3.7.4 Analysing the external environment to assess opportunities and threats: political and legal change


Scope + effects of UK + EU law


Law relating to the labour market

Environmental laws

Laws governing tax

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Laws: Comp: What law says

Designed to encourage comp w/in markets to ensure consumers have choice. UK + EU laws - try to prevent exploitation of monopoly power, single supplier in market able to charge over-inflated prices - will have to pray prices if only 1 supplier. Company w/ monopoly little incentive to deliver good service/innovate.

Other aspects - need to:
 - prevent companies agreeing to work together to detriment of consumers by operating cartel, agreeing w/ rivals to hold supply down to keep prices artificially high
 - moniter behaviour of business w/ strong enough position w/in market to abuse power
 - ensure takeovers + mergers don't breake rule of thumb (25% should be ceiling on any firm's share of UK market).

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Laws: Comp: Effects

Most obvious way - when mergers/takeovers proposed. UK, merger/takeovers that gov considers may have detrimental effect on consumers - Competition + Markets Authority (CMA). Will investigate likely impact of proposed deal before reporting back to gov w/ recommendations on whether deal should be permitted. 

Impact of legislation on strategic decision-making - few companies would bother to pursue takeover that would lead to combined market share in excess of 25%. At times, acts as major constraint on firm's strategic plans, forces them to enter new markets organically or through joint ventures.

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Laws: Labour market: What law says

Employment law designed to prevent exploitation of employees by businesses - major areas covered inc pay etc. Key area - need for employers to pay at least National Minimum Wage.

Also exists to prevent discrimination in workplace eg equal pay.

Legal entitlement to maternity + paternity leave + holiday pay.

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Laws: Labour market: Effects

Tightening employment laws eg longer paternity leave may make firms adapt ops strategies to reduce reliance on UK based HR. Strategic options inc offshoring certain ops to countries where wage rates lower etc. Tech advances, businesses able to switch jobs out of UK or replace w/ machines.

Employment laws influenced by EU attempts to create a 'level playing field' among European countries. Ensures comp b/ween EU members can't be based on 1 country offering particularly poor labour conditions. EU's degree of intervention in UK labout laws central reason for desire UK should leave EU.

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Laws: Environment: What law says

Exist to try to minimise neg impacts of business on natural environment. Ways law tries to do this inc laws preventing pollution, determining way products packaged + recycling legislation. Many laws. 

Environment Agency responsible for enforcing most environmental legislation w/in UK. Operates at arm length from politicians, but government-funded.

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Laws: Environment: Effects

Research suggests countries w/ high environmental standards among world's most comp. Past 20 years, legislation tightened - focus on reducing, reusing + recucling as basis of reducing LT environmental damage - growning number of firms embraced greener ways of business.

First movers - 'greener image' - niche markets of environmentally conscious consumers.

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Laws: Governing tax: What law says

Companies must pay tax - VAT + Corporation Tax. 

VAT registered business can claim back VAT paid on any supplies bought.

Corporation Tax - tax on profits, currently 20%. Profits generated using R&D, new patents or media exempted.

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Laws: Governing tax: Effects

VAT - create more work for accountants.

Corp more complex. Tax advisors willing to show businesses how to fund ways to reduce stated profits, thus reducing corp tax bill. W/ corp tax payable in most countries, multinational companies can take adv of low tax rates in certain countries.

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Impact of pol environment on strat decision-making

Companies inclined to threaten politicians + govs w/ calamity if have cheek to pass laws that may create costs.

Really impressive companies - look forwards + see opps rather than threats. Strat decision-making means looking ahead. Environment transformed by legislation. Good companies look forward instead of reminiscing about misremembered past.

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Impact of pol environment on func decision-making

Func level, need to ensure adherence to legal requirements tends to mean extra paperwork + admin for managers. Compliance key. Businesses formal admin system to ensure business complies w/ legislation eg employment/environmental laws; role of func managers - help redesign system.

Must spot-check diff departments to make sure staff following procedures. Part of challenge at func level - ensure staff at lowest elvels of organisation understand need to comply w/ systems in place - first through training, then communication.

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