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Managing Costing & Budgeting

Prepare by:Raju kumar saha(ID-2012121012)

MD. Ismail Hossain(ID-2012121010)Najeb Islam(ID-2011421006)

Prepared to:-Mr. Khwaja Arafat  Abdullah

Co-ordinator and Faculty, School of Business

Submission date: 20.09.2012

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Contents

Task 1(LO1.3.1) Explain how market structures determine the pricing and output decisions of

Ollo:-

………………………………………………………………………………………………………

…3.

Task 2: Illustrate the way in which market forces shape organizational responses using a range of examples:-…………………………………………………………………………………………………4

Task 3: Judge how the business and cultural environments shape the behavior of OLLO:-

……6

(Task- 4.1) Discuss the significance of international tread to Uk business organization…………9

LO4.2 Analyze the impact of global factors on Uk business organization……............................................................................................................................10

Task4 (LO4.3) Evaluate the impact of polices of the European Union on Uk business organization………………………………………………………………………………………12Ref……………………………..………………………………………………………………………………………………………………………….13

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Task 1(LO1.3.1) Explain how market structures determine the pricing and output decisions of

Ollo:-

Ollo has launched the wireless internet service in October 2011 in Dhaka, Bangladesh. It offers wireless internet in Bangladesh. Throughout the next several months it will continue to improve its services in Dhaka and will also expand their network throughout the country.The service of Ollo is currently available in the areas of Dhaka marked blue on the map. But Ollo has a plan to cover its network all over Bangladesh within next few years. Ollo will start

working within few months for building network coverage in any one division among Shyllet, Chittagong, Barisal and Rangpur based on market potential priority. A proper marketing research requires for the identification of market potential.

Task 2: Illustrate the way in which market forces shape organizational responses using a range of examples:-

Determinants of demand of ollo

Price –If Ollo charges more for their services, their demands will fall.

Substitutes- If competitors raises their prices, Ollo will gain customers who were previously with

the competitor.

Only Dhaka city

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Complementary products- To get Ollo connection, customers needs to buy Ollo Modem. If the

price for their modem rises, then surely low income customers won’t be able to enter their

market.

Income- If Ollo's customers income increases, then there are possibilities for their customers to

move into packages which offers more speed and usage.

Advertising and social factors- Ollo is still new in the field and it hasn’t yet sponsored on

anything yet as Ollo just officially launched on 8th of March. On the other hand, it started

advertising anywhere they can reach their targeted customers which is all over Dhaka from the

month they started their business.

Demography – All type of people uses internet and Ollo is providing a better package then their

competitors. They will be focusing on all types, age, occupations, etc types of customers.

External factors – A person can be interest to use Ollo just because he or she got influenced by

their friends.

Derived demand- Since it just officially launched, consumers are getting aware of the product

and also, their consumers are rising each and every day. On the other hand, when companies will

start getting Ollo products and give them to their employees, their employees will also be using

those products even after their office hours.

Factors affecting supply

Ollo will try its best to sell their modems with their packages because their compititors are doing the same. On the other hand, this will raise their profits as their business expands.

If the prices for modem increase, they would have to also increase the price of their packages and may also have to increase the prices for other type of modems for this cause.

Costs of making the product Services in care units will decrease if employees are paid too much. Ollo will give out better services if they increase the number of their antennas.

The firm’s output decisionThere are three aspects of revenue to consider-

Total revenue (TR)-is the total income obtained from selling a given quantity of output. We can think of this as quantity sold multiplied by the price per unit.

Average revenue (AR)-we can think of as the price per unit sold. Marginal revenue (MR)-is the addition to total revenue earned from the sale of one extra unit of

output.

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Task 3: Judge how the business and cultural environments shape the behavior of OLLO:-

The business environment in Ollo is very competitive as the business has to keep on looking for

ways to overcome their competitors as well as they have to develop their business as customers

are rapidly increasing each and every day. On the other hand, if their customers give a good offer

for one of their packages, Ollo may also have to do something similar or the rate of increasing

customers will fall. Ollo mainly focuses on economic and technological environments while

keeping their thoughts of other environments also in mind.

