Pearson BTEC Level 4/5 HNC/D Diploma Hospitality Management - Unit 19 : External Business Environment

Unit Description

This is a External Business Environment Assignment in which we discuss business environment and its external factors and concepts.

Introduction

Service sector has traditionally dominated the European market. In the UK economy hospitality industry and other related industries are on the surge. Several sectors including hotel, restaurant, recreation and entertainment are contributing towards the country’s economy and GDP. The government policies and attitude towards the hospitality industry matter a lot because of their long ranging impact on the business. The business and services industry has been greatly affected by the recent developments in the social and economic changes in the United Kingdom. Various regulations and treaties imposed by trade organizations like EU, etc., have the potential to change the way business are operated in the UK. Government policies also play vital role in implementing the necessary regulations in the UK hospitality industry. This paper also covers the legal framework of the UK, and political environment in the region.

external business environment factors

AC1.1: Analyse current government economic policy and its effect on business and services industries

Present economic policy of the UK government is largely affected by the global debt crisis. As a result of the global crisis the economic outlook has been toned down, and actual performance has shown the negative impact of the crisis. The austerity drive, which has been devised keeping 2015 as the target year, has resulted in decline in output because of steep decrease in the demand from the market. The latest budget policy indicated clear motive of the UK government towards more stringent austerity policies. The drive for austerity however is under question whether it will be helpful in boosting growth or it will act negatively impacting the economic downturn further. The government’s stand about the 2012 European Union summit in Brussels was not very clear whether it wants to move the economy forward or to wait and watch the results of the EU crisis. The unemployment is on the rise, and there is decline in demand and market output; the hospitality sector especially the hotel industry in the UK has played a vital role in reviving the employment and boosting the economic growth. However the taxation on hotels, pubs, restaurants and other hospitality industry components needs to be lenient in order to boost the morale of the people employed and invested in the sector. It will also result in high production output and hence better revenue contribution towards the overall economy. Taxation levels and red tape laws are in the need of immediate reform so that the industry can feel better in the difficult times (Lucas, 1995).

InterContinental Hotels Group plc is one of the largest hotel groups in the UK, and also in the world. The company owns and operates a number of brands across the globe, including Holiday Inn Express, Holiday Inn, Hualuxe, Crowne Plaza, InterContinental, Staybridge Suites, Hotel Indigo, and Candlewood Suites. The company experienced its dependence on the confidence present in the prevailing consumer market, and the resulting sentiment among buyers. The company has been trying to do few updates about finding out new possibilities in its range of services, because of the tightened consumer spending which is a resultant factor of continuous prudence of the UK economy and the government’s austerity measures. The frugality started by the government is clearly affecting the consumer’s spending and has taken a shape of consumer frugality. The company has presence and operation in several continents and countries. Hence the foreign currency exchange rate is important in terms of realising the actual revenues and profits. The visa policy for employees is also important because the management moves around the globe to align the global network of business with the parent company’s strategies.

AC1.2: Discuss income, wealth, employment and occupational distribution in relation to the provision of business and services operation

The employment scenario in the hospitality industry is not a smooth ride. The new and incoming fresh candidate entering into the sector will experience a fast paced work environment and busy day at office. The employment will come with a number of roles in the same job; the same employee may have to play numerous roles in order to fulfil the demand of customers. The customer interaction level in the industry is very high; hence it requires human interaction and interpersonal skills to be sharp enough so that job will be easier. In terms of wage and salary the hospitality sector has traditionally been on the lower side. It offers one of the lowest figures in terms of average hourly wage per employee as compared to all other sectors. However the figure is better for few companies and for a few roles in the company. Better performers and employees with higher roles get better compensation. Because of the low wage and high employment opportunity, most of the employment is part time. About 40% of the employment in the hospitality sector works on part time basis to gain handy experience at work and earn quick money (Kelliher&Perrett, 2001).

There has been continuous rise in the employment of new recruits in the hospitality sector, along with the steep increase in the number of applicants seeking opportunity in the sector. In the UK context, power of hospitality sector in terms of employment is quite phenomenal. It can be hardly matched up by any other industry in generating new jobs in the entire UK.

The hospitality sector faces direct correlation with the rise in the country’s tourism attraction. For better tourist income the tourism outlook of the country needs to be robust and friendly. The UK travel and tourism sector is doing fine even in the time of financial frugality. Major sources of income are the foreigners who visit attractive locations of the UK. The number of incoming visitors did not see drastic changes in the recent times. However the expected growth rate has been affected. There has been increase in revenue generation from the meetings and conferences taking place in hotels. The meeting industry has been growing steadily with further promise of healthy growth. However along with the growth in the industry, the competition has been rising heavily. Number of new entrants and their initial low pricing strategies has made the playing ground even tougher (Novelli, Schmitz, & Spencer, 2006).

