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Part 1 Background
The Business environment consists of a microenvironment and macro-environment. The microenvironment comprises the forces close to company and affect its ability to serve the customers, such as suppliers, competitors, labour market, financial institutions, and etc. The macro-environment ¡°can provide and overall picture of the variety of forces at work around an organization¡±, they conclude political, economic, social-culture, technological, and legal influences (PESTEL)( Johnson and Scholes, 00, 14). Those forces affect a wide variety business and influence not only local and national sources but also from international development.
Actually, microenvironment and macro-environment become intertwined and have repercussion each other. For example, IT development converted the whole society greatly, not only the type of doing business has been changed dramatically, but approaches of management within the business in every level have been more different comparison with traditional ways. Moreover, the change provides more business opportunities, in the same time, it is inevitable to follow more threats in the business. So it is vital importance to realise the complex business environment and cope with all sort of challenges in order to satisfy the customers and maintain businesses successfully.
My report focus on two companies, which are in software industry--- Sage Group Plc ( UK ) and UFSoft Co., Ltd (China) (Appendix 1). By evaluating different business environment which they are respectively surviving in, through PESTES business analysis, trying to identify some different approaches which they carried out in volatile and dynamic business world.
Part PESTLE Analysis
1. The Political Environment
The political environment has an effect on business activity, from political system and its institutions and processes, to specific issues related with the government environment in the working of the economy and effect of the market (Worthington & Britton, 000, 8). The factors, which the political environment consist of, such as government stability, taxation policy, foreign trade regulations, social welfare policies and the government activities and pressure group, both directly and indirectly, not only influence, but limit various organizations. In many developed economies, legislation affecting business has increased steadily over the years. Legislation has been enacted for a number of reasons. From a market¡¯s standpoint, the first reason is to make companies unfair in marketing competition. The second is to protect consumers¡¯ benefits from their consumption behaviour. The third is to protect the interests of society against unrestrained business operation. Regulations are designed to ensure that organizations have to be responsible for the social cost of their production or products.
The UK¡¯s, as a developed country, political environment is sophisticated and stable, and its legislation encourages competition in the marketplace. As a developing economy, Chinese legislation is being still reformed. Plenty of blank spaces need to be legislated, to do so, more marketing behaviors can obey the corresponding legal. At present, the Chinese government is accelerating to issue and review its legislation. For example, there are around 000 articles of regulation to be revised in recent years in order to meet the needs of the market economy (CPCC news, 00).
Looking at the wider international picture, there are many tapes of constitutions in different country. Hence, the degrees of political influences on business vary from country to country, political impacts are external forces that companies can¡¯t control. Wherever companies are, they are strongly affected by the natures of the political environment.
1.1 Sage Group Plc
--Development of Small and Medium Enterprises (SMEs)
Sage set up their mission through successful practice, they confirmed ¡°to be the leading supplier of business management software solutions and related products and services to the small and medium-sized business community worldwide¡± (Sage,.Web site, 00). So far, they are providing products and services to million SMEs sized businesses worldwide.
Obviously, the quality and quantity of SMEs will influence Sage¡¯s marketing strategy strongly. Positive policy of encouraging development from the government may create more opportunities for SMEs, so that Sage will obtain a larger business space. However, if the policies lead SMEs to comedown, Sage would decrease market share and get poor performance. For example, once American and British economy become recession because of possible war against Iraq, probably, some SMEs will bankrupt. Consequently, some of customers will be lost from the market. The influence will be determined by the governmental decision making.
--Taxation Policy
Taxation Policy is focused by software industry. It impacts development of Sage. The government gives some tax exception to them, they will survive better than they were. For instance, one of main reasons which software industry developed in America in the latest decades, one of most important reasons is that the government administered a serial of priorities to stimulate its progress.
--Anti-Piracy policy
Anti-Piracy policy from the government and business software alliance will influence the business performance heavily. Illegal copy in America and EU was very serious, UK and EU Software Industry suffered largest financial loss (BSA, 00).
1. UFSoft Co., Plc
--Protecting private possession
Before 17, there were few private businesses in China. UFSoft became number one software producer, they experienced a tough development process. So far, they owned over half billion asset and around 50% management software market share. The shareholders of company focus on the policy to protect private possession very much. They wish the government keeps a constant economic polity and encourages private businesses extending quickly. To ease polarized gap between rich and poor people, by improving social welfare, not ¡°killing rich to save poor¡± policy.
--Entering WTO
China has entered the World Trade Organization in late 001, and the wider availability of consumer credit combined to propel demand( Financial time, 00).
