Impact of Economic Systems and Policies on ASDA's Business Environment

This report provides a comprehensive analysis of ASDA's business environment, examining the influence of various economic systems, including planned, free enterprise, and mixed economies, on its operations. It delves into the impact of fiscal and monetary policies, such as changes in interest rates, exchange rates, tax rates, government spending, and reserve requirements, on ASDA's financial performance and strategic decisions. Furthermore, the report explores the effects of competition policy and regulatory mechanisms, including the implications of ASDA's price promise strategy and the competitive landscape within the UK retail sector. The analysis highlights how ASDA adapts to these factors to maintain its market position and achieve its business objectives. The report concludes with a summary of the key findings and their significance for ASDA's future.

BUSINESS
ENVIRONMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 2............................................................................................................................................1
2.1 Economic system attempting to allocate resources..........................................................1
2.2 Impact of fiscal and monetary policy on ASDA..............................................................3
2.3 Impact of competition policy and regulatory mechanism on ASDA...............................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................8
ILLUSTRATION INDEX
Illustration 1: Different economic system.......................................................................................3
Illustration 2: Fiscal and Monetary policy.......................................................................................4

INTRODUCTION
Business environment is defined as a sum total of all the internal and external factors
which influence the performance of business organization. Business environment consists of
employees, customers, suppliers and government as well as political, economic, social, and
technological factors. On the basis of above statement, it is quite clear that business environment
is generally a mixture of all the dynamic, complex and uncontrollable factors in which are
necessary to be considered by the business enterprise for regulating their activities in an effective
manner (Dreher, 2005). In this context, organization undertaken for the present study is ASDA
which is a British founded supermarket and a subsidiary of Walmart organization. Mentioned
company apart from the retail format deals in other products like financial services and mobile
phone services in order to satisfy the needs and wants of customers. Present report focuses on
different economic systems which help the organization to allocate resources effectively.
Further, this report has also showcase the impact of fiscal and monetary policy on cited company
along with describing the effect of competition policy and other regulatory mechanisms.
TASK 2
2.1 Economic system attempting to allocate resources
There are different types of economic systems which can be adopted or followed by the
management of organization. These economic systems are introduced by the government in
order to allocate resources more efficiently and effectively. Some of them are stated below as:
 Planned or Command Economy- Under this type of economy, government determines
that what types of goods need to be produced, how much it should be produced and also
at which price it would be offered for selling in the market in order to satisfy the
consumer's needs (Buyya, Abramson and Venugopal, 2005). Here, government takes the
full control of economy for allocating the scare resources like labor, capital, machinery
etc. Local body has full information regarding the countries surplus and production.
They take effective decision by considering the affordability of individuals.
Inappropriate decision taken by government due to shortage of surplus put its huge
impact on the business practices of the organization such as ASDA. Further, government
of UK takes decisions on major issues like tax on food items and other utilities. Tax
amount adds with the product cost and individuals have to pay more than the actual cost
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of product (Mysiak, Giupponi and Rosato, 2005). Moreover, command economy persists
some advantages and few of them are stated below as:
◦ All types of resources are quickly collected on a large scale.
◦ Government body creates the industrial power and monolithic projects are completed
by attaining the imperative social goals.
 Free enterprise economy- It is an economy where government imposes very few
restrictions and mentioned company can operate its business effectively and efficiently.
Under this segment, UK government has a very few numbers of companies in the market
and all rules and regulations implemented by government are quite flexible and feasible,
so that ASDA can perform its business activities in more effective manner. ASDA.
Further, cited company can produce goods and services by analyzing and considering the
demand of the market. However, being a subsidiary company of Walmart, ASDA's
functioning has been revolved throughout the globe and it is considered as the biggest
retail organization in the world (Stonehouse and et.al., 2009). Further, they are getting a
stiff competition from Tesco and Sainsbury but it has a large base of its potential and
loyal customers. Some core advantages of this type of economy are as follows:
◦ Individual’s preference and spending are taken into consideration instead of
government policies and restrictions.
◦ Market allows company to buy land, building and property with few restrictions as
well as legal documentation.
◦ Mentioned company has ability and right to choose suppliers of their choice through
which ASDA can extend their revenue and profitability.