The Culture environment shapes the business in many ways. For each cultural activity, Ollo

presents a new offer which is very attractive to the general public. For example, on Valentine’s

Day, Ollo gave an offer for couples to buy two packages together for the price of one. In this

way, customers are getting attracted to buy two modems, one for themselves and another for

their partner.

The title of the advertisement was “A gift from us to you and your partner on this Valentine’s

Day”. Not only couples bought that package as the package is offered to everyone. A man can

buy one product for him and another for his friend. They had a massive sale on Valentine’s Day

and because their services were also genuine, customers are loyal to them. Ollo will soon be

launching a new offer on the Bangles New Years Day where they are going to promote a similar

offer but this time, they want to offer this offer to Chittagong users too as they will be supplying

their services to Chittagong at the end of the month. The company knows the culture upholds the

nation’s pride. On the day of different cultural activities, the company encourages their

employees to wear festival outfits. On the Valentine’s Day, every employee was wearing red. On

Pohela Falgun, the male employees were wearing Panjabi’s whereas the female employees were

wearing sarees.

The Business environment is divided into two parts:-

1. Internal environment2. External environments

1. Internal environment- It is within the control of business. It includes 5Ms

Man

Material

Money

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Machinery

Management

2. External Environment: Those factors which are beyond the control of business enterprise are

included in external environment. These factors are: Government and Legal factors, Geo-

Physical Factors, Political Factors, Socio-Cultural Factors, Demo-Graphical factors etc. It is of

two Types:

1. Micro/Operating Environment

2. Macro/General Environment

Micro/Operating Environment: The environment which is close to business and affects its

capacity to work is known as Micro or Operating Environment. It consists of Suppliers,

Customers, Market Intermediaries, Competitors and Public.

(1) Suppliers: – They are the persons who supply raw material and required components to the

company. They must be reliable and business must have multiple suppliers i.e. they should not

depend upon only one supplier.

(2) Customers: - Customers are regarded as the king of the market. Success of every business

depends upon the level of their customer’s satisfaction. Types of Customers:

(i) Wholesalers

(ii) Retailers

(iii) Industries

(iv) Government and Other Institutions

(v) Foreigners

(3) Market Intermediaries: - They work as a link between business and final consumers.

Types:-

(i) Middleman

(ii) Marketing Agencies

(iii) Financial Intermediaries

(iv) Physical Intermediaries

(4) Competitors: - Every move of the competitors affects the business. Business has to adjust

itself according to the strategies of the Competitors.

(5) Public: - Any group who has actual interest in business enterprise is termed as public e.g.

media and local public. They may be the users or non-users of the product.

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Macro/General Environment: – It includes factors that create opportunities and threats to

business units. Following are the elements of Macro Environment:

(1) Economic Environment: - It is very complex and dynamic in nature that keeps on changing

with the change in policies or political situations. It has three elements:

(i) Economic Conditions of Public

(ii) Economic Policies of the country

(iii)Economic System

(iv) Other Economic Factors: – Infrastructural Facilities, Banking, Insurance companies, money

markets, capital markets etc.

(2) Non-Economic Environment: - Following are included in non-economic environment:-

(i) Political Environment: - It affects different business units extensively. Components:

(a) Political Belief of Government

(b) Political Strength of the Country

(c) Relation with other countries

(d) Defense and Military Policies

(e) Centre State Relationship in the Country

(f) Thinking Opposition Parties towards Business Unit

(ii) Socio-Cultural Environment: - Influence exercised by social and cultural factors, not

within the control of business, is known as Socio-Cultural Environment. These factors include:

attitude of people to work, family system, caste system, religion, education, marriage etc.

(iii) Technological Environment: - A systematic application of scientific knowledge to

practical task is known as technology. Everyday there has been vast changes in products,

services, lifestyles and living conditions, these changes must be analyzed by every business unit

and should adapt these changes.

(iv) Natural Environment: - It includes natural resources, weather, climatic conditions, port

facilities, topographical factors such as soil, sea, rivers, rainfall etc. Every business unit must

look for these factors before choosing the location for their business.

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(v) Demographic Environment :- It is a study of perspective of population i.e. its size, standard

of living, growth rate, age-sex composition, family size, income level (upper level, middle level

and lower level), education level etc. Every business unit must see these features of population

and recongnise their various need and produce accordingly.