AC1.3: Assess the demographic trends that influence the employment patterns in the hospitality industry

The demographics trend which is noticeable around the world has the capability to shape the future of the hospitality industry in the UK. The changing trend suggests that in the last few years and also in the coming years, there will be anew pattern in the demand scenario of the hospitality sector. Two key demographic trends which holds key to change the industry pattern are baby boomer population which is getting old, and the advent of middle class population in India and China. Emergence of middle class will attract new customers who are healthy in spending towards travel and tourism (Jones, Comfort, & Hillier, 2006). The new patterns will be the key sources from the East, but they will change the market perception and trends in the West. The leaders and operators in the hospitality industry need to understand the changing pattern and hence modify their approach towards the global market (Theobald, 2005).

The service sector plays a large role in contributing revenues to the UK government. Especially the hospitality service industry dominates the contribution scenario. The size of the employment contribution is also high. Employment in hospitality sector in the UK is varied and wide just like the variety of the sector itself. But the employers face difficulties in recruiting better and high skilled workers. The UK labour force also faces the problem of immobility, because of the cultural barrier. Hence it is difficult to give everyone their choice of jobs in the market. There is an overall shortage of skills in the job market and hence the high vacancies in the organisations (Blake, Sinclair &Soria, 2006; Lucas, 1995).

However the hospitality sector needs to understand the changing pattern of demographics in the market. They need to carefully observe the changes taking place at global level and which hold impact making influence on the business. There is a need of increasing the workforce which is skilled and diverse. It is very important to possess culturally diverse workforce in order to appeal to the greater customer base which encompasses non-Western lifestyle and attitude. The new employments in the hotel industry need to have culturally sound knowledge, and ability to adapt to the new challenges occurring from cultural backgrounds. They need new approaches and require different actions at all levels of service. Hence it is very important to hire employees who understand the new pattern in the global travel market, and it is critical to teach the new recruits about the changes they need to adapt and encourage innovations at work (Jenkins, 2001).

AC1.4: Analyse the social structure of people employed in a major UK hotel group

People who are employed in hospitality sector face comparatively tougher situation when it comes to social stature. The impression of working in hospitality sector and other related tourism and leisure sector is the reflections of facts which are present on the ground level at workplace. Few factors which play key role in determining the image of the work are conditions of workplace, amount of wage or compensation, social structure, amount of professionalism at workplace, and status because of the job. Interaction of the companies with each other, both within the hospitality sector and also with the outside sector also matters in determining the social structure of the employees. Employees at InterContinental Hotels Group try to compare the factors with other similar industries and measure their social structure with respect to other peers. However the company makes sure that the employees should understand the sector is labour intensive and they should not feel underestimated or develop any sort of poor image (Hoque, 1999). In most of the developing countries employees face unfavourable condition in hotel industry and the factor gets coupled with lower payment, it gives rise to lower esteem for themselves and also from outsiders. InterContinental Hotels Group makes sure to understand the social structure of its employees before hiring them. The practice is uniform across all geographies and places of operation. Social structure is the way people lead their lives differently in various social contexts. The human resource department at InterContinental Hotels Group hires employees carefully and trains them according to the company’s requirement, but keeping in mind that the employees’ social structure should not play a role in their job (Wood, 1997). InterContinental Hotels Group practices giving importance to employees by proving timely information about business performance and company’s business strategies so that everybody is aligned with a same organisational vision. Proper communication is given utmost importance at the company and employees are made aware about international customer trends and developments in the hospitality sector. It treats the lower level employees in such a way that they can develop their soft and hard skills in order to excel at their workplace.

AC2.1: Discuss the structure, operation, and influence of local government on a major UK hotel group

The major UK hotel group which I choose is InterContinental Hotels Group plc. The company follows a business model which suits its organisational vision and long term strategies. The business model which is termed “asset light” is followed by the hotel, through which it has ownership in a limited number of hotels. However the company has management contracts and franchising agreements and it has helped in the growth of the business. The business or organisational structure is to own, manage and franchise the hospitality business. The business works on the fundamental of making best use of outsider’s capital and being able to deliver stable and quality stream of revenue income. Almost 85% of the company’s hotels are being operated under the franchising model, and rest majority of the hotels are operating under the management contracts. A very small number of hotels are actually owned by the company. The company takes responsibility of the branding and marketing activities for all the hotels operating under various ownership models. The flagship Intercontinental Hotels are owned by the company, and the rest brands are given opportunity to reap benefit of the company’s management dividend and expertise. The companies which are operating under the InterContinental Hotels Group plc fall under the beneficial ownership of the group. It has hotels spread across different countries and continents, including presence in the UK, the United States, Hong Kong, and France. The company also works towards increase awareness about environment in order to gain implied benefit from its activities of corporate social responsibility.

