Comprehensive Analysis of IHG's External Business Environment Factors

This report provides a detailed analysis of the external business environment impacting InterContinental Hotel Group (IHG). It examines the influence of local government on IHG's operations, including regulations and employment policies. The report further explores the role and impact of the European Union (EU) on the business and service industries, particularly focusing on policies like competition, regional development, and anti-discrimination laws. Additionally, it assesses the influence of pressure groups on IHG, including case studies of boycotts and their impact on the brand's image. The analysis extends to the legal framework within the UK, comparing English and Scottish systems, as well as the UK and EU legislative processes. Finally, the report evaluates the various types and characteristics of businesses in the hospitality sector, the legal processes for company formation and dissolution, and the structure that determines responsibilities and control within a registered organization.

EXTERNAL
BUSINESS
ENVIRONMENT
1

TABLE OF CONTENTS
INTRODUCTION ..........................................................................................................................4
TASK 2............................................................................................................................................4
2.1 Discuss the structure, operations and influence of local government on a major UK group.
.....................................................................................................................................................4
2.3 Role and influence of the EU and its impact on business and service industry ...................6
2.3 Assessing the roles of pressure groups and their political influence in relation to national
and local issues in regards to hospitality industry.......................................................................7
2.4 Analyzing the legal framework within the UK, identifying the main difference between the
English and Scottish systems.......................................................................................................8
2.5 Evaluating the UK and EU legislative process and its impact on IHS at local and
international level......................................................................................................................10
TASK 3..........................................................................................................................................11
3.1 Assessing the various types and characteristic of business that operate in hospitality sector.
...................................................................................................................................................11
3.2 Discussing the legal processes necessary for formation and dissolution of registered
company.....................................................................................................................................13
3.3 Analyzing the structure and process that determine the responsibilities and control of
registered organization ..............................................................................................................14
CONCLUSION ............................................................................................................................14
REFERENCES .............................................................................................................................16
2

INTRODUCTION
External business environment of an enterprise refers to those elements outside the scope
of organization that impact the business ability to function in different market. These factors are
beyond the control of organization therefore, proper consideration must be given on them.
Further, few of the external factors can be influenced by organization's marketing, whereas for
others, company needs to make some modifications (Brinkman, 2014). Various external factors
that can impact the functions of company are, customers, competitors, technologies, government,
economic variables, social and monetary system etc. In this respect, economic system relates to
the distribution of meager resources while monetary system assists in business dealings and
exchange. Further, social system deals with factors like, attitude, behavior, lifestyle, poverty,
unemployment of society and individuals residing in it. These factors have direct and strong
impact on the function ability of business entity. In this report, various aspects of external
environment will be studied in the context of Intercontinental hotel group (IHG).
IHG is a UK based hotel renowned for providing effective and impelling hospitality
services in around 100 countries. IHG is a conglomerate which owns seven famous brands
including Crowne plaza, Holiday Inn, Candlewood suites etc. The organization has assets in
form of up to 726,876 rooms in around 5000 hotels. IHG is also regarded as the largest group of
hotel in terms of number of rooms. The business generated over $1,858 mn in 2014 (About us.
2016). In the present report, explanation will be provided on the structure, operations and
influence of local government on major UK group. Further, role and influence of the EU and its
impact on business and service industry will be explained. Also, learning will be shown
regarding the legal processes that are important for the formulation and dissolution of a
registered organization. Thereafter, legal framework within the UK will be analyzed.
TASK 2
2.1 Discuss the structure, operations and influence of local government on a major UK group.
Local government is a type of public administrative body that works under the lowest
level of management within a provided state. The duty of local government is to perform various
functions at local level within the powers assigned to them by UK legislation. Local government
plays a major role in generating employment, administrating education of children, collecting
3