(vi) International Environment: - It is particularly important for industries directly depending

on import or exports. The factors that affect the business are: Globalisation, Liberalisation,

foreign business policies, cultural exchange.

Characteristics:-

1. Business environment is compound in nature.

2. Business environment is constantly changing process.

3. Business environment is different for different business units.

4. It has both long term and short term impact.

5. Unlimited influence of external environment factors.

6. It is very uncertain.

7. Inter-related components.8. It includes both internal and external environment.

(Task- 4.1) Discuss the significance of international tread to Uk business organization.

International trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product (GDP). While international trade has been present throughout much of history, it’s economic, social, and political importance has been on the rise in recent centuries.

The importance of International trade in Uk: Enhance our domestic competitiveness Increase sales and profits Gain our global market share Reduce dependence on existing markets Exploit international trade technology

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Overseas markets represents new market techniques Economies of scale results from extending the use of brands

The Uki RMG business earns most of the foreign currency for the country. It also provides employment to around 4.2 million Uk is. Garment sector is the largest employer of women in Uk. The RMG sector is expected to grow despite the global financial crisis of 2009.  As China is finding it challenging to make textile and foot wear items at cheap price, due to rising labor costs, many foreign investors, are coming to Uk to take advantage of the low labor cost. A huge number of workers are employed in the RMG factories and the RMG business and the company’s external environment is affected. It gave a rise in economic activities such areas as banking, insurance, transportation, hotels, tourism, packaging and recycling and consumer goods. Uk is getting to know about new business techniques and technologies. Rise in the foreign currency reserves results into rise in international trade. Uk earned $12.59 billion from garments export in 2010-2011, which is 80% of the national export and 13% of the gross national product according to the government data.

LO4.2 Analyze the impact of global factors on Uk business organization

Businesses are affected by an external environment as much as they are affected by the competitors. Global factors influencing business are legal, political, social, technological and economic. Understanding of these factors is important while developing a business strategy.

Political factors are how and to what degree a government intervenes in the economy. Specifically, political factors include areas such as tax policy, labour law, environmental law, trade restrictions, tariffs, and political stability. Political factors may also include goods and services which the government wants to provide or be provided (merit goods) and those that the government does not want to be provided (demerit goods or merit bads). Furthermore, governments have great influence on the health, education, and infrastructure of a nation.

Economic factors include economic growth, interest rates, exchange rates and the inflation rate. These factors have major impacts on how businesses operate and make decisions. For example, interest rates affect a firm's cost of capital and therefore to what extent a business grows and expands. Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy

Social factors include the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. Trends in social factors affect the demand for a company's products and how that company operates. For example, an aging population may imply a smaller and less-willing workforce (thus increasing the cost of labor). Furthermore, companies may change various management strategies to adapt to these social trends (such as recruiting older workers).

Technological factors include technological aspects such as R&D activity, automation, technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation.

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Environmental factors include ecological and environmental aspects such as weather, climate, and climate change, which may especially affect industries such as tourism, farming, and insurance. Furthermore, growing awareness of the potential impacts of climate change is affecting how companies operate and the products they offer, both creating new markets and diminishing or destroying existing ones.

Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law. These factors can affect how a company operates, its costs, and the demand for its products.

