Different concepts and theories explain the environmental factors that can affect a business. The concepts are categorised into two, internal and external environmental factors. Internal environment factors refer to the spheres within a company that can be controlled by the firm management and employees. The factors determine the daily operations of the business and their efficiency (Contributor, 2015). An analysis of the internal factors involves an examination of the firm capabilities, competencies and its overall competencies within the industry. The three can be accomplished through SWOT analysis theory. The theory looks at the strengths, weaknesses, Opportunities and the threats of the overall internal factors. Some of the factors include marketing where the firm anticipates the customer needs and looks for ways of meeting its customer expectations. The satisfaction of the customer needs involves the provision of better goods and services and distributing or selling them at affordable prices. The main spheres in this segment involve customer analysis, researching the market, product planning and looking out for new opportunities. Secondly, we have the financial factors of the firm which is the most competitive aspect of the firm. The firm’s investment decisions such as funding are pegged in this segment of the internal factors (Indris and Primiana, 2015, 3). The daily functioning of the overall operations of the business is dependent on this section. A SWOT analysis looks at all the opportunities and threats the segment faces in the study of the internal factors. We also have the operations segment. The sphere is responsible for the overall transformation of inputs into final products ready for consumers. Analysis of this section majorly involves the determination of its efficiency in meeting the final production requirements. Another internal environmental factor is the Human Resource section (Indris and Primiana, 2015,4). A firm is nothing without the people that make it tweak. The direction of communication, employee motivation, and their compensation are the most important business concepts in this section to achieve a competitive edge over other firms.
Moreover, the firm has to continuously improve the skills of the employees annually to ensure business operations remain efficient throughout the fiscal year. Lastly, we have the management information system. The internal factor is responsible for the control of operations such as business transactions. The system determines the overall efficiency of the entire business process. All these factors are examined through a SWOT analysis (Gasparotti, 2009).
The external environmental factors refer to all those factors that are not within the control of the organisation. The business has to conform to the prevailing external environmental conditions since they cannot change them. External environment factors are commonly analysed through the PESTEL analysis. The factors that affect the business include government policies and laws. For example, we have regulations and taxes. In the event of new taxes and regulations, the firm has to look for ways of conforming to and abiding by the set rules. Secondly, we have the level of the economy and the economic conditions. The business has to work according to the prevailing economic conditions. Such conditions include depression and recession. These conditions affect productivity and the overall profitability of the firm (Indris and Primiana, 2015, 2). Change in technology is another external factor. In the case of a change in production technology, the firm has to adopt the new technology to improve its production process and increase its level of efficiency. The firm also has little control over the socio-cultural set up of a given population. The traits include the age distribution, beliefs, and tastes. The business has to understand these traits before venturing in a particular cultural set up within a population. Lastly, we have political factors that can affect the overall functioning and operations of the business. In case of a political turmoil, it is improbable that the firm operations will normally be resulting in profitability, unlike a healthy functioning environment.
Macro and microeconomic concepts
In an industry that many regard it to be falling, Walmart continues to surprise many through its ever-good financial performance. For some time, people thought Walmart was going to be faced out due to the changing shopping patterns all over the world characterised by e-commerce. The emergence of e-commerce threatened the profitability of the global giant, but for the last five years, the firm has witnessed a new resurgence thanks to the adoption of new microeconomic policies. According to Bowman (2018), Walmart has seen a significant revival thanks to its flexibility. The rise and threat of Amazon necessitated these changes. Specifically, many consumers prefer online shopping nowadays. Amazon became the king of online shopping and its venture into Walmart line of business meant that the giant firm was going to be crippled. However, the firm over the last five years had witnessed significant transformation beginning with the change of the CEO in 2014 when the company was almost going into a crisis. The demand for its goods was significantly low characterised by low sales volume. The CEO made many strategic decisions that propelled it back to its global status.
