EXTERNAL INFLUENCES ON BUSINESS ACTIVITY 6.1 POLITICAL AND LEGAL INFLUENCES Businesses are affected by things outside of their control like laws, politics, the economy, technology, competition, and the environment. They need to understand how these things affect their decisions. This chapter looks at all those outside factors except the economy. That's in Chapter 7. ## 1. Privatisation means that state-owned industries belong to private businesses. 2. These businesses are called public limited companies and shares are sold on the stock exchange. 3. Many companies in Europe have been privatised, such as British Airways, Deutsche Telekom, and Skoda. ADVANTAGES • Businesses run by private companies are more efficient than ones funded by the government. • State organizations often make decisions slowly and have too much red tape. • Privatization gives managers and employees more control and incentive to succeed than state-owned businesses. • Businesses operate under market forces, meaning failing companies will change or close while successful ones will expand. Most privatized businesses earn more profit after their sale. • Important business decisions are based on money, not politics, such as keeping electric prices low. • Selling nationalized industries can earn money for other state projects. • Private businesses can invest more through private capital markets DISADVANTAGES 1. The government should make decisions about important industries based on what society needs, not just what will make money. This might mean keeping businesses open that private companies wouldn't think are profitable. 2. Private companies competing with each other aren't likely to work together for the good of the country on things like railways, electricity, and buses. 3. If the government owns an industry, it can be held responsible to the country by a minister and parliament. 4. Certain industries could become monopolies and charge people high prices if they were privatised instead of being run by the government. 5. Splitting up nationalised industries into smaller competing parts can make it harder to save money by working on a bigger scale. Nationalisation means that a business that was owned by a person or a group of people will now be owned and controlled by the government. PROS 1. Big industries will be controlled by the government. 2. They will be able to create policies that involve different industries, like water supply. 3. Private companies won’t be able to be greedy by controlling everything and charging people too much money. 4. Combining all the private businesses in an industry into one big company will save money. CONS 1. When the government nationalizes industries, there might be less motivation to run it efficiently because there is no pressure to make a profit. Also, the government might give money to companies that are losing money. 2. The government might interfere too much in how companies make decisions for political reasons. 3. Buying private companies could be very expensive for the government. 4. When an industry is owned by the government, it cannot get money from private investors through the stock market. LEGAL CONSTRAINTS ON BUSINESS ACTIVITY Governments made rules to control businesses in many countries. The rules include: - How employees are treated, working conditions, and how much they get paid - Rules for advertising, protecting consumers, and stopping some products from being sold - Rules to make sure businesses are competing fairly - Where businesses can be located THE LAW AND EMPLOYMENT PRACTICES 1. These laws manage the way bosses and workers interact. Different countries have different employment laws. 2. The laws aim to keep workers safe and make sure they get paid enough. They also try to prevent unions from causing too many problems. 3. The laws usually focus on three things: hiring people, keeping them safe at work, and making sure they get paid enough. RECRUITMENT, EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT Many countries have laws to protect workers. These laws include things like written employment contracts, restrictions on young workers, limits on the length of the work week, and entitlements to holidays and retirement benefits. Discrimination based on race, gender, religion, or other factors is also prohibited, as is unfair dismissal. In the European Union, it is against the law to discriminate based on age, and the EU has some of the strongest worker protections in the world. This includes paid leave for both mothers and fathers after the birth of a child. Different countries have different laws regarding working hours, minimum wages, minimum working age, and workplace safety. For example, in the Central African Republic, workers may work up to 52 hours per week, while in Denmark, they are limited to 37 hours per week. Some countries like Sweden, Norway, and Denmark do not have a minimum wage law, and in Sri Lanka, children as young as ten may legally work. Some countries also have less strict workplace health and safety standards, such as Bangladesh and the Bahamas. These differences in laws can be a deciding factor for companies looking to set up operations in different countries. HEALTH AND SAFETY AT WORK - Workers need to be protected and kept safe while at work. - Most countries have laws that require businesses to provide a healthy and safe work environment for their employees. - The strictness of these laws and inspection systems can be different depending on where you are. - Businesses need to: give employees safety equipment and teach them how to use it, provide clean washrooms, protect them from dangerous machines and materials, give breaks and maintain good temperatures. - In the EU, there is a strong inspection system that can check any place of work and punish businesses that do not follow safety rules. MINIMUM WAGES Minimum wage is a law that tells businesses how much to pay workers. It's different in every country. In 2020, the highest rate was $13.80 in Luxembourg and the lowest was $1.10 in Egypt. Minimum wage has two main goals: to