RMG industries in Uk are highly affected by the global factors. The RMG sector tends to be more affected by the social, technological and economic factors.RMG industries face many problems from the social factors; labour strikes create unrest positions in the garments industries. The wages of the 4 million RMG workers working in 4,500 factories - 85% are women - were recently confirmed as remaining the lowest salaries in the world. The factories employ about 40 per cent of the country's industrial workforce. Sunday 13th June 2010 in Dhaka strikes began at factories of Envoy group. Eight and a half thousand workers struck to demonstrate for wage increases and other benefits. Workers barricaded main roads, fighting began when cops arrived, workers lobbing bricks at them; workers then broke up into several groups and began attacking various factory buildings. Other factories then began to shut in an effort to avoid further trouble - but their closure brought more workers onto the streets. Police eventually cleared the area with teargas. Forty people were injured, including ten cops. The reason for all these is the very low wage rate, TK16,62 per month. Workers demanded a minimum monthly salary of Tk5000. Western retailers seek for a fast delivery of their orders and strikes seemed to be a very strong tool for the workers to increase their wages. And finally the RMG bosses were bound to increase the minimum wage rate. In May 2006, there was labor unrest and the last quarter of 2006, witnessed political unrest as well. Because of these reasons, some buyers shifted their order to other countries like China and Cambodia.Economic factors affect Uk’s RMG industries in many ways. One of the factors can be the increase in interest rates. Firms, those borrowed from the bank have to pay back the money with higher amount of interest and for the rise in interest other factors also get affected. There will also be a rise in mortgage interest payments. World Bank has shown that the crude oil price affects significantly the price of primary commodities. Therefore the production cost may increase due to this reason. Increase in household prices can lead to workers asking for higher amount of wages. Uk is a labour intensive country. The growth in population rate increased in the past few years and a rise in the growth of labour force is also a huge advantage for the RMG industries. In a survey it is accounted that 64% of the population in 2010 are 15-64 years old, which indicates that most of the people in Uk are in the working age group. It is one of the biggest advantages for the RMG industry, because the foreign retailers are doing business with them for being labour intensive and low wage rate of the workers. The RMG industries were also affected by the 9/11 which had an impact upon the world economy. The national growth rate was 5-7% and during the last 10 years, knitwear’s growth has been around 28 %.

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Technological factors affect RMG industry in many ways. Inadequate power supply is one basic problem that the RMG sector is facing. Due to shortages in electricity generating capacity power disruptions are very frequent. The RMG industry does have R&D facility but in a small scale. Therefore to produce qualitative products and compete with their competitors they have to put more emphasis on R&D.

Task4 (LO4.3) Evaluate the impact of polices of the European Union on Uk business organizationThe EU operates through a hybrid system of supranational independent institutions and intergovernmental made decisions negotiated by the member states. Important institutions of the EU include the European Commission, the Council of the European Union, the European Council, the Court of Justice of the European Union, and the European Central Bank. The European Parliament is elected every five years by EU citizens.The EU has developed a single market through a standardized system of laws which apply in all member states. Within the Schengen Area (which includes EU and non-EU states) passport controls have been abolished. EU policies aim to ensure the free movement of people, goods, services, and capital, enact legislation in justice and home affairs, and maintain common policies on trade, agriculture, fisheries and regional development. A monetary union, the euro zone, was established in 1999 and is currently composed of 17 member states. Through the Common Foreign and Security Policy the EU has developed a limited role in external relations and defense. Permanent diplomatic missions have been established around the world and the EU is represented at the United Nations, the WTO, the G8 and the G-20. (Wikipedia)European Union and US is the largest RMG exporting market for Uk. The growth in RMG sector refers to a great inflow of foreign currency into the country. The country exports to the EU communities where common policies of trade are maintained. Textiles and particularly clothing dominate exports: their combined share grew from 70.4% in 1992 to 83.5% in 1998. According to the estimates of World Bank annual FDI in Uk increased from US$83 million in 1994 to US$ 86 million in the year 1998. The tariff has fallen from 58% in 1992 to 22% in 1999. EU is also represented in the World Trade Organisation. Uk became a member of World Trade Organization in the year 1995. The WTO sets up the trade negotiations between countries. To do business with the EU the RMG sector follows many policies set by them. The RMG companies who are doing business with the EU do not use the child labour in their organizations. The workers are working for 8hours a day and they are also paid for their overtime. The workers are paid with the minimum wage rate which is Tk5000.Uk is highly benefited by the RMG sector and exporting in the EU region. After the quota relief it was being assumed that a lot of labour will be jobless but the country did survived in the situation. The country to hold up further demand for its RMG sector have to become technologically advanced otherwise it will face a huge threat from China and India in the future. It should give more importance to its R&D sector. It should train its workers and make them more efficient. The RMG sector should be aware of their responsibilities besides doing business.

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REFERENCES:-

1. http://ollo.com.bd/index.php/page/view/98 2. http://answers.yahoo.com/question/index?qid=20110524023409AAZpqxB 3. http://www.gsmamobilebroadband.com/upload/resources/files/15072010174953.pdf 4. http://www.weeklyblitz.net/988/mobile-telecom-industry-in-bangladesh 5. http://www.thefinancialexpress-bd.com/more.php?news_id=150229&date=2011-09-21