The Go-Ahead Group is a growing company, which is one of the UK’s largest public transport service providers, providing integrated urban transport to customers across the UK. In 2000-2001 the company managed trains, buses, taxis and aviation services, holding a 6% share in the total UK passenger business. Go-Ahead is operating more than 2,500 buses nationwide, provides ground handling and aviation services to major national and international airlines.
The purposes of this paper, firstly, are investigating the economic social and global environment in which Go Ahead associate. This include study about UK economic systems, the social welfare and industrial policy of UK toward organization,, and the impact of macro economic policy measures on organization.
Secondly, it also provide an investigation about the behavior of association and the market environment, how market structure impact on company, the relationship between market forces competitive strategy employed by the organization.
The remainder of this paper is explore the significant if international trade and European dimension in the scenario Go Ahead want to go abrod.
1. How UK economic system attempt to allocate and make effective use of resources:
In the UK, public transportation is privatized and led to free market-oriented. In 1986, bus and public transport companies were privatized and deregulated. They know that as suppliers compete for market share, the competitive market of the deregulated bus can bring benefits to customers. Deregulation gave bus companies the freedom to set where and when bus services could operate. The local government is no longer control this. Nonetheless, in order to survive, private companies must identify customer’s needs and wants, and offer them value for money.
However, transport growth is responding to the economic success, the opportunities of globalization, the improvement of living standard and economic competitiveness with other countries such as France, United Stated…. In the case of public transport, it could be argued they should not be too expensive otherwise people cannot afford them. As an essential public service, it is important that they remain in reach of all income groups. To operating, public transport companies need quite capital to buy energy, infrastructure investment. Marginal cost is not high much, but fix cost is quite high and is takes a long time to cover the investment. Therefore, it is essential to government to give sufficient incentive. Government has always played an important role in the development of transport. The development of ports, rail, roads and airports are largely led by UK government and local government. By give confidence to competitiveness and support investment, the Government opens the ways for business development of transport companies and does more effective.
2. The impact of social welfare and industrial policy initiatives on organizations:
Due to the significant role of transport in economic growth, productivity and social life, the UK Government is considering seriously on it and set two laws that company must consider: social welfare and industrial policy.
2.1 Social welfare:
Social welfare is a tool to protect and directly improve living standard of people. The UK Government tries to provide and make sure everyone can afford to use and have benefit on transport. One of their aims, according to Department for Transport (2004), is set out the policy and plans which can protect people’s safety, security and health and improve quality of life. The Government wants to lessen accidents, and also wants to improve general health and encourage people take part in public transport.
(Source: DFT, 2004)
Due to the fact that transport is a major contributor to the economy, currently employing about 1.7 millions people, the UK Government also really care about it. They want to help people get to work by supporting in transport investment For example, funding deal for the ï¿½16 billion Crossrail project will bring an estimated 1.5 millions more people to within 60 minutes of London’s business areas and expect it can carry about 200 million passengers by year 2017. It will create 30.000 new jobs and an amount of indirect jobs also can get benefits from it (DFT, July 2008 ).
With a large number of people who is working in transport industry, the UK welfare policy is also responsible to protect transport workers. Many laws are set which transport companies must follow like retirement pension, incapacity benefit or industrial injuries disablement benefit…All of these policies must be provided equality of treatment for all employees regardless of: race, ethnic or national origin, age, religion, gender, marital status, disability, sexual orientation, working hours, or union membership. For instance, in the three years to 2006, Department of Transport plans to increase the employment rate of people with disabilities, taking account of the economic cycle, and to significantly reduce the difference between their employment rate and the overall rate.
By a public transport, Go Ahead has to co-ordinary with Government in an attempt to bring the benefits of social welfare to every body. They must follow the labor legislation, customer treatment.
2.2 Industrial policy:
Because transport system move goods and people, create jobs and make economic success, industrial policy is set out to support and encourage it. Generally, the UK Government use this policy to five assistant to industries which have high grow potential, new industry, green environmental industry… by various tools. They recognize it is necessary to invest in infrastructure and help improve public transport networks and services
Spending on transport is forecast to rise in line with the expected growth in the economy to 2015 (DFT, July 2004)
In particular, the Government now more concentrate on green industry, environmental issues or companies who less affect to the environment. Consequently, Go-Ahead, which commit to social and environment responsibilities by using biofuel can have support from Government such as infrastructure intervention, R&D and innovation, reinforcing the law on copyright and patents to encourage enterprise to develop products…
3. The impact of macro economic policy measures:
The UK government has various types of policy tools to control the economy, in order to reduce inflation, boost up employment and economic growth.
3.1 Fiscal policy:
Fiscal policy is the attempt to influence the level of economic activity through changing taxation and government spending. Generally, fiscal policy is used by UK government to influence in aggregate demand in the economy. Thus, it can achieve 3 main economic objectives: price stability, full employment and economic growth.