protect workers and to make incomes more equal. It also helps workers have more money to spend and encourages them to work. But, some people don't like minimum wage because it can be tricky for employers. They might hire people without contracts or fire workers. It can also make businesses too expensive and cause problems for the economy. IMPACT ON BUSINESS OF CHANGES IN EMPLOYMENT AND HEALTH AND SAFETY LAWS Changes to employment laws can have both good and bad effects. On one hand, they may add extra costs for businesses, including supervisory expenses, higher wages, more holidays and sick leave, and protective equipment. But, businesses that operate in countries with fewer employment laws may have lower costs. On the other hand, businesses that exceed the minimum standards may benefit from offering better working conditions. Benefits may include happier and more motivated workers with a safe work environment, avoiding court cases and attracting the best employees. Positive publicity may also result from treating workers as partners in the business. THE LAW, MARKETING BEHAVIOUR AND CONSUMER RIGHTS Reasons why governments protect consumers: 1. Consumers are weak compared to businesses. 2. Products are complex and it's hard to know if they work as claimed. 3. Sales tactics can be aggressive and tempting, leading to debt. 4. Imported goods may not meet safety standards. 5. Competition can cause businesses to reduce quality and guarantees to lower prices. CONSUMER PROTECTION LAWS 1. UK has consumer protection laws which other countries may have too. 2. Sale of Goods Acts have three main conditions: - Goods must be safe and without defects when used in intended ways. - Goods should be suitable for their intended purpose. - Goods must perform in the described manner. 3. Trade Descriptions Act prevents misleading descriptions of the goods being sold. 4. Consumer Protection Act states that firms are responsible for damages caused by dangerous or defective products. The prices cannot be falsely advertised. The passage discusses laws governing the production, import, and sale of products, like weights, measures, safety, and prohibition of dangerous items. Violating these laws leads to severe fines and penalties, with the aim of protecting the public and consumers from harm. IMPACT ON BUSINESS OF CONSUMER PROTECTION LAWS 1. Following consumer protection laws costs businesses more money due to changes like modifying products for safety, updating accurate advertising, and improving quality standards. 2. Adhering to consumer protection laws may require businesses to change their overall approach and attitude towards customer satisfaction. 3. Benefits of consumer protection measures include less risk of injury or legal action, better customer loyalty, and a reputation for treating clients fairly and honestly. 4. By going above and beyond the required standards, businesses can build a positive reputation for themselves and improve sales and profits through satisfied customers. THE LAW AND BUSINESS COMPETITION When companies compete fairly, it can benefit consumers in several ways: - You have more options to choose from when you're looking to buy something. - Companies try to keep their prices low so they can compete with others. - They also work to make their products better, which benefits you. - When companies in a country compete with each other, it can help make the economy stronger. To help make sure that companies compete fairly, governments make laws that: - Stop companies from becoming monopolies by preventing mergers or takeovers that give one company too much power. - Ban practices that stop companies from competing with each other - like when they work together to keep prices high. 6.2 SOCIAL AND DEMOGRAPHIC INFLUENCES Big societal changes, like changes in population, can affect how a business decides what to sell. CORPORATE SOCIAL RESPONSIBILITY A business is being responsible when they care about all people involved with their company, not just the investors. They need to think about how their actions affect both society and the environment. This section looks at how businesses can be responsible for social issues. CSR AND ACCOUNTING PRACTICES - Should companies give false information in their financial reports to make themselves look good? - Is it right to exaggerate a company's value to get more loans? - This practice is called "accounting window dressing". - People generally believe that it's wrong and illegal to manipulate financial data to deceive others. CSR AND THE PAYMENT OF ILLEGAL INCENTIVES 1. Is it okay to use bribery to win contracts or gain subsidies? 2. Many countries have laws against bribery to prevent unfair competition and consequences for breaking the law. 3. Bribes undermine fair competition and can lead to inferior products gaining contracts and wrongdoers avoiding punishment. CSR AND SOCIAL AUDITING Businesses should report annually on how socially responsible they have been, like they report on profits or losses. This is called a social audit. It's not a legal requirement, but many businesses do it voluntarily. Social audits usually show: - How safe the workplace is - How much pollution is created - Contributions to local events and charities - If supplies are ethical (like Fairtrade) - Employee benefits - Feedback from customers and suppliers - Annual goals for social responsibility PROS 1. They check what the company is doing right and what it needs to work on to be more socially responsible. 2. Managers can use this information to make goals and compare how well the company is doing compared to others in the same field. 3. This can make people see the company as better and that can help the company sell more things. CONS 1. If social audits are not checked independently, people may not take them seriously. 2. Doing detailed social audits takes a lot of time and money. 