local tax and using same in ensuring development of particular region. Further, various rules and
regulations are laid down by local government that have direct impact on the operations of
business (Britton, 2009). For instance, IHG wants to expand its business within London,
therefore it is required to take permission from local authorities. In this respect, if local authority
refuses to give permission then it can restrict the domestic growth of company. Likewise,
increase in local tax rate can lower the profitability of company and further influence it to
increase its prices. Thus, structure and operations of local government have direct impact on the
functioning of InterContinental hotel groups. Further, it has been identified that various business
operations of hotel are affected by working practices and policies of local councils. Therefore,
company is forced to make viable adjustments in its business policies and strategies.
Structure and operations of local government
In this respect, there are various councils having predominant position in the UK
economy like, county, district, unitary authorities etc that affect the functions of hotel. It may
further involve other authorities and councils like, London boroughs and metropolitan authorities
etc (Carter, 2007). The county council looks after the development of entire country and is
accountable for the services like, education, waste management, social well-being of members
etc. Thereafter, district council deals with recycling of waste, local tax collection, housing etc.
Further, unitary council is responsible for the entire services provided by county and district
councils. Thereafter, London Boroughs and metropolitan authorities are responsible for the
strategic planning like, development of highways, improving transportation, monitoring local tax
collection etc. Overall, there are 426 local governing bodies working in the UK economy (Local
government of UK., 2015).
Influence of local government on the operations of IHG
The local authority of UK has direct impact on the operations of hotel. Local authority is
forcing IHG to provide more employment and career opportunities to the local individuals. In
this respect, company is collaborating with big business schools so that off the job training can
be provided to the students (David, 2000). However, organization is forced to generate
employment opportunities first in home country. Thereafter, local authority also impels hotel to
set up waste management system to reduce non-recyclable litter in the UK. This is further
increasing the overall cost of IHG as company is required to invest significant amount in
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implementing waste management system and training employees in this respect. Further, local
government of UK has imposed different restrictions with respect to international transactions
that impact various operations of the company. Therefore, it is feasible for IHG to make
significant changes in its strategies and policies in accordance with provisions of local authority
to sustain in long run (Buthe and Milner, 2008).
2.3 Role and influence of the EU and its impact on business and service industry
European Union is an organized body of twenty eight autonomous states that are situated
principally in Europe. This union is responsible for making important decisions that are fruitful
for all the member states. The contribution of EU in business is related to generate policies that
help in smooth and free motion of individuals, product, services and capital across the member
countries (Ekins and Lees, 2008). Likewise, various policies are framed by EU to boost trade
and improve the economic condition of country. The main aim of regulations and legislative
polices of EU is to encourage free movement of goods and services. Further, EU ensures that
interest of customers and other society is safeguarded. In addition to this aspect, regulations of
European Union stimulate different companies of business and service industry to offer ethical
products and services to the customers. European Union also aims at ensuring healthy working
practices in the industry to ensure sound health and proper safety of human resources (Fey and
Birkinshaw, 2005). Therefore, it can be stated that different policies and regulations of EU have
direct impact on the operations of company. In this respect, various policies of EU are as
follows:
 Competition policy: According to this policy, it is important for various organizations
working in UK to ensure healthy and fair competition in the market. The main purpose of
this policy is to increase competition in the market and ensure it to perform better. It
further helps in protecting the interest of customers by maximizing choices and reducing
price levels (Halinen and Törnroos, 2005). In addition to this, competition policy aims at
reducing monopoly power of business entities. Due to this policy, competition level is
increased and IHG is forced to do constant up-gradation in its technology to sustain in
long run. Thereafter, company cannot fix prices with its suppliers in order to comply with
the provisions of competition policy.
5

 Regional policy: The main aim of this policy is to enhance the economic soundness of
various regions in EU. This help in overcoming the problem of regional disparities.
Therefore, various business and services industries are influenced to support the
economic development of backward regions of EU. With the consideration to this policy,
IHG can set up new branches of hotel in less developed regions like, Bulgaria, Croatia,
Romania etc. This will help in generating employment opportunities for local individuals
and thus improve their standard of living (Hsieh, 2012).
 International policy: The international policy aims at boosting the free movement of
goods and services. Therefore, this policy assist in reducing the trade barriers and
fostering healthy relationship between various countries. With the focus on international
policy, business and service industries can expand their operational activities across the
nations boundaries. This will help country in ensuring overall economic development and
improve foreign exchange earnings (Johnson, Lenartowicz and Apud, 2006).
 Anti-discrimination law: According to this legislative policy, it is right of individuals to
be treated equally. This policy aims at ensuring equal opportunities are provided to
various individuals (Miller and Friesen, 2003). By focusing on this policies various
organizations in business and service industry are required to provide equal employment
opportunities and pay to all individual having alike capabilities, knowledge etc regardless
to their age, sex, nationality, sexual orientation, religious belief etc.
2.3 Assessing the roles of pressure groups and their political influence in relation to national and
local issues in regards to hospitality industry
Pressure groups are aggregation of those persons having common belief and
understanding on factors like, ethnicity, political notions, social-cultural philosophy, religion
etc. Therefore, to promote their interest in a particular community they impact government
officials to take significant steps to encourage change and assist in attaining their goals. Pressure
groups are the representatives of members of society that are not happy with the prevailing
conditions of society (Matthews, 2005). They further have strong power to impact the business
system along with the regulations of government. In this respect, they can adopt various tactics
like, lobbying government officials, using media protagonism etc. In addition to this they can
take actions like, protest which induce government to make changes as per their wishes. The
6