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Illustration 1: Different economic system
(Source: Economic system. 2014)
 Mixed economy- Mixed economy is an economy that includes the characteristics of both
capitalism and socialism. This type of economy allows private organization to make
effective use of capital but it also allows government to interfere in the business activities
of organization in order to achieve the social aims. This economic system is less efficient
in terms of capitalism but it is more efficient in the respect of socialism. Under this,
government restrictions are available in the form of different monetary and fiscal policies
(Leung and et.al., 2005). These policies are generally imposed by the government in
order to control the financial flow within the whole UK. Further, UK government opt this
policy as business organizations has right to function their business operations and local
bodies make sudden restrictions in order to make the market stable. With the help of this
economy, ASDA can effectively allocate the resources with little or no wastage. Further,
cited company can form their own vision and mission by considering the rules and
regulations of local and national regulatory bodies.
2.2 Impact of fiscal and monetary policy on ASDA
Government of UK develops and implements different monetary and fiscal policies in
order to control the business corporate and economy as well. Further, these monetary and fiscal
policies have their own significance on the nation's economic activities. Moreover, monetary
policy deals with total supply of money and management of interest rates within national
economy. This policy is carried out by central banks in UK such as Federal Reserve, National
banks, etc. On the contrary side, fiscal policy is a policy where local body adjusts the level of
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spending power of individuals for effectively monitoring the national economy (Arestis and
Sawyer, 2006). Various steps taken by local body to identify the different economic positions
are:
 Changes in the interest rate- When local body changes the interest rate through the
monetary policy then it has a significant effect on business activity of cited company. For
instance, if interest rates go high then ASDA will face major difficulties on financing as
the cost of capital will increase and contrary individuals will reduce the consumption
level which will significantly reduce the sales and profit margin for cited organization.
 Change in exchange rates- Change in exchange rates will also affect the functioning of
ASDA as if pound is appreciated then business sector of mentioned company which is
operating in different countries will face major problem while in UK sales of their
products and service will generate more of the value (Miao, 2005).
Illustration 2: Fiscal and Monetary policy
(Source: Fiscal Policy vs. Monetary Policy, 2015)
 Change in the tax rates- If government changes the tax rates with the help of fiscal
policy then ASDA's business activities will be affected badly through different
perspectives. If the tax rate is reduced then cited company will be benefited and they can
improve the quality of product and also the quantity by keeping the same price for all the
products. Aforesaid company can increase more expense on advertisement as reduction in
tax rate will improve their productivity and profitability.
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 Change in government spending- If the local body increase the spending in different
sectors then ASDA will face some reduction in their sales turnover (Correia, Nicolini and
Teles, 2008). On the contrary sider, if government decreases their spending then it will
increase the demand for private sectors and also for global organizations like ASDA.
 Change in the reserve requirements- This process will also affect the functioning of
business activities up to a great extent. High reserve requirement will certainly push the
interest rate high which will lead individuals towards more savings instead of
consumption. By analyzing this fact, mentioned company has to change their policies and
procedures as it can generally reduce their turnover.
With such implications functions of ASDA only is not affected as all these policies will
be same for all the business ventures in UK and they will also feel the same influence of
monetary and fiscal policy (Brown, Earle and Lup, 2005). Further, with reduction in turnover
and profit, organization goodwill will not be harmed as all other retail firms will face the same
aspects.
2.3 Impact of competition policy and regulatory mechanism on ASDA
Now being a subsidiary of biggest retailer organization in the world organization started
their different services apart from the retail sector like general merchandise, financial services,
etc. Further, mentioned company has almost 180,000 employees who are giving their productive
services throughout the globe. Even by having that much of capital and market strength, cited
company faces a stiff competition from their major competitors like Tesco, Sainsbury,
Morrison's who have almost same amount of capital and general specifications. Further,
Competition law and policy is a part of Competition Act, 1998 where competition policy
generally impacts the operations of cited organization. Any changes made by the competitors
forces ASDA to adjust their policies with the existing market in order to stay up in the
competition.