3. Some people only care about buying low-cost products, not if the companies they buy from are socially responsible. WHY BUSINESSES NEED TO CONSIDER COMMUNITY NEEDS A responsible business thinks about the community and not just its shareholders. Here are some benefits of doing this: - More people will like the business. - The community will be more likely to agree with the business and its plans. - More chance of getting help from the government. - Pressure groups won't be as likely to do something bad to the business. PRESSURE GROUPS 1. Businesses are realizing they need to think about the environment and being ethical when making big decisions. 2. The reason why is because big groups of people who make demands are getting more powerful. These groups are in different countries and all over the world. Some good examples of pressure groups • Greenpeace wants companies to be more environmentally friendly and governments to make stricter anti-pollution laws. • Fairtrade Foundation wants to help farmers in poor countries get better deals for their crops. • Amnesty International fights for people's rights, especially when governments are threatening them. • Extinction Rebellion wants people to protest to make the government do more to stop climate change. 1. Pressure groups want businesses to be more environmentally-friendly. 2. Pressure groups want consumers to buy from responsible businesses and boycott those who harm the environment or have bad working conditions. 3. Pressure groups want governments to pass laws that support their goals. Pressure groups try to achieve these goals in a number of ways: 1. Publicity through media coverage: Pressure groups use media coverage to make bad behavior by companies known, such as with press releases, meetings, boycotts, and protests. This can lead to negative publicity for a company, encouraging it to change. 2. Influencing consumer behaviour: If a pressure group is successful in convincing enough people to stop buying from a company, the company may be more likely to change its policies. For example, a boycott of Shell led to the company becoming more environmentally responsible. 3. Lobbying of government: Pressure groups try to convince government officials to change laws in their favor. If the group becomes popular and puts pressure on the government to act, it is more likely that legal changes will happen. DEMOGRAPHIC CHANGES Society is always changing and this happens because of changes in the number of people. There can be changes in the size and makeup of the population: • Local Level: This can happen if lots of people move there, like if refugees come to live there or if a big new housing place is built. • National Level: This can happen if more or less babies are being born or if the people who live there are getting older. • Global Level: The number of people in the world is going up a lot, from 8 billion in 2020 to 11 billion in 2100. It has already doubled since 1970. Recent global changes: - More older people in richer countries - More women in important jobs - Better education leads to better workers - Rich people retire early and have more free time - More people live alone because of divorce - People have less job security because of global trade, but some like to work part-time. IMPACT ON BUSINESS OF SOCIAL AND DEMOGRAPHIC CHANGE AN AGEING POPULATION The population is getting older. This means more people are retiring, fewer people are young, and more people need social benefits. This is because people are having fewer babies, more women are working, and people are living longer. Businesses are affected by these changes in two ways: 1. Changing patterns of demand - As people get older, their preferences for products change. This means that companies may need to research what older people want to buy and change the products they make. For example, a construction company may start building smaller apartments for elderly people. 2. Age structure of the workforce - There might not be as many young people available to work. Companies might need to start hiring more older workers or keeping their current employees for longer. Younger workers might be better at learning new things, but older workers have more experience and are more loyal. PATTERNS OF EMPLOYMENT Evaluating the impact on business of social and demographic changes Employment patterns are changing, and it affects businesses. Labor is still a crucial factor for many services such as childcare or homes for the elderly. The changes in employment patterns in many countries are: • Machines are replacing workers in many industries, which increases productivity but decreases employment. • Workers are moving from old industries like steel to new ones like computer-game design. • The number of women in the workforce and in different occupations is increasing. • Part-time work is becoming more popular. • Student workers and part-timers are commonly seen in some industries like fast-food chains or supermarkets. • Temporary and flexible contracts are becoming more common for employers who want to reduce their costs and increase flexibility. • Flexible work arrangements like working from home or flexible hours are more common. • As the population gets older, the number of people depending on others increases. In Germany, raising the retirement age has increased the working population and reduced the dependency ratio. • More women are staying in full-time employment for longer, and more are taking maternity leave and then returning to work. • Multiculturalism in many countries is changing the pattern of women at work. • In the UK, the number of women seeking full-time employment has risen to 75%. EVALUATING THE IMPACT ON BUSINESS OF SOCIAL AND DEMOGRAPHIC CHANGES PROS 1. People want more products designed for specific groups, like different ages or ethnicities. 2. There are more people, so more homes and household products are needed. 3. Richer people are spending more money on expensive things. 4. Part-time work is more common, meaning businesses have more flexibility. CONS 1. Products for less important age or social groups are not selling well. 2. If there are more elderly people, there will be a lack of workers to do the jobs. 3. Higher taxes may be needed to help those who rely on social benefits. 