Economics for a Sustainable Business

Question: Discuss about the Economics for a Sustainable Business. Answer: Introduction The business environment plays an important role in the success of an organisation. Hence, it is important for any organisation to analyse the current business environment in which it operates to plan its strategies and seek growth in the market (Mallick, 2009). On the other hand, analysing the business environment helps in sustainable development of the business. Hence, an organisation must keep a regular watch on its activities and market movements to enhance the performance of its implied strategies (Lall, Lall, Mengistae, 2015). Furthermore, the management of the firm must be aware of the economic factors that influence the growth of the business. It helps to judge the current positioning of the business from the economic point of view and develop strategies that can be helpful in increasing the economic balance of the enterprise. The business report has been developed to analyse the general business environment of Sreeleathers Limited which is one of the small and medium scale enterprise of India. The study analyses the production cost and scale of the business to judge the category of scale in which the business of Sreeleathers Limited lies. Furthermore, the macro business environment of the market has been discussed in which Sreeleathers Limited operates to explain how the external market factors influence its business. Finally, the sustainability practices of Sreeleathers Limited have been presented to judge the long term viability of its business. Business Overview and Environment Name, Location and type of business Sreeleathers Limited is one of the most famous footwear brands headquartered in Kolkata, India. Under the leadership of Satyabrata Dey, the Managing Director of Sreeleathers Group, the organisation has established 35 retail stores in nine different states of India including West Bengal. The enterprise deals in all types of footwear and leather accessories providing high-quality products at an affordable pricing. In 2010, the original name of the company had been changed to Sreeleathers from CAT Financial Services as the organisation has altered its core business to consumer goods from financial services ("Sreeleathers Footwear and Accessories seller", 2016). The Indian based shoe manufacturer and distributor also export their products to the USA, UK, Canada, Bangladesh, Sri Lanka, Myanmar, Indonesia, Singapore and Australian territory. Basically, Sreeleathers Limited is a product manufacturing as well as a retail business organisation operating mainly in the Indian market. Products and Services In the retail business, the organisation primarily deals in all types of footwear products and leather accessories for different types of the target segment. By identifying the underlying requirement of the target customers, Sreeleathers Limited has delivered quality products at a reasonable price range to create a massive client base in Kolkata area and other locations around India (Brummer, 2015). Moreover, the business of Sreeleathers is also famous for one of the biggest wholesaler of footwear industry offered leather shoes and accessories to many parts of India as well as the world. Potential Customers Sreeleathers Limited offers footwear for men, women and kids creating massive market segmentation. In the Indian market, the organisation has divided its market segmentation based on gender and age group of the target demographics. The stores of Sreeleathers Limited offer shoes for kids age between 2 and 12. For young boys and girls, the outlets deliver stylish footwear at a reasonable pricing. For the female segment, the stores display ladies shoes, leather accessories and other products ("Sreeleathers Footwear and Accessories seller", 2016). For men, the organisation has also offered stylish leather shoes, leather accessories such as wallets, bags and other leather manufacturing products. Location of Potential Customers The shoe business of Sreeleathers Limited is mainly operating in Kolkata, India region where the potential customers are massive in numbers. As the organisation has established 35 stores around India including nine other Indian states, the significant customer base has been formed in the other target areas as well. The branding of the leather products to the name of the company has given a significant edge to the business (Batabyal Nijkamp, 2014). Moreover, by offering quality products at a cheaper rate significant demand for shoes and leather accessories of Sreeleathers Limited can be seen from other Asian countries such as Indonesia, Singapore, and Bangladesh. Primary Competitors Being a small sized shoe manufacturing and retail business of the India leather industry, Sreeleathers Limited has to face significant challenges from other market competitors in the target locations. In the primary business location of Sreeleathers, two primary footwear manufacturers and sellers have delivered potential competition to the organisation. Namely, Khadims India Limited and Bata India Limited are the two identified primary competitors of Sreeleathers Limited in the potential target market (Xie Sirbu, 2015). Location of Primary Competitors The primary competitors of Sreeleathers Limited have mainly operated in the Indian market including Kolkata, India. Bata India Limited has got more that 1300 outlets across India whereas Khadims India Limited has 1000 stores all around the country. Basically, Sreeleathers Limiteds operating functions are limited in Kolkata and surrounding state with 35 outlets to serve the people (Ciuriak, 2015). Meanwhile, the organisation is planning to expand the business by introducing 100 more outlets in India. Market share Sreeleathers Limited, being the largest single-brand footwear manufacturer cum retailer in India, has expanded its business in terms of other competitors. Currently, Sreeleathers Limited has got 16 percent of the entire footwear market share in India whereas Bata India Limited has got the biggest market share of 38%. According to the reports, Khadims India Limited has also featured in the list by acquiring 29 percent of the total market share of shoe and leather industry of India. Through the identification of current market scenario, Sreeleathers Limited is competing in a perfect competition situation whereas the enterprise has seemed to utilise the available resources in a better way (Caprotti, 2012). In long-run basis, the increasing demand for Sreeleathers