major interest of pressure groups is prevent the interest of local communities and preserve the
local culture. Thereafter, they are also concerned about safeguarding and conserving the natural
resources for present as well as future generation. The main aim of pressure groups is to ensure
sustainable development (Morschett, Schramm-Klein and Swoboda, 2010). Furthermore,
pressure groups also focus on minimizing the environmental imbalance. With this aspect, it is
important for business entities to prevent environment from pollution. Therefore, it is becoming
crucial for hospitality organization to take necessary steps for reducing carbon footprints and non
recyclable waste. The pressure groups can cause negative impact on the brand image of
company. In this respect, IHG was boycotted at international level for opening five star hotel in
Tibet. In this respect, it was alleged that the proposed hotel was public relations coup with
Chinese government. The pressure groups blamed that opening of IHG resort will erode the rich
heritage and culture of Lhasa and this is less advantageous to Tibetans as compared to Chinese
(Li and Zhou, 2005). Further, it was alleged that profit from tourism will be shared between
Chinese government and IHG while the local Tibetans will continue to suffer. Due to this, a
pressure group involving college students named as ''Free Tibet'' is leading a boycott campaign
against IHG at international level. This has further lead to serious destruction of organization's
goodwill which was followed by fall in companies share and market value. It has also lead to
interference of government in various functions of hotel. Therefore, its is important for company
to avoid negative actions of pressure groups by ensuring its practices are ethical and fair. Further,
hotel can support various environmental and other social groups in building safe surroundings
(Controversies of IHG hotel, 2013). Therefore, company can assist in reducing environment
related issues. This will further assist in overcoming the national and local issues with respect to
hospitality industry. Therefore, IHG can maintain the industry standard and sustain its leading
position.
2.4 Analyzing the legal framework within the UK, identifying the main difference between the
English and Scottish systems.
There are different legal frameworks that are to be considered by all organization while
operating in UK. This further help in overcoming the legal issues and barriers that can impact the
success of company (Myung, McClaren and Li, 2012). The legal framework also help in
assuring that public procurement of funds is done in fair and transparent mode with UK and
7

over the EU regions. Further, public procurement is regulated by the EU Treaty, procurement
directives and procurement regulations of UK. Furthermore, there are three key legal systems
applicable in UK; England and Wales, Northern Ireland and Scots laws. In this respect, it can be
stated that English law are applicable to entire England and Wales. Thereafter, the Ireland law is
relevant for Northern Ireland and is focused mainly on common principles that govern a region
(Britton, 2009). Further, Scot laws are focused majorly on civil law principles and its application
is on Scotland. Supreme court is highest governing authority in UK that takes major decisions
with respect to civil and criminal cases particularly in region of England, Norther Ireland and
Wales. In this respect, Crown courts and Magistrate court deals with criminal cases while High
court of justice resolves the civil cases. In addition top this, High court of justice further have sub
divisions like, Chancery, Family and Bench (Knowles, 2012). Thereafter, there is no individual
legal system applicable to UK. Therefore, it considers the provisions of UK legislation, EU,
common law along with the European Convention on human rights.
Difference between Scottish and English system
English system Scottish system
The English system is regulated by courts
functioning in England and Wales.
The Scottish system is based on the Roman
Law. Therefore, it have distinct legal system.
This system deals with both civil and criminal
matters.
It owns mixed legal system comprising of both
civil and criminal divisions.
It is based on the principles of common law
(Brinkman, 2014).
It takes into consideration the principles of
common law and civil laws.
In this system, 16 year old individual is
competent to avail legal rights. However, the
voting rights can be acquired only after
completing age limit of 18 years.
In Scottish system, one can obtain both legal
and voting rights on completing age limit of18
years only.
This system have its own legal doctrine from
1189.
It shares its legislative policies with the UK
from 1707; subsequently after the Acts of
Union.
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The major courts in English system are leaded
by Senior courts of Wales and England,
involving Crown court, High court of Justice
and Court of Appeal
The major courts in Scot laws are, Court of
Session, High court for Justiciary and Sheriff
courts (Black, 2010).
2.5 Evaluating the UK and EU legislative process and its impact on IHS at local and
international level
There are different legislative process of UK and EU that affect the operations of various
hospitality organization at local and international level. It is compulsory for hospitality
companies to consider these legislative policies and practices while functioning in domestic as
well as global market (Koutrakos, 2006). The major consideration of EU and UK policy is to
assure smooth functioning of entities working in hospitality segment as it is highest income
generating sector with maximum growth rate. The non adherence to these policies can result
intro legal consequences and various other operational barriers. The major ways through which
UK government can impact the functioning of IHS is through its taxation and fiscal expenditure.
For instance, increase in corporate tax rate by government to build infrastructure for country can
result into lower profitability of hotel and increase in its prices (Zahra, 2003). Likewise, increase
in bank rates can result into expensive loans and increase in overall operational cost of IHS. In
this respect, inflation policy of government assures that there is no emergent increase in
inflation and bank rate. At present, interest rate is at 0.5% which is lower than many of the
countries. Therefore, company can take loans at lower rate and utilize it in growth and expansion
projects at national and international level (Economic System, 2013). Thereafter, UK and EU
legislative process can impact the operations of hospitality organization through various laws,
regulations and directives. Therefore, it is mandatory for hotel to follow them to assure smooth
functioning.
With the consideration on Employment policy, company create job opportunities for
individual to ensure their career development and minimize unemployment rate of country.
Therefore, part time and full time jobs are offered to students, elderly and young individuals to
improve their living standard. This also help in fulfilling the organization's responsibilities at
local level. Further, IHS assures that it pay fair taxes on due date to government. With the focus
on Minimum wage act 1998, various hospitality organizations assure that they pay fair and
9

