Economics

	TABLE OF CONTENT
I ii iii iv v vi vii	Introduction Economic performance analysis Market structure analysis Growth prospects and Brexit Conclusions References Appendix

INTRODUCTION

This report is an analysis of the Rolls Royce business environment which is essentially the United Kingdom economy. In this report we will state different ways Rolls Royce can work moving forward according to the economic performance prediction as well as the company’s internal analysis. The report will consist of the United Kingdom’s GDP, employment rate and Global competitive index fluctuating statistics from the past 13 years which is from the year 2008 to the year 2020. Rolls Royce group market structures is essentially broken down highlighting the different market opportunities and barriers presented by the market the company is in. With the assistance of a couple of business models, external factors that affect the company will be analysed.

Economic performance

GDP 2008-2020

In 2008 the United Kingdom’s GDP growth rate of a low -0.28% and had a -2.17% annual decline which was potentially all due to the global financial crisis. The situation did not show signs of improve as the Gdp rate plunged down to a low – 4.25% however the situation took a turn in 2013 when the annual GDP changed by 0.66 % which has been the highest Gdp growth recorded between 2008 and 2020. This was potentially a result of the London 2012 Olympic Games that contributed in boosting the economy through generation of jobs in different sectors. Due to the corona virus pandemic the UK gdp dropped from 101.7% to 75.2% between January 2020 and April 2020 but has been showing signs of recovery since. (Macrotrends .2020)

Figure 1.2020 GDP before decline.

Figure 2. GDP after decline. (Recovery)

Employment Rate

The employment rate took a significant plunge during the 2008 global financial crisis from 73% down to 70.5% in 2011 however signs of economic recovery were very evident after the year 2011. The employment rate employment rates went up from 70.5% to 71.4% by the end of the year 2012. From the year 2012 the employment growth was continuous and exponential as it reach the highest rate of employment of 76.6% early 2020 but later on it went down by 1.4%.(Statista, 2021) This decline in the rate of unemployment was essentially because of the global pandemic that caused shift on a global scale.

Figure 3.Employment rate before recession.

Figure 4. Effects of recession on employment rate

Global competitive index

Throughout the previous years the United Kingdom’s competitive index recorded a low of 5.18 and between the year 2008 and 2016 the points were ranging between low of 5.18 and a high of 5.36 however in 2017 the points skyrocketed to a high of 82.11 and ranged between 81.2 and 82.11. Recently it has ranked 9th in global competitiveness worldwide. The lowest ranking the United Kingdom got was in 2010 where it ranked 13th globally. Essentially it has ranked in the top 13 since 2008 with its highest ranking being 6th in 2017.

Business cycle

The economy went through a rough economic recession and depression at the start 2020 as a result of the global pandemic which affected both the gdp and the employment rate. However, it is very evident that the charts are indicating clear signs of economic recovery. So essentially the economy is in the recovery stage of the business cycle. As an educated prediction the United Kingdom’s economy is essentially supposed to continue growing into the expansion stage of the business cycle in the next couple of years. This may partially depend on how well the vaccines work and how well they are distributed because that is how the global market will gain confidence with their investments etc. if this is carried out well , “The economy develops a positive attitude towards investment and employment and production starts increasing”(CFI, 2019)

Market Structure

Market structure is analysed to study the competition, which are under the paradigm of external threats to the organization of Rolls Royce. Firms implement strategies that are either short or long run mainly focused on profit maximization, these strategies are applied only after a thorough analysis of the market is completed.

