Its impact on the businesses of New Zealand in 2014
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External organisational environment of New Zealand and its impact on the businesses of New Zealand in 2014
Introduction
Since the past few years, increasing emphasize have been cast “on the importance of analyzing the relationship between the organization and its environment (Pfeffer, 1972).” Several researches have been made in order to understand how the external organizational environment, general environment and task environment affect business in a country. “Also known as the operating environment, external organizational environment refers to market conditions, economic and political issues on the local and national levels, demographic factors, and other forces outside of a business that affect the overall success of that business (‘External Environment’, n.d.).” On the other hand, general environment signifies the components that are common for all the businesses in a country. Again, task environment is the set of components that determine whether a particulate business will meet its target or not. The purpose of this essay will be to elaborate the influence of external organizational environment, general environment and task environment on business with reference to New Zealand.
Discussion
2.1. External organizational environment and its components
External organizational environment refers to the entirety of extrinsic factors that determines a company’s ability to perform in a country’s business environment. There are some distinctive components make up the external organizational environment of a country. While some of these “external elements can be manipulated by company marketing, others require the organization to make adjustments (Root III, n.d.).” The components that together make up the external organizational environment are customers, government, economy, competition and public opinion.
Customer is the first significant factor that determines the prospects of a business in a country. Therefore, ‘marketing’ and ‘strategic release of corporate information’ are the ways in which companies aim at influencing their target customers (Root III, n.d.). If customer behavior of New Zealand is considered in particular, it will be found that they present a characteristic switching behavior. The banking industry has seen maximum tendency of switching over of the Kiwi customers. Hence, “New Zealand banks have employed customer retention strategies to compete aggressively in a more competitive banking environment (Clemes, Gan & Zheng, 2007).” Foreign investors might have an equally hand time in trying to retain the loyalty of Kiwi customers for a long time. Further studies on New Zealand’s consumer market suggest that the country’s small population can be a bane for businesses. This is because they might experience limited demand from their targeted market along with “limited opportunities to leverage scale (Facts about New Zealand, n.d.).”
However, the lifestyle of the people of New Zealand appears to be a positive factor for the business circle. Although there is disparity in the average living cost of the Kiwis in regard to the area they live and the occupation they pursue, statistics suggest that “average Kiwi salary is $45k per annum” approximately. Thus, domestic and foreign investors can profit from investments in top earning Kiwi industries like “mining, electricity, gas and water supply, finance and insurance, government administration and defense, and wholesale trade. Investing in sectors like “accommodation, cafés and restaurants, agriculture, forestry and fishing, retail trade, personal and other services, and cultural and recreational services” will yield lesser profit in comparison ('Cost of living', n.d.). The per person GDP of New Zealand from the year 1860 to 2007 will suggest how business has been encouraged in the country.
Source: (Easton, 2013)
The next component of external organizational environment is government. “Government regulations in product development, packaging and shipping play a significant role (Root III, n.d.) ” in influencing the business prospects of both domestic as well as overseas investors in a country. Thus, it is being assumed that restrain on government’s spending will pave way for stabilization of the New Zealand’s business environment. The government of New Zealand has been consistently showing inspiration to trades and businesses. “Beyond the normal legislative business framework for New Zealand-based companies,” other investors are exempted from taking government approval in a number of sectors. However, the Overseas Investment Act of 2005 has imposed regulations on 25% or more overseas ownership acquisition of sensitive New Zealand lands, business assets like New Zealand securities and assets worth over $100 million, and fishing quota. Government agencies like Overseas Investment Office, Ministry of Business Innovation and Employment (New Zealand Trade and Enterprise, n.d.), etc. also aid the Kiwi government in supporting business interest of domestic and international investors.
The third component of external organizational environment is economy. The economic condition of a country determines the manner in which it will influence the companies that operate there, the manner products and services should be marketed, the investment that needs to be made for business growth and “the kind of target markets” a particular business will pursue (Root III, n.d.). Researches on New Zealand’s economy suggest that it is characterized by “a relatively deregulated and open economy.” The extremely low rate of corruption and economic freedom of the country encourage growth of domestic and international businesses (Grant Thornton New Zealand Ltd, 2011). As the economy grew at the rate of 2.5% in 2013, forecasts are that the growth rate will be 2.7% in 2014. Moreover, “New Zealand dollar is expected to remain relatively high against the US dollar and the currencies of other countries engaged in monetary stimulus policy.” The country has also entered into trading relation with Australia, China and USA (Facts about New Zealand, n.d.). Below here is the table of the annual export and import percentage between New Zealand and these countries.
The fourth component, that is competition, determines how a company does business in a country and how it addresses its target market. “Success and failure of your various competitors also determine a portion of your marketing planning (Root III, n.d.).” There has been relative increment in New Zealand's unit labour costs especially since 2000, thus portraying that “wages have been advancing ahead of labour productivity.” This indicates that the international competiveness of the country has decreased over the past few years. This factor can emerge as a deterrent for the “flows of trade, people, capital and ideas (The Treasury, 2012).” The graph presented below suggests per unit labour cost of the country from 1990 to 2011.
Source: (The Treasury, 2012)
The final component of external organizational environment is public opinion. Public perception of the image of a company or a brand determines its sales and profitability (Root III, n.d.). A case of New Zealand suggests that there as many as seventy breweries in the country. It is even estimated that the combined revenue of two big brewery brands, namely Lion and DB, reached “$1.07 billion in the year to September 30, 2012.” The primary reason behind the prosperity of these two brands in specific is that the mainstream Kiwi beer consumers prefer owing their loyalty to a particular brand. However, as they love experimenting with different tastes and flavours of beer, the brands keep on upgrading their product in order to enjoy consistent client retention (Adams, 2013).