appropriate wages to their human resources. As per health and safety act, it is important for
hospitality organizations to ensure sound health and safety of employees working within the
organization (Richardson, 2006). Further, it is important for business to minimize the exposure
of individuals from any kind of risk. In this respect, IHG has implemented safety equipment
within hotel premises and conduct disaster management training in every 6 month for its
employees. Further, international policy is framed by government to boost foreign trade by
maximizing exports and minimizing imports. EU give consideration on international policy that
help hospitality business in surviving easily in global market. The major affect of this policy is
that international trade barriers are reduced. Thereby, IHG is now able to operate in around 100
foreign nations and is recognized globally. Overall, it can be stated that legislative process of EU
and UK have positive impact on the domestic and international functions of IHG (Buthe and
Milner, 2008).
TASK 3
3.1 Assessing the various types and characteristic of business that operate in hospitality sector.
The hospitality sector is the leading sector at present. It contributes more than 10% of the
global GDP. It further help in generating 1 out of 11 jobs for the individuals and therefore, it
leading industry in terms of employment also. Thereafter, hospitality sector comprises of various
types of business that further assist in drawing the attention of millions of customers by offering
effective and impelling services (Economic System. 2013). The hospitality industry is largest
service industry comprising of accommodation, travel and transportation, food and beverage,
theme park, entertainment facilities, pubs, cruise line etc. The major type of business that operate
in hospitality industry are as follows:
 Accommodations: It involves various enterprises providing lodging facilities like hotels,
resorts, service apartments, Inns etc (Zahra, 2003). The main aim of accommodations
service is to satisfy its guest by furnishing effective and luxurious services. The IHG
provides luxury accommodation services to its customers within different price range.
With the growing health consciousness among customers, hotel ensures that its premises
are clean and hygienic. The rooms of hotel must have proper facilities necessary to
provide comfort and convenience to customers. Therefore, guest must get value for the
money paid by him/her.
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 Restaurants and Bars: It refers to various cafes, restaurants, bars and pubs that provide
food and beverage to its customers. The main characteristic of restaurant and bars is to
provide hygienic surroundings to customers. In addition to this food and beverage served
in restaurant must be healthy and have high nutritional value (Knowles, 2012).
Thereafter, characteristic of bars states that customers should feel safe and secured. In
addition to this, alcohol served in bar should be of proper quality and must be served
within prescribed limit only.
 Travel and tourism: This sector deals with fulfilling the travel and tourism requirement
of customers. These services are provided by flight attendants, travel agents and operators
along with the leisure centers. The main characteristic of travel and tourism sector is to
provide unique travel experience to customers along with value for money paid (Jordan,
2005). Further, they identify the needs and preferences of customers to serve in their best
interest. IHG can collaborate with various tourism organization and provide services to
their guest. It will further help in increasing the customer base and profitability.
At present IHG hotel provides accommodations and restaurant services to its customers.
Thereafter, company offers various discounts on booking done through its online travel agents.
Company ensures effective and innovative services are offered to customers to enhance brand
loyalty among them (Carter, 2007). Furthermore, hospitality business can also be categorized
according to its nature which is as follows:
 Private limited: These entities are owned and operated by private individuals. They are
restricted to offer their shares to public through stock exchanges (Xiao and O’Neill,
2010). The major objective of private enterprise is to increase their profitability. The
main benefit available to private entity is that they can be formed easily and their scope
of expansion is higher. The major drawback faced by them is associated with the non
transfer ability of its shares.
 Public limited: These companies are owned and controlled by government. There major
aim to enhance the welfare of society and improve the living standard of public. The
advantage of having public company is that they can easily obtain finance from public at
low interest (Nandakumar, Ghobadian and O'Regan, 2010). However, they face
11

