The Competitive Business Environment

Businesses have to compete in a competitive environment. This means that they are not the only business providing a particular good or service (product). Consumers usually have a choice on what they spend their money on, for example if you wanted to buy a new mobile phone you would have a number of different models made by different manufacturers to choose from. Normal consumer behavior predicts that if the product is identical or very similar you will choose the cheapest.

However, consumers are normally prepared to pay a higher price if they think that the quality of the product is higher, or if the product has a unique selling point (USP) that makes the product stand out from the rest. When choosing your mobile phone, if the price is not a concern then you will consider the functions and features of the phone and also which one will impress your friends!

Products are sold to consumers in markets. In early societies there was only one kind of market where producers and traders would go from town to town to sell their products. Today these physical markets still exist, but there are many other places where consumers can buy their products – market stalls, shops, online, catalogues, etc.

A market is any place that brings buyers and sellers together so that an exchange of goods or services can take place.

The term ‘market’ is also used to categorise different types of products and there is a market for every product or service. For example there is a market for cars, insurance, holidays, takeaway food, private health care, Valentine’s Day and so on.

Different markets will have different levels of competitiveness. The more sellers in the market the more competitive it is likely to be. Some markets are dominated by very few and large businesses, so these are considered to have reduced competition.

Successful businesses are the ones that meet the needs of consumers better than their competitors. A business can make its products more appealing by the following factors:

• Cheaper prices

• Better design

• Better quality

• Advertising

• Promotional activities

• Making them available

• Attractive packaging

• Having a strong brand identity – making it more recognizable and stand out from the competition.

If a business fails to recognize the competitiveness in the market it competes in it is likely to struggle and gain the sales in order to create enough revenue to be successful. However, if a business is able to successfully compete in the market it is likely to create a good level of revenue and be successful.

The Dynamic Business Environment

The business world does not stand still, business activity is constantly changing, in other words, it is dynamic. Businesses have to respond to these changes to remain competitive. The business world can change in many different ways; a successful business must recognize these changes and make sure it is not left behind. To remain profitable a business cannot just stand still, what made the business successful yesterday will not automatically make the business successful tomorrow. The rapid growth in selling online via the internet (e-commerce) and more recently through wireless handheld devices, such as smart phones and tablets, (m-commerce) has drastically changed the way in which businesses can communicate and sell to their customers.

Consumers needs and wants are not static, their tastes, preferences, attitudes, demands and expectations are constantly changing. In addition, new production techniques, new technology, new competitors and new markets present businesses with opportunities (as well as threats) to succeed in a competitive environment.

Consider a business environment that did not change; consumers would be content with their products and would not create demand for new products as they would be happy with what they have already got. How would this affect business profitability? There would be no pressure on businesses to improve their products or look at introducing new products or new cheaper ways of producing the products. Technological developments would be much slower, or even not take place. A dynamic environment is needed to improve products and production processes in order to continually satisfy consumers' demand for better products which allows business to seek further ways of making higher levels of profit.

The dynamic business environment should be seen by most businesses as an opportunity and not a threat.

In addition to adapting the actual product, businesses can also respond to change by adapting the way in which they carry out their business activity, for example;

• Production methods can change

• The use of different materials and suppliers

• Using different promotional activities

• Changing how they distribute their products

• Changing the location of their business

• The way in which they communicate with their customers

• Selling the same products in different markets

• Changing recruitment and employment practices.

Change is not always imposed on a business, some businesses create the change themselves.

These businesses are proactive and may spend a great deal of money on research and development in order to bring a brand new product to the market, or drastically change an existing product.

The dynamic business environment is affected by changes in:

• Economic factors – such as changing levels of consumer income, unemployment, interest rates and the price of important resources such as oil and steel.

• Technological factors – such as new inventions, use of robotics, the expansion of information and communications technology and reduced cost of technology.

• Society factors – such as demographic, social and cultural changes, new tastes and fashions.

• Market factors – such as new competitors, change in strategy of existing competitors and new markets (the global market).

• Environmental factors – such as needing to source alternative materials, reducing pollution in the manufacturing of products and using renewable energy.