manufacturing products will help the company to reduce the marginal cost leading to higher profitability. Production Costs and Scale Sreeleathers believe in traditional form of business and own around 30 to 40 stores all across India that are situated in total nine states of the country. In comparison to other companies, Sreeleathers do not sell any product of other brands and manufacture all its products in its own factories. Hence, to analyse the costs of production and scale of business of Sreeleathers Limited, there is a need to observe the fixed costs and variable costs of the company that are discussed herein below: Fixed Costs: The fixed costs of the company mainly include the tangible assets that have been purchased by the firm. It can be seen from the financial statement of Sreeleathers Limited presented in Appendix A and Appendix B that the revenue of the company has increased between 2014 and 2015irrespective of a fall in the value of fixed assets of the company (Nissanke Thorbecke, 2008). Hence, it can be seen that the increase of sales or production is not much dependent fixed costs of the company. Variable Costs: Sreeleathers Limited is highly dependable on its retail store across the country. Hence, the labour expenses, maintenance expense of stores, financial expenses, raw materials purchased and employee benefits makes the variable costs of the company. Looking at the income statement of the company, it can be seen that the revenue increased from Rs. 582 million to Rs. 690 million with an increase in the variable costs from Rs. 447 million to Rs. 565 million (Savides, 2015). Hence, it can be seen that the increase in the sales or production is highly influenced by the variable costs. Furthermore, it can be seen that the leverage ratio of the firm is not that high to make it a large scale firm (Sahu, 2015). On the other hand, the annual fixed cost is much less than the annual variable costs. Hence, Sreeleathers Limited can be recognised as a small scale or a medium scale firm operating primarily in the Indian market. Macro Business Environment Political System India is the largest democracy of the world that runs on the federal form of government. It is important to note that the political environment of the market is highly influenced by the factors such as politicians interest, government policies and ideologies of different political parties. Furthermore, the taxation system of the country includes taxes like income tax, sales tax, services tax that are imposed directly by the central government (Seker Seker, 2011). Currently, the Indian market is facing an instable political burden due to change of government and introduction of new laws and business policies. The introduction of GST has become a burden for the medium scale business. The current GST rate has been decided to be around 10 percent over the cost of production that is to be charged to the customers (Antonopoulos, 2016). Hence, the implementation of the new GST policy will create problem for the businesses. Furthermore, changes made in the business regulations also create b urden over the company that may impact its operations in the future (Chaudhuri, 2007). A company maintaining a high amount of assets needs to pay wealth tax that acts as an extra burden over the business. Furthermore, the tax on importing of raw materials such as leather from other countries has also increased for the company. Hence, the political factors act as a threat for the business in the Indian market. Inflation, Unemployment and Interest Rate The current inflation rate in India has reduced from around 11 percent to 4.5 percent in the recent years, which is a good indication for shoe manufacturing company. The reduction in the Average Price Level of products in the market allows the business to carry on its operations with a stable pricing policy (Wolf, 2011). Hence, it is a good sign for the company. The inflation rate of India is presented in the figure given below: Figure: Inflation Rate Source: (Tradingeconomics.com, 2016) Furthermore, the unemployment rate in the country reduces in the previous years that increase the opportunity for the business to expand its operations (Gupta Choudhry, 2015). The increase in the level of employment will increase the purchasing power of the buyers that acts as a positive sign for the business. The unemployment rate of India is presented in the figure given below: Figure: Unemployment Rate Source: (Tradingeconomics.com, 2016) Additionally, the interest rate has reduced in the current year to 6.5 percent that increase the business opportunities in the Indian market (ZaccaiÃÅ'ˆ, 2007). The small and medium scale businesses can easily acquire loans at lower interest rate for the expansion of business. Hence, it can be seen that the reducing interest rate acts as a positive sign for the business of Sreeleathers Limited. Figure: Interest Rate Source: (Tradingeconomics.com, 2016) Currency Exchange Rate Sreeleathers export products to different Asian countries such as Bangladesh, Myanmar, Sri Lanka, Indonesia, Singapore, Canada and the United States. Hence, it deals with different currencies from various countries that increase the financial risk of the firm. Hence, it prefers dealing with countries that have higher value of currency as compared to India Rupees to increase its profitability (Klein Dutta, 2015). Currently, the fall of the value of Indian Currency as compared to the US dollar has benefited the company from export trade. On the other hand, Indonesia is a potential foreign market for Sreeleathers because of its high demand for Indian leather products (Pal, 2015). Furthermore, the fall in the value of the Great Britain Pound has negatively impacted the foreign trade of Sreeleathers Limited in the UK market. Report shows that the company has incurred a huge loss in the UK market. Hence, it can be seen that the fluctuation in the value of currency highly impacts the forei gn trade of a medium scale business like Sreeleathers. Comments and Justification It can be seen from the above analysis that the overall macroeconomic environment of the country will be favourable for the business of Sreeleathers in the upcoming future other than the rising tax in the Indian market. It can be seen that the inflation rate and the interest rate in the Indian market has fallen in the recent years and is expected to fall more in the upcoming years. On the other hand, the products of the company are normal in nature. Hence, the recession occurring in the market may lead to fall