The company follows the regulations of the countries wherever it has presence. In few jurisdictions the tax rates are multi-levelled and comparatively complicate to follow. Some local government require the hotel to abide by certain social norms in order to keep security and other social factors. Other major factors of running a smooth business are also influenced by the local governing authorities’ requirement. A number of such regulations affect affordability and availability of capital required, provision of suitable business sites, business planning and development of business under franchising and management agreements. Other factors such as market saturation and consumer behaviour also matters while dealing with different local governments.

AC2.2: Evaluate the role and influence of EU, its impact on the business and services industries

The European Union was founded to foster trading relationship between the participating members. The economy policy which is rational and helpful provides mutual beneficial business environment. The decisions are centralised through the centralised decision-making machinery, which are made for the trading with foreign entities (even in the Europe but outside the EU). Some of the proficiencies possessed by member countries are encouraged to be shared with the other members. Moreover centralised decision making power makes the lobbying capability of the EU members even stronger. The EU doesn’t hamper the member countries’ tendency towards getting closer with non-EU members in term of trade and mutual beneficial matters. However it is difficult to comment on the success rate of providing a multifaceted liberalisation by the EU (Zielonka, 2006).

European countries, especially members of the European Union are historically known for the service sectors, and advanced manufacturing sector. But the role of service sector in enhancing the importance of European economy has been seen in a number of exhibitions. The role of service sector is very important in terms of providing employment opportunity for most of the workers. With advent of EU, there has been increase in the free movement of services and goods. The positive effect on the free movement of labour and capital is also significant. With open opportunities, business and service sector firms have taken steps towards being competitive enough in order to exceed each other in terms of quality and efficiency. The service sector has benefited from the single market concept. It has also resulted in improved efficiency, more investments, reduction in cost, and availability of labour and capital.

AC2.3: Assess role of pressure groups and their political influence in relation to national issues in regards to hospitality industry

Pressure groups are non-governmental and mostly non-profit organisation working towards benefitting a particular cause of the political or social system. They do not have active political decision making participation, but they play vital role in influencing the political machinery of a country by lobbying or by pressurising. The groups are also known as lobby groups or interest groups. These groups externally play their roles in changing the policies of a government by not being part of it.

The British Hospitality Association is probably the largest and most influential pressure group present in the hospitality sector of the UK. It represents the interests of a number of sectors falling under the hospitality umbrella; hotels, leisure facilities, restaurants, and other similar organisations have their interests promoted through the association. The patrons of the pressure group are the large corporate from the hospitality industry, and also from the related but non-hospitality industries. Most of the pressure groups operate through a membership based system, which allows the individual members to represent their company or sub-sector in the hospitality industry.

An example can be exhibited in regards to the pressure groups’ role in active policy making. Action on Smoking and Health is a lobbying group which works towards increasing awareness about bad effects of smoking and other harmful health related practices. The group had long tried to pose a ban on smoking in the UK, which was opposed by the tobacco industry. But over a period of time, the lobbyists from the hospitality industry in coalition with other health advocacy groups were able to convince the health selection committee of the UK government. The results were partly shown in the practice by the British government. Recent actions taken by the pressure groups of the UK hospitality industries are towards cutting down the Value Added Tax for accommodation, meals, and tourism related services. The pressure groups have been successful in lobbying for tax changes, fee structure in some of the hospitality sectors, and rising up the minimum wage in the industry.

AC2.4: Analyse legal framework within the UK, identifying the main difference between the English and Scottish system

The parliament in the United Kingdom is responsible for enacting legal system in the English & Welsh legal system, and the legal system in Northern Ireland. Supreme Court of the United Kingdom is the apex authority in the legal framework. The immediate subsidiary courts of law are divided into civil division and crime division. The hierarchy is followed by the High Courts of Justice comprising the Queen’s Bench Davison, Family Division, and Chancery Division. The bottom row of the UK legal framework comprises county courts, crown court, and magistrate’s courts. The UK legal framework is largely dominated by the practice of the English Common law, which practices legal delivery processes through derivation form former cases. There is also the Statute Law which is superseded from the common law. The Statute law is enacted by the British Parliament. Being part of the European Union the UK also abides by the European Laws. Those are already absorbed and incorporated in the British legal system. Legal framework in Scotland is independent of that in the other jurisdictions under the United Kingdom. The Scottish Parliament has right to reshape and pose new regulations in the country. The country has a Supreme Court as the apex authority. It is followed by the High Court of Justice, Court of Session, and Court of the Lord Lyon. The bottom row of the legal frame work is comprised of Sheriff Courts, Scottish land courts, Tribunal, and Justice of the Peace Courts (Kiralfy, 1967).

