External Business Environment Analysis: UK Economy and Service Sector

This report provides a comprehensive analysis of the UK economy, focusing on its structure, market dynamics, and the impact of government policies on the service industry, particularly the InterContinental Hotels Group (IHG). It examines the UK's economic position, including its GDP, taxation, and regulatory framework, and how these factors influence business operations. The report further investigates the influence of government policies such as fiscal and monetary policies on the service sector, alongside an analysis of income distribution, employment patterns, and demographic trends affecting the hospitality industry. Additionally, it explores the social structures within hotel organizations, emphasizing employee interactions and customer relations, and how these elements contribute to a competitive edge. The report references various sources to support its findings and conclusions.

EXTERNAL BUSINESS
ENVIRONMENT

Structure and operation of UK economy
UK economy is considered to be as the fastest growing and one of the largest
economies that features GDP rate. Thus, for operating the services in this
economy, there are various forms of market structure in which a company can
perform their business activities. Among all the forms of market structure, if the
company selects suitable market for operations then it directly influences the
behavior and culture of organization. The forms of market structures available in
the UK economy are perfect competition, imperfect, oligopoly, etc. British
Airways operates its services under oligopoly market as there are few firms and
large number of buyers in this industry. Further, when measured in size, UK
economy is 5th largest national economy and 2nd largest in EU and in nominal
GDP, it is 10th largest in the world while 3rd largest in EU. The economy of UK is
the fastest growing in the G7 for 3 consecutive years. Moreover, it is one of most
globalized economies in the world. The service sector of the UK contributes 78%
of the GDP in the economy. This sector includes hospitality industry, aviation,
banking and financial sector, etc.

Contd.
On the other hand, taxation rate of UK economy has been reduced to
minimum extent which is a very good sign of establishing new
ventures in the country. Further, the taxation payment has to be done
to at least two different levels of government that is local and central
government. Moreover, in UK economy, there is efficient regulatory
framework which is also transparent. This encourages
entrepreneurship with no minimum capital requirement. Further, the
labor market in UK is relatively flexible. Moreover, the
unemployment rate in UK came down to zero which has pushed the
growth of economy. Therefore, job security has been increased and
this way inflation rate came down. This is how the structure of UK
economy has been formed and in this way, economy of UK operates.

Current government economic policy and its impact on service industry
The economic policy includes trade, fiscal and monetary policies
which are framed by the government of UK. These policies have a
direct and indirect impact on the working of InterContinental Hotels
Group. Further, the fiscal policy laid down by the government is
increasing tax rates. This will impact the consumer’s demand because
the prices of the hotel rooms and other facilities will get increase.
Therefore, the demand may reduce which will directly impact the
profitability of the firm. Furthermore, the budget policy of
government also has an impact on the working of hotel. The budget
pass by the authority may increase or decrease the prices of the
products and services. Currently, the budget has been increased for the
hotel rooms and in this way prices have been increased. This reduces
the demand of the hotel

Contd.
Further, the monetary policy also impacts the company in
an indirect manner. The interest rate of the UK is 0.5
percent and company can acquire loan at least cost. Thus,
there are many chances of expansion of this firm and they
can invest more in generating wealth. Thus, current
monetary policy of the UK economy impacts the
InterContinental hotel in a positive manner. In 2015,
32.80% surplus was there in Balance of Trade account.
Thus, it can be said that InterContinental hotel has
produced the services more in UK rather than importing it
from other countries.

Income distribution

Income, wealth, employment and occupational
distribution in relation to the provision of service
operations
The income was at top during 2009-2010 while in 2011-
2012 it has fallen down. Furthermore, the dotted line
represents percentage of the total income which are
earned through pensions and investment. The solid line
represents the proportion of total income the employees of
service industry receive after paying off taxes to the
government. Furthermore, the employment people in
hospitality sector is 2,441 which generate the turnover of
£90.4bn.

Demographic trends influencing employment patterns
Demographic factors include age, sex, nationality, annual income,
background, colour, etc. These factors put a greater influence on the pattern
of employment in hospitality industry. The main reason behind this
changing pattern is that demand of the consumer is changing due to which
employment pattern has to be changed. The hotel industry seeks to employ
young as well as experienced candidates. It is because, young employees
provides creative ideas which will help in building innovative services for
the changing demands of consumers. On the contrary, it also wants to
employ experienced candidates so that they can implement those creative
ideas as per the market trends. The age factor has influenced the
employment patterns in IHG limited. Furthermore, gender is also one of the
factor which has impacted the employment pattern. For example, hotels
mainly hires male candidates so that they can devote more time to the work
other than working hours

Contd.
This way discrimination get created which are against law. Hotel
industry thinks that male candidates can bring more market
opportunities rather than female employees. In addition to this,
education also matters in this hotel. For this purpose, educated
employees are hired and this limit the employment of people in
UK. As in this sector, unskilled employees cannot be hired. Thus,
employment has to be done by inquiring about the educational
background. If any person is having less education than they can
be hired for the purpose of washing, cleaning, laundry, etc. This
way discrimination is done in this sector. Therefore,
demographic trends impact majorly on the employment patterns
in InterContinental hotels group.

Analysis of social structures of people employed in hotel
Analysis of social structure of people who are employed in
InterContinental hotels have been done. Social structure basically refers
to as the interaction of employees who are employed in the company
with other staff members. It also involves building relationships with
their customers society. This further helps in establishing the long
lasting relationship with their customers. Further, the employment is
done on the basis that how interactive a person is in accordance with
the customers. In InterContinental Hotels Group, a candidate with
higher education is hired so that they should possess the knowledge of
interacting and building the relations with the society. Further, the
employees of IHG also possess highest interpersonal skills which help
them in interacting with the customers in an effective manner which
ultimately helps in increasing the repeat business.

Contd.
Moreover, the company employs all those people who have highest
qualification which aid them in interacting with the people. Further,
company also focuses on providing training to the workforce in order to
enhance the interpersonal skills among the employees. This way social
structure of the firm can be improved more. To gain competitive edge
among their rival companies hotel organization adopt wide range of
employees that render quality services to customers according to their
class and income. The structure in IHG regulates the interaction among
employees and customers. The structure in hotel provides guidelines to
the employees within the cultural norms so that cultural values and
beliefs of customers never get undermine. The guidelines within the
cultural norms help in achieving the goals and aims defined by the
company.

REFERENCES

UK Labour market, 2014. [Online]. Available Through:
<http://www.economicsonline.co.uk/Competitive_markets/The_l
abour_market.htm>. [Accessed on 15th Feb 2016].
Chart of the Week: UK Income Distribution, 2013. [Online].
Available Through: <http://www.economicvoice.com/chart-of-
the-week-uk-income-distribution/>. [Accessed on 15th Feb 2016].
Economic contribution of UK hospitality industry, 2010.[Online].
Available Through: <http://www.bha.org.uk/wordpress/wp-
content/uploads/2013/08/BHA-Economic-Contribution-of-UK-
Hospitality-Industry-Final-.pdf>. [Accessed on 15th Feb 2016].

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