of demand of the products, which may impact business of Sreeleathers negatively. On the other hand, the current economic climate in the country works in favour of the business because there is no chance of occurrence of recession in the upcoming five years. Considering the unemployment rate and talent pool in the labour market, it can be seen that there are a huge number of low priced skilled employees available in the Indian market. But, the high rate of inflation in the count ry will impact the operating cost of the company in the upcoming future. On the other hand, the changes in the import policy of the Indian government had made it difficult for Sreeleathers to import leather from foreign markets in lower price. Currently, the fall of the value of Indian Currency as compared to the US dollar has benefited the company from export trade. Furthermore, the fall in the value of the Great Britain Pound has negatively impacted the foreign trade of Sreeleathers Limited in the UK market. Report shows that the company has incurred a huge loss in the UK market. Hence, it can be seen that the current economic climate of the country is supports the growth of business in the Indian market, but the foreign export leads to increase in the financial risk of the company. Sustainability Practice of the Business Positive and Negative Externalities of Production Process In the products manufacturing business of Sreeleathers Limited, there are significant positive as well as negative externalities feature in the production process. The increased demand of products has led to the measures to improve the supply. As a result of the scenario, more workers have found employment opportunity in the production process. In manufacturing section, both skilled and unskilled labours have been benefitted due to the multi-section production units of Sreeleathers Limited leading to positive externalities to society (Lesourne, 2007). As far as negative externalities of the production process in concerned, the manufacturing units of Sreeleathers Limited has consumed natural leathers that create massive environmental issues. In this way, the production process of the firm generates negative externalities. As a result of the consequences, the government of India has issues notable regulations on leather industry to restrict the combustion process utilised in product manufacturing. Thus, the environmental pollution has been controlled to a significant level (Nomidis, 2015). Positive and Negative Externalities of Consumption The consumption of Sreeleathers Limiteds products has some positive as well as negative externalities as well, to say the least. Understandably, the government of India as increased tax on leather purchasing. Hence, as the demand for leather is increased due to consumption, it ultimately benefits the social public (Chaudhuri, 2007). Significantly, in this way, the consumption of products leads to positive externalities providing benefits to the rest of the social community. Invariably, the financial structure of the government has been boosted due to a surge in consumption of leather products. The leather consumption has brought fresh environmental challenges and issues for the social human beings living within the target market. For instance, due to increase in consumption of leather products, the demand and supply structure of the product has been changed radically. Also, workers working in the leather industry have to face health issues as well (Lansiluoto, 2007). By considering the negative externalities of the consumption, the government of India has promoted artificial leather footwear so that the negative externalities can be controlled in a significant process. Impact of Sustainability Practice on Long Term Business Viability On the basis of economic perspective, the viability of a business relies on consistency and customer profile. Understandably, for long-term sustainability of business, Sreeleathers Limiteds current business practices are considered as truly supportive. Meanwhile, the increasing demand for company manufactured products has significantly contributed to the growth structure of the firm leading to new employment opportunities. Moreover, since the makeover of the business in 2010, the organisation has registered improved revenue year on year basis supportive for long-run business viability. In the contemporary business scenario, the fierce competition from other two market giants such as Bata India Limited and Khadims India Limited has forced the management of Sreeleathers Limited to make significant changes in business operations. As a result of the existing market competition and demand, Sreeleathers Limited is willing to open new outlets to make the brand more successful in other marke ts (Gth Sksvuori, 2012). Through the understanding of existing market strategy and benefits of business practices of Sreeleathers Limited, it can be stated that in long-term business perspective, the organisation has significant sustainability (Lin, 2014). Conclusion The business study report critically investigates the general business environment of Sreeleathers Limited to identify the business viability structure in a long-term scenario. The existing business framework and customer profile of the shoe manufacturer and retailer company have significantly promoted perfect competition situation in the target market. Also, the product costs and scale analysis of the business provide a detailed idea of the factors leading to a minimum cost of production. Through the identification of the variable costs and business size, the overall business functions of Sreeleathers Limited have been featured in the report paper for further consideration. Decisively, the macro business environment in India has been thoroughly discussed in the study report to identify the relation between economic growth and business prosperity of the firm. Apparently, the business of Sreeleathers has promoted sustainable management practices delivering absolute positive as well as negative externalities in both production and consumption. Undoubtedly, Sreeleathers Limited has obtained long-term sustainability in the Indian leather industry to become one of the leaders of the pack. References Annual Report 2015. (2016).www.sreeleathers.com. Retrieved September 2016, from https://www.sreeleathers.com/SL/AnnualRpt2015.pdf Antonopoulos, R. (2016).Gender perspectives and gender impacts of the global economic crisis. Batabyal, A. Nijkamp, P. (2014). 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