Expansionary fiscal policy involves government attempts to increase Aggregate demand. It will involve higher government spending and /or cut tax (i.e V.A.T). Higher government spending would increase Aggregate Demand and lead to higher economic growth, reduce unemployment. This would be used when the economy in recession. Another case is discretionary fiscal policy, when the government makes changes to tax rates. Government spending is reduced and higher taxation or a combination of both (Economic help, 2008)
Businesses are affected by fiscal policy or tax policy immediately. Change in tax rates (i.e VAT and fuel duty in fuel prices) impact directly on savings, profits of the company. The higher tax charges, the more production cost for company and lead to less profit for company.
3.2 Monetary policy:
Monetary policy is the attempt to control macro economic variables in an economy through using interest rates. Generally, monetary policy refers to an being expansionary, or contractionary policy.
In the UK, monetary policy is given to the Bank of England. Therefore, the Bank of England has responsibilities and independence in setting interest rates. The government only set the inflation target of low inflation (2%). If the predict inflation will rise above the inflation target, they will increase interest rates. Higher interest rates reduce demand and prevent the economy expanding too fast. It makes investment less attractive, firms will invest in projects which the returns greater than cost of raising funds. If economic growth is slow, interest rates can be cut; lower interest rates speed up economic growth and help to reduce inflation. (Economic help, 2008)
3.3 Exchange rate policy:
Exchange rate is the amount of domestic currency compared to foreign currency. By take an influence in exchange rates, the government can influence the domestic economy. When rising value of sterling, there are import raw materials (i.e fuel…) they used to consume which can be more cheaply, the production costs and prices will be reduced. However, high sterling value can make UK company less competitive with overseas companies, but it do not affect a lot to transport company.
4. Market structure impact on the company:
In UK, bus industry is deregulated to create competitiveness in market. Nonetheless, the fact is that public transport industry is a pure competitive market. Example in bus scenarios, after 1986, many local companies were independent, but was short lived. They were acquired by the emerging large private bus groups: Arriva, ComfortDelGio Corporation, First Group, Go – Ahead Group, National Express Group, Stagecoach Group and Transdev. This oligopolistic market exists with a few large companies dominate. Although some small companies still exist in the market but they have small influence in market share. The importance of an oligopoly is that any activity in one large business can impact on the other, encourage them to respond similarly. When one company, drive down the price, there will be responded by the others. One minor is that, businesses may compete in marketing of services, rather than prices. This cartel to maintain high profit level, might decide with other competitors or their subsidiaries compete ineffective to share the market, create entry barriers to small company to operate market sharing, and agree common transport prices.
In order to stop fixing prices and allocating market share, The Office of Fair Trading (OFT) are found to investigate company’s activities by Competition Act, anti competitive agreements and fines companies break the law. An example is Starcoach, one of Go Ahead competitor. In the late 1998, OFT accused it of being involved in agreement with 12 other local bus operators to fix prices and allocate market share in the home-to-school buss services in Kingston upon Hull (Harris, N., 2001). With a commitment is having social responsibilities, the company must take care and treat its customers right.
5. Illustrate the relationship between market forces and association:
Awareness of five Porter’s forces can have company more understand the structure of its market improve its position to a new one more profitable and less vulnerable to attack. By a public transport company, Go Ahead can be impacted mostly by two factors: the power of its costumers and threats or substitutes.
5.1 The bargaining power of costumers:
Buyers, or costumers, are one of most important factors impact on organization. Powerful buyers, generally, want to get more value by forcing down price, demanding better quality or more service (Harvard Business Review, 2008). In a competitive market as UK, buyers tend to be less price sensitive because they pay limited attention about price and care more about quality of service. They are willing to purchase if they think the quality is good enough. To prove that, a recent survey (Tackling crime on Public Transport, 2008) showed a result two-third of respondent felts that the security of public transport is “good”, even is “very good” However, the same survey clams that it would have more 11.5% passengers choose public transport for their journeys if they felt more secure. Threat of crime is the deterrent to the use of public transport in UK (Tackling Crime on Public Transport, 2008), and they would choose another mean of transport to use which they feel more comfortable.
5.2 The threat of substitutes:
How the British travel(DFT, 2004)
A substitute refers to a similar or the same function as a product by a different mean (Harvard Business Review, 2008). For Go-Ahead, they recognize that their biggest competitor is the private car. As can be seen, public transport can not always flexibility as private car. Many people prefer to use their private car due to its comfortable. There has been an increase of using cars-a quarter of all cars journeys are less than two miles, although they can catch a bus or ride bicycle (DFT, 1998). Hence, the company needs to work hard, develop quality, and educate people about the environmental benefits when using bus or other public transports in order to change their travel behavior.
6. The behavior and competitive strategies employed by the organization:
In order to survive and compete in a competitive market like UK, Go Ahead must identify and create its own a competitive strategy for company. For the company, differentiation strategy may be appropriate to compete.
