive relations with
other exchange participants. For these funds, the state pays interest like any
debtor.
The state participates directly in the exchanges on the market of the factors of
production, just like a private agent, attracting and buying the necessary
resources, when it is a producer.
The state is also a buyer of goods, thus participating in trade in the market for
goods and services. For the payment of these goods, the state uses funds
accumulated through taxes and loans. These goods purchased by the state are
intended either directly for household consumers or companies or indirectly for
public production activity.
The government is also involved in the economy through the transfer of
payments, for example, through the social security system.
All these economic flows create an obvious connection between the public and
private sectors. When the state intervenes on the market of the buyer's
production factors, its action influences, through the price and production
decisions, both the production activity of the private agents and the price system
on the market. When fiscal policy is manifested by the practice of low taxes,
private investment activity is encouraged and the incentive to work increases.
High taxes discourage private activity.
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Assignment 10

3.3: Identify opportunities that may arise due to changes in relationships.
Over 60% of Romanian financial managers say that frequent changes in
legislation are a challenge in the local business environment, according to a
study conducted by GfK at the request of TMF Group, which also shows that
over 80% of human resources managers have problems in finding the right
workforce. Moreover, 30% noticed the lack of an interface in communicating with
different local authorities. Research also shows that 32% of human resources
managers admit that they need assistance in the recruitment process, and 32%
feel difficulties due to frequent changes in labor legislation. “The need to
automate and standardize various business processes has increased
considerably among multinational companies that have expanded their business
in Romania, leading them to turn to service providers, such as TMF Group.
These decisions support the objectives of the companies to increase their
productivity and to counteract the difficulty of finding the right labor force.
According to the study, both financial and human resources managers
acknowledged that they use outsourcing services in their departments to
achieve: increased adaptability to legislative changes, tax compliance and
reducing the risks of penalties for non-compliance with VAT and social security
regulations .Moreover, 63% of the survey respondents outsourced at least one
functionality, and 75% of the companies stated that they increased their
revenues in 2016. Also, 31% placed accounting and financial reporting in the top
of the services they outsource. The results of the study It also shows that 44% of
the interviewed human and financial resources managers consider outsourcing
several additional services - 18% would request external support from the
management for legal-administrative functions, and 12% would opt for fiscal
compliance. Regarding the benefits perceived as a result of outsourcing, both HR
and financial professionals appreciate that they have gained more time to
dedicate to the core activities in their departments (71%), and 69%
acknowledged the comfort gained once with reduced administrative liability.
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Assignment 11

Bibliography.
1. Organizational management, Authors: Ionescu Gheorghe, Cazan Emil,
Adina Negrusa, Tribune Economic Publishing House, Bucharest 2001.
2. General management, volume I, Authors: Constantinescu Dan Anghel,
National Publishing House, Bucharest, 2000
3. Felea, Mihai, Saseanu, Andreea, Toma, Sorin - Commercial economy.
Tests, applications and case studies, A.S.E Publishing House, 2002
4. B. Andronic, Company performance - transdisciplinary approach in
microeconomic analysis, Polirom Publishing House, Iaşi, 2000.
5. P. Kotler et al., Business Management, “Teora” Publishing House,
Bucharest, 1998
6. Bari, I., Globalization of the economy, Economic Publishing House,
Bucharest, 2005
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Assignment 12