The firm first had to adapt to the economic conditions of the time. Supply and demand for online shopping products had been on the rise. Over the past five years, the firm had to adapt to the current trends in consumer habits all over the world. Also, the demand and supply for labor have been a big issue for the firm. Although it has employed a large pool of people all over the world, the wage rates keep on increasing. The firm adopted a new wage structure that attracts and motivates its employees. Despite the changes in the interest rates, the company surprised many this year by reporting earnings per share of $ 1 against the expectation of many. The firm reported record revenue of $ 117.5 billion this year which translated into an annual growth of 1.4% (Efron, 2017). The adoption of e-commerce characterised the rise in the firm's revenue through online shopping which has seen its digital sales go up to 63%. The growth of Walmart is the exact opposite of other giant retailers of the globe who are currently struggling. The strategic decision taken five years ago has increased its share prices, unlike other firms whose share prices are steadily plummeting. For example, Macy’s, its main competitor in the U.S has recently reported a decline of 17% in share price (Efron, 2017). Generally, the retail industry sector has been depicting a negative performance regarding price. One of the major strategic decisions undertaken by the CEO was to improve its online grocery sales but at the same time strengthen its sales in stores (Schmidt, 2018). The firm has also attracted a large customer base that marches demand and supply levels. The demand for its products has significantly increased over the last five years. A good macroeconomic environment has strengthened the rise of Walmart in the last five years. In the previous five years, low risk of factors such as inflation across Europe and U.S.A have been witnessed. Unemployment levels in countries such as the U.S and U.K have been low making the demand for its commodities to be significantly high over the past five years. The risk of economic factors such the geopolitical environment and regulations have been minimal which has translated into a sound business environment over the past years (2018 ANNUAL REPORT, 2018, 11). Arguably, their best strategy aimed at increasing their demand and supply of commodities was the purchase Jet.com. In 2016, the firm bought the online platform for $ 3.3 billion (Bowman, 2018). Two years later, the acquisition has proved to be the best answer to Amazon competition evidenced by the current high demand for its online products.
Effects of changes in demand and supply
The changes in demand and supply affect the market equilibrium both in terms of quantity and prices. Retail stores in the U.K is an example of an industry that is always affected by changes in these two factors. For example, due to customer preferences and tastes and also due to effects on the pound as result of the Brexit vote the equilibrium can be altered. Demand changes affect price and quantity demanded in a correlative a manner. When demand for a good in the retail industry decreases, the prices will fall and at the same time quantity will decrease. The reduction in demand leads to excess supply that necessitates a fall in prices (Economics, 2018). This can be caused by increased savings, reduction in wages and high inflation rates. On the other hand, an increase in demand for a product results in increased prices and quantity of goods produced since suppliers tend to provide more at a given high price. High demand can be caused by an increase in real wages, low inflation and increased consumer tastes and preferences.
On the other hand, change in supply has an opposite relation with regards to price and quantity. For example, if supply for commodities in the retail industry increases, the products equilibrium price will go down while the quantity will increase. The concept is because of excess supply at the original retail prices which eventually results in price reduction while demand increases. When supply decreases, the market equilibrium prices will automatically increase. The consumer will demand less of the commodity. When supply falls, then we have excess demand. The reduction in supply can be caused by reduction or devaluation of a currency, technology changes that result in high cost of production or high inflation rates that make imports expensive such as oil that is used in the production process.
Case scenario
The two cases below describe the impact of changes in demand and supply in the retail industry. First, due to the Brexit vote, Sainsbury suppliers were negatively affected. At first, the pound was stable, but it eventually declined due to the uncertainty of the vote making imports to be very expensive. One particular commodity is oil which became expensive. Oil is used for production hence the cost of production went high. The high production cost was passed on to the supermarket by these suppliers. The CEO of the supermarket argued that the consumers had to be shielded from the effects of the low pound value. Although the firm did significant mitigation, some minor costs had to be passed on to the consumers. The impact of this translated into Sainsbury reporting a drop in pre-tax profit of 10% while the dividend payout was also reduced (Butler and Monaghan, 2016). The low benefits were due to the mitigation of prices and even a low sales volume due to a reduction in demand as a result of high supplier cost.
Another case scenario of change in supply and demand is the case of Tesco supermarkets in 2015. The scenario was positive where both supply and demand increased at the same time. The increase in demand as reported by the firm was due to the rise in consumer tastes and preferences. According to statistical data, consumers were going to increase their demand by 20% due to a reduction in allergies (Tesco, 2015). In this case, the high demand did not affect prices since the supplies were willing to produce more at the original prices. The change in the equilibrium in this case only affected the quantity supplied and demanded but had little effect on the prices of the commodities sold by the supermarket.