Go-Ahead recognizes that transport is in itself an environmental issue-one of the main company’s strategy. Environmental impacts refer to areas from greenhouse gas emissions to waste. There is a UK government goal to reduce domestic CO2 emissions to 20% below 1990 levels by 2010. However, by 2010, greenhouse gas emissions from transport are projected to rise by 20% from 1990’s, and total traffic is forecasted to grow by 22% from 2000 level of 321 billion vehicle km. The company committed to using efficient and low-carbon dioxide for its buses, reducing emissions from their bus fleet to reduce environmental impact on the local community, and have progressed to tackling the social and environmental issues. The company increases in the number of buses with Euro II engines to 55% of the fleet, with many further vehicles approach to Euro II emissions standards or above. By the “green environment” strategy, the company promote many of customers understand the environmental and social benefits from using private cars less and encourage using public transport more. (Go Ahead website, 2008). This friendly image can help Go Ahead keep a large number of customers loyalty, who aware of environmental impacts and social responsibilities.
Moreover, Go-Ahead’s unique approach within the transport sector offers its operating companies the freedom to develop and run their businesses. The company realizes that the best way to serve local communities is the local companies and people in the local operating companies. Local people make local decisions in running local services. For example, each of the companies will decide how and when it will run its services. They also have the choice to agree terms and conditions in the local labor market, in order to react better to the local job market. That is an advantage of company, compare with other competitors.
Recently, in Europe, there have a low – cost trend in travel and transport companies, especially in air transportation. This trend brings opportunities for people travel more, increase more in travel demand. Thus, company should concern about that and make a appropriate strategy in the future.
7. The importance of international trade, economic integration and global markets to the association:
As Harris, N. (2001) stated, international trade occurs when the sales of goods or services cross national borders. In the age of globalization, international trade brings a great opportunity for customers, companies, and the economy as a whole. For company, trading internationally can expand its market to new markets, improve its technology as well. The company can increase its priorities, not only limit in only one market.
Whilst company goes abroad, it should know and concern about international and regional trading agreements. Many countries creates and joins in integrate trading systems like Free Trade Areas (FTA), Customs Union or Economic Union,etc. The members of these unions agree to reduce, establish trade barriers… in order to protect members and against non-members. Regional agreements are an important factor of organization. By an UK company-a member of EU, Go-Ahead is beneficial. It could get many supporting legislation or tariff reduction when operating in other UE countries.
As can be seen, international trade can bring benefits to a company or an economy. However, when being trade internationally, many governments, in practice, use protectionist policies to protect their domestic companies. One of these policies that company normally can suffer is tariff barriers- which is a tariff or tax company must pay, charging as a percentage of the price of product. It causes the product of foreign company less competitive compared with domestic competitors. Hence, it encourages domestic customers choose the latter.
8. Impact of two policies of European Union on the company:
8.1 Environmental protection:
Environmental protection is one of core elements in EU transport issues. They aim to improve quality by developing integrated transport systems based on advanced technologies which also contribute to environmental objectives. For example, energy efficiency of the modes of transport now is more attention by European transport policy. With new energy, they can reduce CO2 emissions form cars-which the most important strategy of European Commission. The commitment made by the car industry associations ACEA, JAMA and KAMA, is trying to reduce CO2 emissions from new vehicles to 140 g per km by 2008 (ACEA) and 2009, respectively (EC, 2006). The Euro 5 and 6 standards also published for every people in Europe and work .In addition, the EU creates strategy in favor of biofuels, promoting the use of fuels in order to reduce greenhouse gas emission, and the environmental impact of transport.
When take part in EU market, Go-Ahead must follow the EU legal. What’s more, it has to update and make sure their buses and coaches can approach new standard and regulation to achieve EU’s objectives. .However, because the company takes environmental responsibilities on its business, uses ultra-low sulphur diesel to cut exhaust, it will have many advantages when operating.
8.2 The Single Market policy:
This policy plays a vital role in European economy. The Single Market Act, which came into force on July 1st 1987, concern in 3 main categories: removing physical barriers, technical barriers and fiscal barriers (The Economist, To take part in Single market, European member states’ effort to remove the barriers created by different national regulations and standards, harmonize national standards and replace them by a mutual national standard – European standard. There are minimal different between domestic movements and cross-frontier movement within Single European Market. It will also establish a common market for many services such as transport, banking… When many different markets co-ordinate to each other and become similar, Go – Ahead now has a big challenge and opportunity to do business in others countries within EU.
In present, Go Ahead is a leading provider in bus, rail and aviation service in UK. Though UK market is a pure competitive market, it has lots of opportunities to improve due to UK government support. Business activities of company can be affected by UK policy. Thus, the company must always concern and have an appropriate strategy for company. Moreover, in the age of globalization, the company has not only opportunities to improve, but also big challenges to deal with.
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