• Political factors – such as new regulation on business activity and change in political policy. The dynamic environment can lead to uncertainty. It is very difficult to predict what will happen in the future, especially when the pace of change is so rapid and unpredictable. However, a business must not stand still, if it does it is likely to fail. A business has no control over these factors, it is important that the owners or management of any business are aware of these factors and what effect they may have on their activities. If they do so, they are able to adapt their products and/or practices in order to remain competitive.

The Identification and Response to Business Opportunities

A business gets started when somebody decides that they can earn a profit by making a particular good or providing a service and selling it to people who are willing to pay for it. We all need to buy goods and services to live so we depend on other people to provide them, we are willing to pay for these if we feel that they are satisfying a need or want.

The desire to make a profit is often the reason why a business person will take a risk investing money into a business idea.

A business person is always looking out for chances to provide the goods and services we need and want. A need is something we cannot do without and includes food, water, shelter, clothes and warmth.

However, there are some things that we do not really need but which are pleasant to have. No one really needs a mobile phone, it is possible to live without one, but communicating with our friends is much easier if we have one. Most people like to have a TV, car, a summer holiday, make-up, comfortable sofa, etc., you could live without these, but most people want them. There are plenty more examples of our wants and a business person will provide these if they think they can make a profit from selling them.

In a dynamic environment, with ever-increasing wants, businesses are always on the lookout for opportunities to make a profit, often a business will attempt to encourage these wants through advertising campaigns and careful pricing strategies to make people want to buy them.

Identifying a new opportunity is not easy, many new businesses will fail with what they thought was a good idea, but was not a commercial success. It is important to carry out thorough research and work out the total costs of starting and running the business.

Important questions that need answering when identifying and responding to a business opportunity include:

• Who are the potential customers?

• What makes my product/service different?

• What will attract customers to my product?

• How will it be made?

• How much will it cost to make it?

• What other costs have to be paid?

• How many will I have to sell to make a profit?

• Where will it be sold?

• How will it be advertised?

• Do I have the experience and skills to make the business a success?

Scale of Business Activity

Business activity takes place at local, national and global levels. The scale at which a business operates will affect the way in which it carries out its activities and the profit it makes.

Local Scale

A business that operates at a local level is often small, limited in size, the number of people it employs and the revenue it creates. (Revenue is different from profit. Revenue is the number of sales made multiplied by the price charged to customers. Profit is revenue minus the costs.)

A small scale business is often owned and run by the same person and may employ a small number of workers. The business activity is based in a local area focusing on customers who live, or visit, the area.

Characteristics of local and small scale businesses include:

• Ownership – small number of owners, usually one person, the ownership structure is simple with clear communication.

• Finance - relatively low amounts of money invested in the business (low start-up costs), generates lower amounts of revenue with lower costs than larger businesses. Low levels of money are available for marketing activities, technological improvements and business growth.

• Market – a much smaller market than larger businesses, often serving local communities. However, many small businesses sell to customers across the world through the internet. Because of the low quantity they sell and the other characteristics present, these businesses are still considered to be small scale.

• Locations – usually focusing on a single area, many are run from home and do not have multiple outlets.

• Production – small scale, making small numbers.

• Employees – usually very few, owners will often staff the business themselves and may employ workers at busy times.

• Flexible – owners have to be willing to do what it takes to be successful, they will often have to be prepared to change the way they do things in order to react to challenging situations.

• Community based – attract loyal customers who see the business as a vital part of the local community.

• Technology – the growth of social media and blogs have been utilized by many small businesses due to its effectiveness and low cost.

Typical examples of local scale businesses include service or retail outlets such as local newsagents, convenience stores, butchers, florists, garages, pubs, restaurants and fast food outlets, taxis, plumbers, electricians and hairdressers. Small scale manufacturing and farming also exist as do professional services such as lawyers, accountants, dentists and vets. Internet-related businesses such as web design and computer services and programming can also be small scale.

Local scale businesses vary a great deal in their size; some will be owned and run by one person from home, whilst others may be a small company employing 20 – 40 people from a factory.