Furthermore, ASDA's new price promise seems to ensure that customers will get the best
of the deals and may result in less competition between other supermarkets retailers. ASDA
which is owned by Walmart introduced the price promise strategy which will give an immense
opportunity to customers to check out the cost of the grocery (Madura, 2006). Customers can
compare the price of the products which they have purchased from ASDA store and also from
the online order with the price of their 3 major competitors. If by summing up the products,
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ASDA's price is high as compared to the competitors price then mentioned company will give
discount or make some schemes like buy 1 get 1, etc. This generally sounds good for the ASDA
shoppers as now they will have peace in their mind whenever they will shop as the bill need to
be the lowest when it is compared with the other retail organizations (Leung and et.al., 2005).
Major features of this price grantee are as follows:
 Individuals have to reach to the corporate website, identify the product which they have
to purchase and then they can compare the prices by logging in to mysupermarket.com
 Guarantee is given by the cited company only on total cost of purchase and not on the
individual prices of the product. This is because some of the ASDA products are cheaper
and some are quite expensive. Organization evaluates the total price of the goods which
are placed in the basket and then compare it with the competitors price for all the
products (The end to competition between major UK supermarkets? 2015).
 Any refund can be redeemed at ASDA store or even on the web as reduction in the price
for the next shopping.
They key effect of this leads as consumers will have less incentive to look somewhere
else. Competitors will to try to give stiff competition by cutting the price of their products but
significantly this leads to no new entry in the retail sector. By considering all the points it is
clearly evident that cited company makes the competition policy by considering the cost and
service diversification. Moreover, sometimes to get ahead in retail sector organization used to
adopt unethical practices in order to increase their productivity, revenue and market share
(Mysiak, Giupponi and Rosato, 2005). By fetching this fact into consideration, UK government
has made strict restrictions which every retail organization is bound to follow.
CONCLUSION
From the above report it is clearly evident that ASDA is subsidiary of the largest retail
organization ASDA which now focusing to extend their business activities through the globe.
Further, the super market industry in UK is perfectively competitive where ASDA has to adjust
their policies, rules and regulations by considering the other competitors’ policies and different
economic factors like fiscal or monetary policies. Different types of economic have been stated
in this report and it is evaluated that government of UK imposes the concept of mixed economy
where organization performs their business operations with small government restrictions in
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order to make market stable. Further, this report showcases the implementation of fiscal and
monetary policy where interest rate, tax rates, exchange rates influence the functioning of cited
organization.
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REFERENCES
Journals and Books
Arestis, P. and Sawyer, M., 2006. The nature and role of monetary policy when money is
endogenous. Cambridge Journal of Economics. 30(6). pp. 847-860.
Brown, J. D., Earle, J. S. and Lup, D., 2005. What makes small firms grow? Finance, human
capital, technical assistance, and the business environment in Romania. Economic
Development and Cultural Change. 54(1). pp. 33-70.
Buyya, R., Abramson, D. and Venugopal, S., 2005. The grid economy.Proceedings of the IEEE.
93(3). pp. 698-714.
Correia, I., Nicolini, J. P. and Teles, P., 2008. Optimal fiscal and monetary policy: Equivalence
results. Journal of Political Economy. 116(1). pp. 141-170.
Dreher, A., 2005. Does the IMF influence fiscal and monetary policy?. The Journal of Policy
Reform. 8(3). pp. 225-238.
Leung, K. and et.al., 2005. Culture and international business: Recent advances and their
implications for future research. Journal of International Business Studies. 36(4). pp.
357-378.
Madura, J., 2006. Introduction to Business. Cengage Learning.
Miao, J., 2005. Optimal capital structure and industry dynamics. The Journal of finance. 60(6).
pp. 2621-2659.
Mysiak, J., Giupponi, C. and Rosato, P., 2005. Towards the development of a decision support
system for water resource management. Environmental modelling & software. 20(2). pp.
203-214.
Stonehouse, G. and et.al., 2009. Global and transnational business: strategy and management.
John Wiley & Sons.
Online
The end to competition between major UK supermarkets? 2015. [Online]. Available through:
<http://www.uea.ac.uk/documents/107435/107589/ASDA+Morten.pdf>. [Accessed on
13th November 2015].
Fiscal Policy vs. Monetary Policy. 2015. [Online]. Available through:
<http://www.diffen.com/difference/Fiscal_Policy_vs_Monetary_Policy>. [Accessed on
13th November 2015].
Economic system. 2014. [Online]. Available through:
<http://www.slideshare.net/iyoalbarracin/economic-system-30608120>. [Accessed on
13th November 2015].
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