The Rolls Royce Group is an organization that has diversified itself into various sectors, which include the marine, defense and energy industries. Although, the industry that Rolls Royce was allowed to place itself in a position of control was the aerospace industry, specifically manufacturing. Rolls Royce by the end of 2019 obtained a market share of 64% (Rolls-Royce Holdings Plc 2019 Full Year Results, 2020) in an industry that is widely recognized as highly competitive with firms such as General Electric, a dominant player in the aerospace manufacturing industry. Rolls Royce must perform extremely efficiently to be able to compete with a firm such as General Electric which recruits around 283,000 employees compared to Rolls Royce which only has around 52,000 employees. In addition, Rolls Royce sourced around $2.5bn from JP Morgan in July of 2020 to finance its organisation compared to General Electric who sourced %15bn in finances to overcome what has been a catastrophic year for the aerospace and travel industry’s due to the world pandemic that has taken place. Furthermore, Rolls Royce has to adapt to the external circumstances that have shocked the market and overcome the barriers by implementing strategies that follow a proactive path, therefore to remain competitive in the industry while growing and expanding the firm as a whole.

(Porter, 1979) developed a simple yet powerful tool that was applied to analyse industry attractiveness and prospective profitability. Is it powerful due to the ability it gives organisation to take advantage of situations where their competitors are finding trouble succeeding at, therefore to give them a larger market share and increased profit margin. Rolls Royce, as an organization that on the Boston Matrix (Henderson, 1970), an analyses method used to study the portfolio of a company, would place their product as a Cash Cow due to its high market share and low market growth. Therefore, Rolls Royce must analyse the five forces to locate an opportunity where it can succeed, as the firm has less resources to than its rivals. Other than the current rivalry of competitors in the industry, the threat of new entrants is quite rare. This is due to the Oligopoly market structure in place which offers barriers to entry in an market due to the tremendously high startup costs, as many current firms in the industry have placed their position deep within for the past hundred years. Most new entrants to the market will come under acquisition due to the dominant current forces of the market. Rolls Royce acquired Industria De Turbo Propulsores SA in 2017 for an undisclosed figure (ADS Advance - Rolls-Royce obtains final approval for acquisition of ITP, 2017), this acquisition will allow Rolls Royce to expand its size in the industry by procuring the labour and resources that that Industria De Turbo Propulsores SA will contribute to the organisation. Therefore due to the lack of potential threats in the industry, Rolls Royce analysts conclude that the other forces including the supplying power that Rolls Royce already possess due to them owning a large cap in the market share should be focused on.

As the market structure is an oligopoly here are few sellers in that market, this allows those firms to have a supplying power to their customers. Rolls Royce offers a top of the specification product, over 13,000 turbines that are being used in aircrafts all around the world (Aircraft & Airplane Engines | Rolls-Royce Civil & Defense Aerospace | Aviation, 2020). Although, due to the current pandemic, Rolls Royce would be affected by the domino effect due to the fall of the travel industry this past year, production for aircrafts has been cut. The falling demand shifts to the left causing the price and marginal revenue to fall and most firms in the market will go back to zero economic profit. The oligopoly market structure in aerospace manufacturing industry is dominated by a large few firms due to the barriers to entry such as the high start-up costs covered previously. This market structure can benefit the industry as the competitiveness for market share often leads to high levels of research and development that work to improve dynamic efficiency. Notwithstanding that due to the high concentration of the market consumer choice is limited and the barriers of entry disallow smaller more innovative firms to become competitive or yet even profitable.

Growth Prospects And Brexit

Conclusion

All in all, Rolls Royce still remains a dominant figure in the aerospace manufacturing industry, generating high profit margins and owning a large percentage of market share in an industry that is structured to offer high competiveness that is a result of power that firms must operate under to maintain at the required standard. As this paper has analysed the economic performance and market structure of the organisation and business environment as well as examining the external factors, the most efficient and effective international business strategy that should be approached and implemented would be an international strategy (Bartlett & Ghoshal, 1989) that required low integration and low responsiveness as the majority of the value chain is at the headquarters in the United Kingdom and as an a company that offers their products internationally they will require a very low need for local adaptation.

REFERENCES:

Statista. 2020. Employment Rate UK 2020 | Statista. [online] Available at: <https://www.statista.com/statistics/281992/employment-rate-in-the-united-kingdom/> [Accessed 3 December 2020].

Ons.gov.uk. 2020. GDP Monthly Estimate, UK - Office For National Statistics. [online] Available at: <https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpmonthlyestimateuk/october2020> [Accessed 8 December 2020].