After then, more international software providers desire to occupy a place in Chinese marketing. So far, SAP¡¢ORACLE etc software producer grants have entered the Chinese market and became main competitors with UFSoft, clearly, UFSoft have to cope with a serious competition in the coming years..
--Special priority in tax policy to the software industry
The government issued a serial of priority tax policy in order to stimulate the industry accelerating growth. Particularly, the software companies, which are situated in recognized high-tech areas can only pay % income and profit tax, such as zhongguan village high-tech district in Beijing, which is location UFSoft headquarter is.
--Keeping close relationship with the government is crucial for UFSoft.
In spite of they are private business, however it is easy to be intervened as well as the government think that they are too aggressive. The company has to spend more time maintaining the relationship with the government and suffering the bureaucracy and corruption from the governors.
. The Economic Environment
Butel, L.et al.(1,10) state, ¡°The economic environment of an organization, whether in the public or the private sector, includes the macroeconomy of the country and as well as the industrial sector environment of the organization itself¡± There are many indicators to measure a nation¡¯s economy. Such as gross domestic product (GDP), household disposable income, unemployment, etc. We can explain them by the trade cycle. The consumption of most goods and services tends to increase during prosperity and to decline during recession.
In the UK, the businesses compete in the free market. In the last five years, a recession influenced the increase of economy. However, IT and high-tech had a strong growth, increasing demand put upward supply of software industry. In spite of the amount of SMEs increased slowly (001,.8m; 000,.78m; 1,.7m), (SMEs, 00), its transformation inside still provided larger market to Sage, even including USA and EU market.
Market economy has been forming in China, both demand and supply are in sharp increase in recent years. The emerging huge market provides plenty of business opportunity, most companies are undergoing large changes. Although the Chinese economy was influenced by the Asia recession in 18, it still keep high growth rate. Let us look at the economic figures in 001 below (GolbalEDGE, 00)
Items China UK
GDP purchasing power parity $5.56 trillion $1.47 trillion
GDP real growth rate 7.% .4%
GDP per capital $4,00 $4,700
Industrial production growth rate .% -1.6%
Inflation rate (consumer prices) 0.8% 1.8%
Figures show us, in spite of the economic gap is very big, such as GDP (per capital), UK is nearly 6 times than China,, however the two growth rate offer us a future sight of China economy. The inflation is reasonable, only 0.8%.
.1 Sage group plc
As an international firm, not only the domestic economic environment influences Sage¡¯s business operation, but the international economic environment impacts on it.
In 10s, new economy which has been growing fast stimulate shareholders asking a high expectation to Sage. Under the economic circulation, Sage changed their maketing strategy and aimed at American and European market. By the merge and acquisition local software companies, turnover and operation profit increased quickly. For example, its turnover increased by 60% in 1. So far, Sage became a world class PC-based accounting software company in the world.
. UFSoft Co,. Ltd
In the end of 10s, recession in Asia influenced the Chinese economy. Most of enterprises was coping with surviving, and lack of ability to improve management system. Consequently, software industry fell down low valley so the cost per unit raised a lot and result poor financial performance.
After the recession, the demand was stimulated by attractive economy. They carried out successful marketing promotion and got an excellent return. Nevertheless, at that moment, competition was very serious and threats from the competitors challenged the UFSoft.
. The Social Environment
Society is changing at an increasingly rapid rate. Changes in population demographics, income distribution, social mobility, etc, have profound implications for business organizations (Palmer, Hartley, 00,78). There are three forces in the social environment related to organizations¡¯ activities.
--Population demographics. Changing of population size and growth trends, changing age structure of population, and rising number of educated people affect recruitment, training, and redeployment and promotion policies of organizations.
In the UK, the proportion of old people are increasing. In China, the huge population has become a burden to the government. However it gave the market particular needs and opportunities.
--Culture and subculture. It is crucial for a company to appreciate the value of society. In particular, when a company plans to do business in other country that is quite different with its own.
--Lifestyle changes. Software product change people¡¯s lifestyle. In businesses, employees desire to get rid off from heavy daily working in financial department. Demand for accounting software made the market expansion, and wide range application of management software became possibility. However, in the UK and China, people¡¯s lifestyle are in different level. It effects business budgeting on management software with slight difference.
--Consumer movement. Nowadays, there are a lot of groups and organizations seeking to protect the right of consumers in the UK. Chinese customers have started to be concerned about their rights since 10s.
.1Sage Group Plc
--Family composition. There are over 5500 employees around world, most of them are in western countries. Sage have to face such a fact, which more and more employees divorced and became single parent. The phenomena influenced employees concentrating their job as a whole.
