Business Environment of UK

Topics: United Kingdom, Population, Demography Pages: 12 (5276 words) Published: August 19, 2014
A PESTLE analysis provides and analysis of six of the key macro level factors which affect a business and the decision which it makes (Grant, 2008). This assignment will apply the relevant factors within the PESTLE framework to the international clothing retailer Next and its subsidiaries. Data upon which the assignment is based comes from a variety of sources including the company's annual report (Next, 2012) and released and well as information from the academic and business press. In order to give the assignment a greater level of focus, the report will be limited to an analysis of the external environment in the UK.

Political
There are a wide range of political factors which affect Next at present but also factors which may have an impact upon the company in the future. One key political decision which affects Next in the UK is the rate of tax levied by the government. This has the ability to affect both the bottom line of the company in the form of corporation tax but also the ability of customers to spend with next, linked to income tax. At present, levels of corporation tax in the UK have been lowered in order to attempt to stimulate economic activity (Telegraph, 2012). However, given the continuing deficit, there is no guarantee that governments in the future will maintain the rate of corporation tax at its current level. Other key political decisions consider interest rates. At present, UK interest rates stand at an all time low of 0.5% (BoE, 2010). This may be seen as a positive factor for firms such as Next who are effectively able to borrow large amounts of money for the purposes of capital expansion at much lower rates than have been previously seen. Such borrowing may take place in the form of long term borrowings from banks and financial institutions, alternatively the company may choose to issue corporate bonds (Arnold, 2008). Other political issues relate to the governments relatively "arms length" approach to Europe and remaining outside of the single currency area (FT, 2012). For a UK based business such as Next that has international operations in the Euro Zone, this could be seen as negative with the prospect of foreign exchange rate risks being felt and the introduction of additional transaction costs which would be eliminated if the government decided to join the Euro Zone. From a more general perspective, the UK political system based upon parliamentary democracy may be seen as providing Next with a relatively low risk political environment in which to operate within (CIA, 2013). This may be seen as an advantage in comparison some of Next's ventures into potentially less stable political nations such as Russia and those of the Middle East. As such, this makes the UK a relatively safe market for Next to make further long term capital investments in where the company may think twice in the case of less stable political environments.

Economic
A critical factor which may have an impact upon Next in the UK is the current state of the economic environment. As a business which makes use of a premium based differentiated strategy, as opposed to being a cost leader, it may be seen that swings within the economic environment have the ability to impact the fortunes of the company to a greater degree than those operating in the necessity and budget sector of the market (Johnson et al, 2008). From a purely statistical perspective, the years since 2007 have been an economic rollercoaster for the UK. Following the onset of the global financial crisis in 2007, the subsequent year saw GDP growth revert to negative figures with -1% contraction in the economy. This was followed by even worse performance in 2009 with a -4% contraction. Low levels of growth have been seen since in 2010 and 2011 with GDP growth of 1.8% and 0.8% respectively (World Bank, 2013). However, while the statistics show a slight recovery in 2010 and 2011, others within the business press (BBC News, 2012) indicate that the UK economy...
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