AC2.5: Evaluate the UK and EU legislative process as it affects a major UK hotel group’s business and services at both national and local level

InterContinental Hotels Group plc has been reshaping its operation related strategies and modifying business requirements with accordance to the UK and EU laws. According to the EU laws and the UK regulation, employees of the group have to be shielded under Working Time Regulations. The regulation has resulted in the company’s active control and monitoring of minimum rest time, maximum working time, minimum wage policy and off-hour policies (Zielonka, 2006). It has impacted the human resource policies and has forced the company to take policy shift on order to keep the organisation aligned to the regulations. The National Minimum Wage Act warrants the companies to pay a minimum hourly wage to employees between 18 to 21 years (most of who work on part time basis), which is more than the actual service offered by the employees. It has direct impact on the hospitality sector, and on the company. Employees of the company are also covered under the trade union bargaining agreement, which makes the human resource decision making more careful. It is important for the company to maintain good relationship with the trade unions and similar organisations in the UK and other European countries. The EU and the UK regulations mandate the company to have a continuous and cautious approach towards the external factors which may have adverse impact on the employment of its workers (Christiansen & Larsson, 2007; Lucas, 1995).

A major economic policy of the UK after the debt crisis is the austerity drive which has caused tighter expenditure in consumer market. It has direct impact on the company’s business and if it continues then it may pose further adverse impact on the business. Other major change is the tighter policies in money lending adopted by the UK lending authorities, which makes it difficult to get required capital for business expansion (Christiansen & Larsson, 2007).


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AC3.1: Assess the different types and characteristics of business that operate within the business and services with a focus on the hospitality sector

The hospitality services and business covers a number of activities and businesses under its umbrella. It covers expansive types of fields within the service sector itself, and also few additional fields under tourism sector, and a few sports services. Fields such as hotel, restaurants, event planning, transportation, lodging, theme parks, and cruise line service fall under the canopy of hospitality services. In the UK hospitality sector the various fields are present can be broadly categorised into accommodation services, food and beverage services, betting and gambling services, sports and leisure services, and travel and tourism services. The hospitality sector along with tourism and sports sector in the UK provides employment to more than two million people and operates through about 220,000 organisations of various sizes. The business organisations in the UK hospitality sector provide food and beverage services through restaurants, pubs, clubs, and bars; accommodation services though hotels and lodges; batting and gambling services through casinos and gambling websites; and leisure services through theme parks.

The primary characteristics of business in hospitality sector are to increase usage rate or occupancy rate. The occupancy rate determines the frequency of customers visiting the facilities and hence reflects in the health of the business. The factor which determines the occupancy rate is the available leisure time with people and available income they have to spend on leisure and travel activities. Hotels and restaurants put much importance to old and classic places in order to generate an image in the market place which suits their business purpose. Pubs, bars, clubs and certain theme based restaurants need modernised facilities to ensure the service quality is up to date and matching the customers’’ expectation. The hospitality industry is famous its fast paced business activities and innovation at work every day. The sector demands flexible and skilled employees in order to cater to wider customers across the globe.

AC3.2: Discuss the legal processes necessary for formation and dissolution of a registered company

Forming a registered company in the UK involves a number of legal and administrative steps to follow. The process can be exciting and at the same time cumbersome in few cases. The first thing to decide is the company structure. There are various ways to own the company: sole ownership, ownership through partnership, limited liability partnership or limited company. The business owner must decide his or her best suitable format of ownership structure. The selection of business location is the next step to decide. Lease terms and other ownership related charges must be resolved before taking a property for business purpose. Planning permission for the new business entity is also required for smooth initiation of business process. Next step is to decide the sources and terms of financing sources. Mortgage related legal formalities and equity related legal steps should be decided by the owners. Level of taxes and tax related periodical formalities are important to deicide; systems must be at proper place to file taxes properly. Insurance is necessary for a business which covers the risk related to the workplace, employees, company assets and customers visiting the business facility. It is also important to have a clear idea about legal duties related to the goods and services offered by the business. The legal process requires the register company to decide upon the contract terms of the business. Legal terms about product liabilities and permission for promoting the business ideas also need to be decided in order to avoid future legal complexities. If the business activity involves a number of innovations regularly happening while conducting the business, then it is important to protect the intellectual properties and hence shielding the business ideas. Company logo and design of the name must be registered to avoid illegal copying of intellectual right. Products and certain services can also be protected intellectually though legal rights. If the business is a result of the franchising model then it is important to be clear about the previous franchisee’s liabilities, if any. A license to trade is very primary to obtain. Keeping the business aligned with the employment laws is also important (Cheffins, 2001). The laws of employment are constantly changing because of the European Crisis backdrop and increase in employment related issues across various sectors.

