This report discusses the impact of macro external factors on business performance in the context of AMP Ltd. AMP is one of the leading financial service providers in Australia. The report highlights the external impact on the AMP by PESTLE analysis and stated that change in the tax rate, education, regulation, environment, the economic condition will affect the profitability and performance of the company. To deal with the impact of these factors, a strategy has been suggested that includes three points provision fund, revise the policy and adhere to the regulation. Under the provision, it has been suggested the company should keep some amount to invest emergencies and sudden opportunity in the market. The point revise policy suggests amending the policy if any drastic change is anticipated by the company. At last, adhere to regulation states that the company should always work in compliance with all regulation to avoid the penalty for violation.
Table of Content
Introduction and background
Relation of external factors with business performance
Impact of external factors on AMP
Strategy to deal
The external macro factors are the impactful factors for any business. Such factors may be in the form of political, economic, social, technological, legal and environmental. This report aims to discuss the impact of external macro factors on business and how it affects the business. Further, the report highlights the factors affecting in context to financial company AMP Ltd. AMP is an Australian financial service public company, based in Sydney, New South Wales. The company provides services such as banking, life insurance, superannuation, property, listed infrastructure and assets, financial advice and planning and such others. The company is listed on stock exchanges of Australia and New Zealand and traded as AMP in both markets. According to Annual Report- 2019 of the company, the underlying profit of the company is $464 million with total assets over $147,684 million. As on April 17th 2020, the company had the market cap of 4.93 billion and share value of $1.460.
External macro factors such as foreign exchange rate, taxation, trade policy, income level, unemployment, inflation, regulation and several others and strong influence over the performance of businesses in a country. These factors are not negligible and should be taken into consideration while making any business decision (Ramasamy & Abrar, 2015). The foreign exchange rate affects the value of currencies, taxation affects the financial allocation, trade policy affects the trade practice and income and inflation affects the affordability (Weale et al., 2015). Similarly, all other factors significantly affect the business in many ways and it is imperative to incorporate the strategic approach in the business to withstand against these uncertainties and negative impacts. The business runs on buyer and supply demands and this demand depends upon the external macro factors (Gonzalez-Rodriguez et al., 2018).
In the given scenario, the company AMP deals in the finance sector which is strictly governed by the RBA and other government bodies. The sale and performance of financial products offered by the company mainly depend upon the income level, inflation, regulation and economic condition. The higher income level will push the sale of investment products, the good economic condition will help the company earn good interest from the market, higher employment will push the sale superannuation products and light regulation will let the company to eliminates lengthy procedure and improve the processing speed of business. Similarly, all the other factors impact the company in some way and these factors decide the performance of the firm (Cacciatore et al., 2016). There is numerous framework that is used to assess the impact of the external factors on the business like PESTLE analysis and SWOT analysis that can be used in the case AMP also (Perera, 2017).
Political: Government can change the policies regarding taxation or charges. In addition, even change in the government in every election may significantly impact the business of the company. Recently, the government has posed a ban charging a commission for suggesting financial products. In response to this, AMP's MD for superannuation and platforms. Lara Bourguignon wrote a letter addressing the customers that commission payment owed to the company by them will be ceased by May 15 (Financial Review, 2020). This had led the company to change its policy regarding commission and pay structure.
Economic: The economic factors affect the sale of the financial product because the stable economy makes the market stable. In the recent outbreak of global pandemic has crashed the market across the world and trade have been affected adversely and the chance of falling more still remains. Similarly, there is the decline in the business revenue of the company amid the COVID -19 break-out the company's stock performance has faced a decline in the share price as stated in Fig.1 & Fig.2 (ASX, 2020).
Social: Rise in education level has made people take their decision on their own and investing wisely without consulting the financial experts and past scams in financial sectors discourage the people to believe in any financial planning and advising company. Similarly, the company have faced such challenges. All people have become panicked in COVID 19 pandemic crisis and the social fear among people has crashed the markets across the world (WSJ, 2020).
Technological: Technological advancement disrupts many industries and it made the companies adapt to the new technology for improved business processing. AMP Ltd has also adopted some latest technology-based approach in their business. Currently is changing every industry all companies must try to gain competitive advantage (HBR, 2020).
Legal: The legal factors mostly concerned with the amendments in the regulations and policies by the governing body and all the companies get benefit or loss depends upon the consequences. In case of violation of these regulations may lead to hefty penalty and fines or even lead to the permanent closure of business in some cases. The company had paid $5.275 million as the penalty in February 2020 for failing to prevent churn in insurance (The Morning Sydney Herald, 2020)
Environmental: The environment affects the lives of the human being in a specific region. It affects the food, lifestyle and choices of the people within a specific region. All companies do the business considering the protection of the environment in the region. There are many regulations need to comply to protect the environment. The climate change can impact the health of the people and this can impact the claims at the company (Financial Times, 2020).
To deal with the potential risks and problem discussed above, the following strategy would be beneficial
Emergency fund: The excess fund can be very helpful in the case of exigencies. If a sudden opportunity arises in the market, then this amount can be leveraged to meet the requirement on an urgent basis. For example; A new disruptive technology arrived in the market can be adopted quickly to gain competitive advantage by investing the fund (Labonte & Murphy, 2015).
Revise the policy: If the company has anticipated a major change in the market ahead the company should revise its policy accordingly to avoid the harm that could be caused due to the upcoming change in the market. The company should make such a policy that considers the best interest of stakeholders including the government, customers, partners and employees along with society and environment as a whole (Yezegal, 2015).
Adhere to regulation: The companies should endeavour to adhere to the regulation and compliances in order to avoid the further penalty for violation. The company should always show transparency in the service to the customer and government to build maintain trust. The company should clearly disclose all the charges and terms in the policies to inform and educate the customer well (Bittle & Snider, 2015).
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