--Local communicates. They built up Student Relationship Development( SRD) and have been keeping close connection with colleges and universities, offering a opened practice for students and teachers who are interested in communicate with Sage ( Sage Website, 00)
--Effect of culture on business. Sage understood the buyer behavior, one way which they promote the products is through Partner with accountants. By research, they found that most of the customers used to get advice from its accountancy before making decision to buy accounting software. Because they trust their accountants to help them purchase, install and use the most appropriate financial software for their business.
Sage has branches in other European countries,
Headquater is situated in small town.
. UFSoft CO,.Ltd
--Corruption culture. UFSoft has fit in with all kinds of corruptions, which are universal in the Chinese culture. Usually, the corruption and the use of bribes are endemic in the local culture and essential for UFSoft business success.
--Understanding process of buyer behaviour. UFSoft has occupied over 50% management software market now by their reputation. However, 10s, it was the most effective approach to promote software products through the local government¡¯s power. By partner with accountants like Sage, UFSoft would fail in their businesses.
--Providing integrated management software product. In China, a growing number of companies became financial richer, but time is poor. They want to improve management effectively and efficiency. Considering about this, UFSoft launched ERP( Enterprises Resources Planing) and have become the largest ERP provider in China so far.
--The spirit of company and training. There are over 000 employees in the UFSoft, at present. It is vital to reserve the high quality employees through understanding the spirit of company and necessary training. Those have been necessary condition which the employees require to UFSoft.
4. The Technological Environment
Palmer, Hartley (00,418) point out ¡°The business environment is at present moving through a dynamic and turbulent phase driven by technological change, globalization, and increasingly competitive markets.¡± Nowadays, businessmen should make clear the degree that new technology influences on their businesses, because the environment is always changing and throwing out challenges. For instance, product life cycles are becoming shorter than it was. Most of high-tech companies must concern with development in the technology environment that lead to product innovation and obsolescence. New technologies can create new markets and opportunities and develop new goods and services to be offered to consumers, meanwhile, the business will be given more threats from the dramatically change.
In western country, such as UK, the technological innovations require more investment in research and development in large companies, especially in the software industry. Many companies are transforming organizations to the digital economy, they try to improve their businesses through information technology.
In China, technology has changed dramatically. Not just due to the new economy coming, also due to its poor past. Hence, the effect of technology developed rather than the western countries. Most companies are busy at renovating their equipment and chasing new technology. Particularly in recent year, more and more product ¡° Made in China¡± are being spread around the world. Obviously, they have to suffer more problems, and as possible as to increase productivity and quality, and enable business process reengineering by applying new technology.
4.1 Sage Group Plc.
--More complex and flexible customer business. As a software provider, Sage has to fit to individual need from their customers and maintain the business successfully. For example, in 00, many customers choose to upgrade the current system to the most recent version release and meet the need of business development.
--Selling on line. The Internet and IT accelerate selling software product on line to be possible. Whenever and whenever, it is possible to chose the software products from the Sage. New technology can lead to sell product without limitation.
--Overseas investment. Sage¡¯s overseas investments will be a main part of its profits in the future. The Internet and IT make a possible a global economy. The customers can chose the most appropriate software and service for their organizations. This will bring opportunities to Sage in the global markets. Sage has been investing in European countries and US since the end of 10s, such as France, Germany.
4.UFSoft Co,. Ltd
--Government and industry focus on. The Chinese government has focused on accounting information technology since the middle of 10s. They called on the enterprises improve accounting information system, and increasing productivity effectively and efficiency. The approach, actually, provided enormous business chance to UFSoft ( Sina, 00).
--New discoveries and development. In fact, Microsoft technology solved basic problem in accounting application software, such as spreadsheet technique. Before this, financial software didn¡¯t have uniform platform, it was very difficult to cope with the complicated business transactions by antique technology.
--Research and development. In the middle of 10s, the Chinese government had a budget on software industry R&D, however, the funds trended falling. Thus effecting very much decline of the industry. Some of the software companies had to switch its business dimension.
UFSoft invested near 10% of revenue on expenditure of R&D in 00. Their purpose is to follow technology change closely. So far, they keep plenty of best software designers, such as ERP specialists, who will create huge profit for the company in the coming years.
5. The Legal Environment
Understanding the legal environment will help us to identify the key legal challenges and opportunities facing business organizations, particularly the relationship with customers, suppliers, employees and intermediaries (Palmer and Hartley,00, 1).
There are some general main laws influencing organizations¡¯ activities.