National Scale

A national business will operate all over one country. It may have multiple factories or retail outlets throughout the country and a distribution network to make sure it can distribute its products to where they are being sold. A national business will offer the same products or services, usually at the same prices, to customers all around the country or over a large area of the country.

Compared to a local business, a national business will have more resources to use in carrying out its activities, including greater amounts of capital (money available to invest in the business), more and different types of employees with a wider range of skills. This extra capital can be spent on more technical and efficient production processes, superior marketing activities, such as national TV adverting campaigns and attractive sales promotions, employing highly skilled workers and efficient support systems such as IT, legal services and transport.

The ownership of national businesses is more complicated than a local business, often having multiple owners and a separate management structure.

The market size of a national business is much greater than a local business so there is a great opportunity to attract a greater number of customers to obtain a high level of sales. The population of the UK is 65 million, for a national business these are all potential customers. When this total population is divided into cities, towns and districts it is clear to see the benefits of operating on a national scale.

It is easy to recognize the businesses that operate at a national level. They are well-known businesses that can be seen as you travel throughout the UK and tend to advertise on national TV, on billboards, in magazines and national newspapers. If suitable, they also tend to have highly developed websites which allow for online purchases with quick delivery times.

Supermarkets, like most other national retail stores, will have a consistent approach to all their outlets, many will look exactly the same, sell mostly the same products at the same prices. Buying a packet of crisps or a bottle of tomato sauce will be the same price in Bristol, Norwich, Manchester or Cardiff, and most likely be positioned in the same aisles next to the same alternative products. This consistent approach helps a national business create a familiarity with all its customers no matter what part of the UK they live.

The rise of the large supermarket chains has resulted in the decline in independent small scale retailers. Over the last 10 years the number of local retailers has fallen by a half, from 35 000 to 18 500.

Global Scale

A global business will operate internationally and throughout the world. This includes businesses trading with customers in one or two countries and businesses that trade with many countries across the world. The factors of trading at a global scale include:

• A much bigger market. The UK population is 65 million; the world population is over 7 billion. The population of Europe is over 740 million; the population of the USA is over 320 million. The potential to sell products to more people across the globe is an obvious attraction to businesses who wish to increase their sales.

• Manufacturing or sourcing products from different countries at lower costs. Some UK businesses may not have the necessary raw materials to produce in the UK or other countries may be able to produce some goods and services more efficiently than we can.

• Improved communications. The world is now a smaller place, the use of the internet makes it possible to trade efficiently across the globe. Service industries such as insurance services and customer help centers have made use of these developments. Improved transportation systems have also led to cost effective transportation of materials and products across large distances.

• Global brands. These are products and services that are recognized throughout the world. The same products (maybe with some slight changes for different countries) are sold in numerous countries are easily identified by customers. Coca Cola, Apple and Ikea are examples of global brands.

• Complicated ownership and management structure. Many global businesses or brands will be owned by a parent company who in turn will own other businesses. An example is when Facebook (the parent company) bought Instagram (the subsidiary). Facebook has bought other companies (including WhatsApp) and other computer/ technological based businesses.

A small scale business may be an international business; it may carry out its main activity in its country of origin, but may also import materials or products from other countries and export (sell) some of its products to customers in other countries. However, a small scale business will find it difficult to operate in numerous countries. Businesses who operate in many countries are usually large multinational companies that employ thousands of employees, manufacture and sell a large number of products and create vast amounts of revenue and profit.

Carrying out business activity at a global scale is expensive and complicated, most large global businesses will invest in factories, retail outlets and offices in a number of countries. There are numerous risks involved, however, the potential reward of increasing customer revenue and profit attracts many businesses to try and sell their products and services globally.

It is important to remember that all businesses in the same market are in competition. A market will contain businesses that operate at local, national and global scale. When deciding to visit a restaurant a customer can choose from a locally run café, a national restaurant such as Harvester, or a global brand such as Pizza Hut. These businesses have to compete with each other for the same customer. This is the same in many other markets and the customer’s choice may depend on factors such as:

• price

• quality of product

• choice of product

• advertising and promotional activities

• quality of the customer service

• location.