disadvantage like, too much interference of government, detail disclosure of all activities
etc.
 Partnership firms: It refers to collaboration of two or more individual to attain mutually
defined goals (Myung, McClaren and Li, 2012). The main benefit of partnership in
hospitality sector is that risk is divided among individuals as partners share revenues and
loss. However, the insolvency, bankruptcy or insanity of one partner may affect entire
partnership leading to dissolution.
 Sole proprietorship: Here, the business in owned and managed by single individual. The
main advantage of sole proprietorship is that there is negligible control of third party. The
disadvantage is that losses are borne by individual solely leading to over burden of
responsibilities (Hsieh, 2012).
3.2 Discussing the legal processes necessary for formation and dissolution of registered
company
The registered company is one whose name is enrolled in the registrar of companies. The
formation of company need required number of members compulsory for incorporating as per
the legal procedures. Thereafter, it need all the documents like, Memorandum of Association,
Articles etc. Thereafter, to register the organization in books it can take help of online sites or
via postal medium using form IN01 (Company Registration process, 2015). The MOA is legal
documents that contains information about name, address, signature of individual constituting
the company. Thereafter, Articles of Association contains rules, regulation and bye laws that will
be followed by company. Further, registration form IN01 involves the company name,
registered office address, details of directors and shareholders. It further involves detail of shares
taken by members and share capital.
Dissolution process of company
Justification of reason of dissolution: The company is required to provide grounds for
dissolution and state whether it is compulsory of voluntary. This must be provided in meeting
with it entire shareholders (Johnson, Lenartowicz and Apud, 2006).
Appointment of liquidator: The main function of liquidator is identify the market value
of assets of liquidating company. The liquidator can be assigned by court or organization itself.
12

Realization of assets: In this step the liquidator determine the total worth of companies
assets.
Payment of liability: In this step, liabilities are paid off by company where first priority
is given on outsiders like suppliers, creditors and than preference shareholders (Halinen and
Törnroos, 2005.).
Closer of book: In this step books of accounts are closed after giving a public notice in
national and regional daily.
3.3 Analyzing the structure and process that determine the responsibilities and control of
registered organization
The organization structure help in determining the hierarchy of individuals and its
operations. It states how various functions like, division of duties, authority and responsibilities
is done within the organization to attain the overall goals. The organization hierarchy also
reflects the reporting relationship within company (Fey and Birkinshaw, 2005). Therefore, it
states who is answerable to whom. To ensure satisfaction of stakeholders, they must be involved
in business decisions. The structure of company must be in accordance with law. Thereafter, the
long term goals, mission, vision should be clear to all the stakeholders of company. This further
help in attaining the overall goals and objectives (Buthe and Milner, 2008). Thereafter, the
structure of company should primarily consider on the role of top level executives within the
company. The structure focus on various functions performed at top, middle and lower level. The
director holds the prime position in organization structure and is liable for taking major business
decisions. They are further responsible for maintaining the interest of stakeholders within
company by fulfilling their various needs and preferences. The board of directors must meet on a
regular basis to supervise and control various functions (Capon, 2009).
CONCLUSION
From the above report it can be concluded that to sustain in long run it is important for
company to study its external environment. The external factors are beyond the control of
organization therefore, proper consideration must be given on them. The local government have
major impact on the operations of IHG. The pressure groups have negative impact on the
functioning of hotel in Lhasa market. Thereafter, organization consider various policy of EU
like, competition, regional, international and anti discrimination etc to avoid legal actions. The
13

major type of service offered in hospitality sector are, restaurant, accommodation and travel and
tourism.
14

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