Role of financial intermediaries
Most organizations cannot do without financial intermediaries. The financial services are very crucial for the long-term survival of these businesses. UK. financial intermediaries such as banks are needed to keep a clear flow of funds within the British economy. Retail firms in U.K such as Walmart, MacDonald, Tesco, and Sainsbury among others rely on the services of financial intermediaries to keep their operations running. It is because of these financial intermediaries that retail firms can deposit money after sales and request for loans to implement any investment decision. The financial aspects of the retail stores from debts, dividend-paying, employee compensation, tax payment to credit payments are all hinged on the services offered by these financial institutions.
Moreover, insurance payment and spreading the risk of these retailers is pegged on the services of financial intermediaries. Examples of these financial intermediaries in the UK include HSBC Holdings, Barclays PLC, Santander, Schroders, and Lloyds Bank (CFI, 2018). The financial intermediaries perform many functions which act as the main service that the retail industry needs. First retail stores need expansion hence managers have to make investment decisions on when to open new stores, acquire online buying platforms among other investment ventures. To achieve these investment opportunities, then the retail industry has to approach banks for investment loans. The banks will analyse the financial performance of the retail stores through ratio analysis and determine the amount of credit to extend to these retail firms. Secondly, the primary location where the retail firms save and deposit their daily sales is through the financial banks. Retail firms frequently put their savings and daily revenue generated in banks to preserve the security of their money. The financial intermediaries provide the best convenient way for retail stores to make transactions on a daily basis. For example, payment of suppliers can be conveniently done through the banking system. The payment only requires an online authorisation from the finance department to make a funds transfer to a supplier account. It is imperative also to acknowledge that financial intermediaries are not only banks, they also include Insurance firms. Insurance firms are very instrumental in mitigating retail firms against risk. The risk can include financial losses, fire, and accidents. Through insurance, the firms are protected from any unforeseen circumstances. Currently, we have business concepts like hedging and futures. Retail businesses have to take measures to make sure that future changes in prices of supplies do not affect the budget plan. As such, risk mitigation mechanisms such as futures must be utilized through financial intermediaries to guarantee this protection. Currently, we have retail stores that also have their financial intermediation mechanisms. Presently, we have supermarkets who want to get a direct touch with its customers or consumers (Peachey, 2018). The only way to realise this is through the offering of financial services directly to them. For example, in 2013 Sainsbury acquired 50% of its overall banking business which was controlled by Lloyds for some time. The acquisition was at $260 million (Neville, 2013). Currently, it has full control of its banking business operations. The same concept was started by Walmart which provides financial services to its consumers. The firm has come up with credit cards and many bank branches near its outlets that allow consumers to purchase products using its financially provided platform. Retail stores cannot do without financial intermediaries. The daily running of the businesses from selling to the payment of its suppliers is pegged on the efficiency of banks and other financial institutions. Today, we have a digital payment system where banks generate transactions of online stores automatically where such funds go directly to the banks although the retail stores continuously monitor the flow of funds to the banks at a branch level.
Zenobia Plc
The firm has a strong ability to meet its short-term financial obligations. For example, it has a current ratio of 1.2 which has been stable for two years. The quick ratio is also stable at 1.1. From the ratio, the firm can easily pay its suppliers in the short run. However, the firm has a long debt payment period. It takes a long time of more than three months for debtors to pay which has remained the same for a two-year period. The firms stock conversion period is very efficient. The inventory is easily converted into finished goods and sold showing the firm to be operationally efficient.
Present value
PV = C1/ (1+ r) n
1550 by 3
= 4650/ (1.0375)3
$4163.79
Interest = 486.21
Greenford Project
NPV
NPV = C/ (1+ r) n
30,000/ (1.0675)1 + 25,625/ (1.0675)2 + 26,000/ (1.0675)3
+ 30,000/ (1.0675)4 + 75,000/ (1.0675)5 – 150,000
= -$831.86
Greenwhich project
NPV
C/ (1+r) n
60,000/ (1.0675)1 + 30,000/ (1.0675)2 + 25,000/ (1.0675)3
+20,000/ (1.0675)4 + 40,500/ (1.0675)5 -175,000
= -$27,299.72
The two projects are not viable investments. The first project has a negative NPV of -$831.86 while the second one has a negative NPV of -$ 27, 299.72. Although the first project has small negative NPV it is still not advisable to invest in it.
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