1.Company Law and security Law. At present, in the UK, according to Company¡¯s Act 185, a company may be incorporated in one of three forms limited by shares, limited by guarantee, unlimited. The Company Law defines the different responsibilities of different types of companies. Chinese Company Law was established after 181, later it is adjusted regularly. Security Law is vital to public limited company in China, such as UFSoft..
.Contract Law. The Contract Law is very essential to protect suppliers, buyers, as well employees and financiers. Conflicts often are occured between suppliers and buyers because of ambiguous contracts in China. We have to note that different country¡¯s differentia of the Contract Laws. Therefore, international company often find they have to cope with the different items.
.Employment Law. The relationship between employers and employees is very important for organizations¡¯ long-term development. The law requires firms to provide protection to their employees in term of training, working hours, health and safety, contract of employment and so on. Although the details in the UK¡¯s law and in the Chinese law are different, both are concerned about employee¡¯s rights.
4.Law and the Internet. The development of the Internet doesnt change the principle of the law, however it would make something unclear to deal with sometimes, such as unlawful copying of download from Internet which effluents business strongly. The EU countries have begun to introduce into national legislation a 1 on electronic signatures((Palmer and Hartley,00, ).
5.1 Sage Group Plc
As an international company, Sage has frequently met such legal issues.
--Company Law. Sage has implemented its strategy of expanding by acquisition across EU and US (Financial Time,00). Almost every subject, Sage has to focus on the law in different country very much, importantly, they built up good relationship with lawyers and got a serial of successful mergence and acquisition.
--Contract Law. It is very important to cooperate with accountancy, developers and resellers. Meanwhile, to confirm the right and responsibility explicitly between Sage and them is crucial in the collaboration.
Copyright protect. Illegal copy was very serious in EU and US, in spite of piracy and unlawful download is eased, Sage still cope with may hard work.
5.UFSoft Co,. Ltd
Changes in the legal environment require UFSoft to change its policies.
--Security Law. In 00, Sage has being listed in stock exchange market, at one time, it was reformed to public limited company, and since then, it is restricted by Security Law. In the corporation governance, they realized that they are more different than they were.
--Employment law. In China, there are not real union which represent employee¡¯s benefit in every industry, so that employee concern about contract with employer. In practice, it is frequent to have a conflict between the labour and capitalist. Sage has to carry out the issue prudently.
Part Recommendation
UFSoft and Sage are have their competitive advantage in the business environment. However, Both of them still have a lot work to deal with and achieve their high business goal.
--UFSoft should have more focus on SMEs. In China, SMES, particularly in manufacturing, is in a rapid growth(001,.8m; 000,.5m)( China Statistics,00). It will be a huge management software market for UFSoft. The strategy of developing SMES market would create a broader marketing offering.
--In the supercompetitive global market, Sage should have a stronger competitive strategy to maintain their business. For example, rival from microsoft recently in US market is Challenging Sage. In order to cope with the threat, they should restructure operations in America as soon as possible.
Part 4 Conclusion
Generally speaking, changes on the business environments influence organizations¡¯ activities significantly. These changes can create uncertainty, threats and opportunities for organizations.
Through the PESTLE analysis, we know although UFSoft and Sage are in different countries, to survive in the markets, both have to react to the dynamic environments and try enhancing their market share substantially.
Appendix 1
About two companies
In the report, I will analyse two companies, both of them are in software industry--- Sage Group Plc( in the UK )and UFSoft Co., Ltd(in China). They are emerging software companies, which list on London and Shanghai stock market. In essence, they are very successful in its business, however they have distinctive strategy and implementation to cope with the complex business environment. That is main aspect which I¡¯m interested in.
As a local software company, UFSoft has over 60% market share in financial software and % ERP(Enterprise Resource Planing) in China (UFSoft,00). They are targeting at international software market and has ambition to become one of top software providers in the world before 010.
Sage is a UK based global software company, it is number 1 maker in accountant software in the world (CNNmoney,000). They provided management software and related products and services to million small and medium sized businesses worldwide.
( China Statistics,00)
Bibliograph
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Financial time (00) Sage in the hot seat, FT on line. Available from http//news.ft.com/home/uk/
FinanceSina, (00), Reviewing Financial software in China. Available from http//finance.sina.com.cn/
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Johnson,G, Scholes,K (00) Exploring Corporate Strategy 6th ed. London, Prentice Hall.
Palmer, A, Hartley, B (00) The Business Environment.4th ed. Maidenhead, McGraw-Hill Education.
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UFSoft wabsite,(00) UFSoft Become Number Software Provider in China Market. Available from http//www.UFSoft.com.cn/
Worthington, I. Briton,C (000) The Business Environment. th ed. London, FT Prentice Hall.
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