Dissolving a business also involves a number of steps. The first requirement to close the registered business is to stop the trading activity of the firm for at least three months. The company must not change its name in the last three months. The company must not be involved in any sort of legal proceeding, or there should be no proposed legal proceeding which may occur after the business is wrapped up. The company should not dispose any of its rights or properties before getting dissolved. If the company has directors, then they must agree unanimously to the decision of sealing off the business (Leech & Leahy, 1991).

AC3.3: Analyse the structure and processes which determine the responsibilities and control within a registered company

The structure of control and responsibilities are very critical for a business as it gives the corporate directions and is often important in deciding the company performances. The control over the business can be held through various ways such as sole proprietorship, partnership, limited company, limited liability partnership or hybrid structure (Smith, 1990). When the business is owned by a sole owner it is under the control of one shareholder. The sole shareholder decides the business directions and activities including every aspect of business operation. He is solely responsible for any wrong doing by the business and various processes of the business follow his decision. Hence it is important for the proprietor to take steps carefully in order to avoid any legal or operational tangles. If the company chooses its control structure to be shared by the founders or a number of entrepreneurs then it can pick out to be a limited company. The business entity and its owners are separate by the legal frameworks, which mean the business losses will not impact the limited shareholders beyond their personal interests in the business. The owners or shareholders gain from the company’s good performance either in the form of dividend payment or salary received from the business. They can also be paid by transferring the repayments to the director’s loan account. In partnership format, the partners involved in the business enjoy the freedom of making independent decisions but they possess risk of other partner’s wrongdoing. Processes of profit sharing and capital providing (or further investing) and capital drawings need to be formalised among the partners. If the Limited Liability Partnership is the structure of the firm, then the individual owners or partners have greater security of not being responsible for the things done by others. Some businesses choose to be hybrid in their ownership and control format. They change the main holding company as Limited Liability Partnership in order to keep the primary business intact; other subsidiaries of the business are controlled through limited ownership enabling the business to take risk taking and active business steps (Pedersen & Thomsen, 1999).

In a registered company with board of directors, the decision making is central and it is with the directors. The relationship of directors with other stakeholders of the business, such as shareholders and employees, is important. The decision making process affects business clients, suppliers, and the company’s employees. The responsibilities of the business are with the company’s higher management and the board of directors who represent the interest of all stakeholders. Various business activity and related decisions of the company including investment, R&D expenditure, ownership structure, and capital intensity determine the direction of the business, and are decided by the people who control it (Leech & Leahy, 1991).

Conclusion

In the changing scenario of the global economy it is important to understand the macro-economic trends. The business in the UK economy is greatly affected by the role of both local government and the EU policies. The hospitality sector has been reshaping its strategy because of the changes in socio-economic trends in the region. People who are employed in the hospitality sector are getting influenced by the trends in the UK, as it affects their employers. However they continue to contribute towards the GDP of the economy.

Reference

Blake, A., Sinclair, M. T., &Soria, J. A. C. 2006. Tourism productivity: evidence from the United Kingdom. Annals of Tourism Research, 33(4), 1099-1120.

Capie, F., & Webber, A. 2013. A Monetary History of the United Kingdom: 1870-1982. London: Routledge.

Cheffins, B. R. 2001. Does law matter? The separation of ownership and control in the United Kingdom. The Journal of Legal Studies, 30(2), 459-484.

Christiansen, T., & Larsson, T. (Eds.). 2007. The Role of Committees in the Policy-process of the European Union: Legislation, Implementation and Deliberation. Camberley: Edward Elgar.

Hoque, K. 1999. Human resource management and performance in the UK hotel industry. British Journal of Industrial Relations, 37(3), 419-443.

Jenkins, A. K. 2001. Making a career of it? Hospitality students’ future perspectives: an Anglo-Dutch study. International Journal of Contemporary Hospitality Management, 13(1), 13-20.

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