2.2. General environment and its components
While the components of a typical external organizational environment affect a specific business, the general components are universal for the entire business ambience and indirectly affect all the organizations present in a country. Thus, the factors of general environment include economy, technology, socio-cultural components, and political/legal components.
Economy, which is the first component of general environment, signifies that the “current state of a country’s economy affects most organizations operating in it.” If an economy is prosperous in nature, it indicates that people present in it have greater purchasing power. Although it does not indicate that an individual business will prosper in that environment, it signifies that the overall environment is favorable for business ('Organizational Environments and Cultures', n.d.). Thus, if New Zealand is considered in particular then it will be seen that the country has open market economy. New Zealand’s economy is immensely influenced by international trade with USA, China, Japan and South Korea. In 2005, the World Bank has denoted New Zealand as the most business friendly country (McCarten, 2007). “New Zealand’s economic freedom score is 81.2, making its economy the 5th freest in the 2014 Index (The Heritage Foundation, 2014).” Thus, the overall ambience is in favour of supporting business.
Source: (The Heritage Foundation, 2014)
Technology, which is the second component of general environment, is the conglomerate of “knowledge, tools, and techniques used to transform inputs (raw materials ,information, etc.) into outputs (products and services) ('Organizational Environments and Cultures', n.d.). Forecasts are that the year 2014 will be a remarkable one for New Zealand as there will be introduction of “plethora of sensors in everyday infrastructure and cloud-enabled apps” for setting advanced connection with transport, environment, healthcare and many other sectors. Therefore, “human decisions through intelligent algorithms and data” will be replaced with futuristic technological up gradation (Walter, 2014). These positive changes will have indirect impact on the business in New Zealand.
The socio-cultural component, which is the third component of general environment, “refers to the demographic characteristics and general behaviour, attitudes, and beliefs of people in a particular society.” While change in socio-cultural aspect alters the manner in which a company will function in a business environment, it also determines the demand for a business’ services and products ('Organizational Environments and Cultures', n.d.). The most attractive feature of New Zealand’s socio-cultural component is its high cost of living. Although foreign visitors cannot get directly involved in the labour force, “visas or work permits are available under various categories for people wishing to work in New Zealand either on a temporary or permanent basis.” Long-term visas thus help in enriching manpower resource of New Zealand by “bringing valuable skills and qualifications” to the country. Although traditionally the skills of native Kiwi population were in production and construction, they have diversified themselves immensely as well (Grant Thornton New Zealand Ltd, 2011). These factors serve favorably for doing business or investing in profitable sectors of the country.
The final element of general environment is political/legal component that include “the legislation, regulation, and court decisions that govern and regulate business behavior.” This component informs businesses about the potential risks they may encounter and the regulations that they need to follow ('Organizational Environments and Cultures', n.d.). New Zealand has a constitutional monarchial structure with Queen Elizabeth II as the sovereign head (Grant Thornton New Zealand Ltd, 2011). The country is politically peaceful, and does not cast any rigid regulation on overseas investment or domestic business.
2.3. Task environment and its components
Competitors help an organization in planning its strategies to grab the first attention of the target market and increase profitability. Analyzing competitor behavior also helps in determining the market status of an organization. In New Zealand, international competition is following a downward curve. Thus, in order to present a favorable ambience for the customers and prevent them from “paying higher prices or having reduced choice of goods,” the Commerce Act of 1986 has been set up. The purpose of this act is to promote healthy competition and prohibit “anti-competitive agreements between businesses (Commerce Commission New Zealand, 2012).” Since export is one of the spinal cords of the country’s economy, parallel researches on competitor behavior in New Zealand recommend that innovation should be considered as a way of improving the competitiveness of New Zealand’s manufacturers against foreign imports (Brown, 2004).
The third component, which is supplier relationship determines whether a business will be successful in a given economic and sociopolitical situation of a country or not. Efficient supply chain management aids the process of winning competitive advantage. While there is an undeniable need for companies to work jointly with suppliers in order to “develop products and services which are commercially viable, preserve our environmental resources and look after our workforce and communities,” companies in New Zealand have golden opportunity to make use of brand equity and cordiality with suppliers (New Zealand Business Council For Sustainable Development, 2003).
Final component of task environment is the labour market. This factor determines whether an organization will be able to get adequate specialized labour as per its requirements or not. As already denoted, New Zealand’s traditional labour force presented specialization in construction and manufacturing processes. However, the labour marker has considerably upgraded itself at present, and shows “long-standing shift towards employment in the services sector.” The long-term visas also bring in skilled labour to the country through immigration. However, businesses must remember that the government takes initiatives to protect the interest of labours by providing incentives during sickness, disability, etc., no cash Fringe Benefit Tax along with enforcement of “minimum wage legislation (Grant Thornton New Zealand Ltd. ,2011).”
3. Conclusion
An amalgamation of external organizational environment, general environment and task environment determine the prospects of a business in a country. The classic example of New Zealand suggests that all these components make it a potential market and operational site for domestic businesses as well as overseas investments in 2014. For instance even though the country imposes restrictions on certain types of investment by foreign business entities, its open economy encourages overseas investment. Even though it is unnecessary to seek government approval for doing business in the country, “New Zealand companies that have 25% or greater foreign ownership must register and file audited accounts with the Registrar of Companies (Grant Thornton New Zealand Ltd, 2011).”
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Image source
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