Corporate Finance Institute. 2019. Business Cycle - The 6 Different Stages Of A Business Cycle. [online] Available at: <https://corporatefinanceinstitute.com/resources/knowledge/economics/business-cycle/> [Accessed 14 December 2020].

Macrotrends.net. 2021. U.K. GDP 1955-2021. [online] Available at: <https://www.macrotrends.net/countries/GBR/united-kingdom/gdp-gross-domestic-product> [Accessed 2 January 2021].

Rolls-royce.com. 2020. Rolls-Royce Holdings Plc 2019 Full Year Results. [online] Available at: <https://www.rolls-royce.com/media/press-releases/2020/28-02-2020-rr-holdings-plc-2019-full-year-results.aspx> [Accessed 3 January 2021].

Hambrick, D.C., MacMillan, I.C. and Day, D.L., 1982. Strategic attributes and performance in the BCG matrix—A PIMS-based analysis of industrial product businesses. Academy of Management Journal, 25(3), pp.510-531.

Porter, M.E., 2008. The five competitive forces that shape strategy. Harvard business review, 86(1), pp.25-40.

Adsadvance.co.uk. 2017. ADS Advance - Rolls-Royce Obtains Final Approval For Acquisition Of ITP. [online] Available at: <https://www.adsadvance.co.uk/rolls-royce-obtains-final-approval-for-acquisition-of-itp.html> [Accessed 13 January 2021].

Rollsroycefirstnetwork.com. 2020. Aircraft & Airplane Engines | Rolls-Royce Civil & Defense Aerospace | Aviation. [online] Available at: <https://www.rollsroycefirstnetwork.com/other-rr-engines#:~:text=Rolls%2DRoyce%20powers%20more%20than,in%20service%20around%20the%20world.> [Accessed 14 January 2021]

Bartlett, C.A. and Ghoshal, S., 1999. Managing across borders: The transnational solution (Vol. 2). Boston, MA: Harvard business school press.

Date	Who was present?	What was discussed or agreed	Actions: who is to do what, when?
18-11-2020	Nathan, Abdullah, Ali	Research on the UK economic statistics and the rolls Royce organizations and the aerospace manufacturing industry.	Shared our findings a week later on Microsoft teams call to understand each other’s ideas to therefore make links in our work.
27-11-2020	Nathan, Abdullah, Ali	Each person was assigned a point to research further on and develop a plan for the first draft.	Nathan wrote on economic performance analysis, Abdullah on the market structure analysis and Ali on the growth prospects and Brexit.
05-12-2020	Nathan, Abdullah, Ali	Each member proposed their first draft and we all discussed that there was much improvement needed in the topic of growth aspects.	Set a deadline for the 5th of January for a second draft to be ready.
09-01-2021	Nathan, Abdullah, Ali	Combined all our work into one given document and proofread our work.	Nathan was chosen to submit the work on behalf of the whole group.

Group Diary & Individual statements

Individual statements

Student name	Statement
Abdullah Alkaf	Each member of the group was able to share and brainstorm their ideas to therefore have an understanding and build chemistry on where the result is the ability to link and elaborate on our ideas. We collaborated on online meetings on Microsoft Teams to discuss where each of us was with our work and if we were meeting the deadlines that we have set for ourselves. If one member was held back, we worked on overcoming that issue by sharing advice or sending information that would be relevant to their topic.
Nathan	The group assignment was carried out fairly well, better than I expected, considering the fact that most contributions were essentially administered virtually. There was a sense of commitment from each member of the group which then made it a lot easier to brainstorm coming up with relevant information and putting all the work together. One of the challenges we faced was coming up with group meeting times as we were all in different parts of the world so the time zones were different and so we had to consider that in our decision making. However apart from the few technical issues, each member made it a priority to make it to the meetings on time.
Ali	This group worked very well together as each person dedicated the right amount of hours and made sure that all the work was done to the highest standard.