4. Work schedules need to change to accommodate more part-time employees. 5. It may be hard to create a loyal part-time team. 6.3 TECHNOLOGICAL INFLUENCES ON BUSINESS ACTIVITIES 1. Technology is using machines and tools in business. 2. Businesses have been using simple tools for a long time. 3. This section talks about how technology has changed in the past 30 years. 4. Technology has changed how businesses make products, communicate, and store information. 5. Technology affects all parts of a business. 6. How technology helps human resources, marketing, and operations is explained in other chapters. 7. This chapter talks about how technology affects businesses and how to use new technology effectively. IMPACT ON BUSINESS OF TECHNOLOGICAL CHANGE 1. New products: New technology can help companies create new products, like new consumer electronics. 2. New processes: Automation and robotics are becoming more common, which can improve how things are made. 3. Reduced costs: Using technology to improve productivity can lower costs. 4. Better communications: Social media is a useful tool for improving communication. 5. More information: Technology can provide more data to help businesses make better decisions. New technology also presents some potential threats to business: Costs - New technology can cost a lot of money to implement and to train employees. It can also lead to job losses and redundancy costs. Workforce relations - Not explaining the benefits of new technology to employees can damage morale and create concerns about job security. Trade unions may also oppose the adoption of technology if it puts members' jobs at risk. Reliability - Automated systems can sometimes break down, causing delays. The expected efficiency gains from new technology may also take longer than expected to materialize. Data protection - National laws regulate the use of data on employees and customers, and businesses must follow these laws. Management - Some managers may not like new technology, but good management is necessary to oversee the change process. Competition - Rival companies may adopt technology faster, making it difficult for a business that invested in technology to remain competitive. PROVIDING DATA FOR BUSINESS DECISION-MAKING Management information systems use computers to provide managers with lots of data about how the business is doing. This helps managers: - Get data quickly from all departments and regions, which helps control everything - Analyze data quickly to make decisions fast - Communicate decisions quickly to everyone who needs to know Managers can use this information to control and improve the business. But there is also a risk that: - It becomes hard to figure out which information is important when there is too much data - Central managers might take too much control and make it hard for work teams and middle managers to do their jobs well Good managers use information to make decisions quickly, but they should not control everything. INTRODUCING TECHNOLOGY EFFECTIVELY 1. Analyze - Before using new technology, a business needs to think about how it will help the business. 2. Involve - Bosses and employees should talk together about the good and bad parts of the new technology. 3. Evaluate - The business needs to look at different types of technology to see which one is the best and can afford. 4. Plan - Plan how to teach all the workers and show them how to use the new technology. 5. Monitor - Check how well the new technology is working and figure out how to make it work better. 6.4 INFLUENCE OF COMPETITORS AND SUPPLIERS 1. More competitors mean less power for each business. They have to set prices based on what others charge, unless their product is very different. Even if there aren't many competitors, if new businesses can easily enter the market, no one business will have much power. 2. A business that has fewer suppliers can't control prices or payment terms as easily. If there are lots of suppliers competing, a business can negotiate lower prices and better payment terms. 6.5 INTERNATIONAL INFLUENCES 1. All countries trade with other countries. 2. More and more businesses use imported materials and export their products. IMPORTANCE OF INTERNATIONAL TRADE AND ITS IMPACT 1. World trade has grown quickly, especially between certain countries like China, the USA, and the EU. This can help countries build better relationships. 2. Governments should be careful about international trade, as it can have negative effects. They may need to help firms that are hurt by it. 3. Possible problems from international trade include: - Domestic companies losing jobs because they can't compete with imports - Important domestic industries, like steel or food production, might go down if imports increase, which could be dangerous if imports ever stop - Switching to products where the country is better at might take time and cause job losses and factory closures before it starts working - New businesses could fail because of competition from imports - Importers may sell goods at very low prices to ruin competition from domestic companies - If a country imports more than they export for many years, they could lose foreign money. IMPACT OF INTERNATIONAL TRADE AGREEMENTS 1. International trade agreements have decreased trade barriers like tariffs, quotas, and export limits. 2. The World Trade Organization (WTO) and free-trade blocs like ASEAN and EU promote free trade among countries. 3. The benefits of international trade agreements include a wider variety of goods and services available to consumers, increased competition for domestic industries that can lead to better quality products at lower prices, and the ability for countries to specialize in products they make best while importing products they make less efficiently. 4. Importing raw materials can help developing countries increase industrialization. 5. Specialization can lead to cost and price benefits, and some imported products can be cheaper than domestically made ones. 6. Increased international trade can improve living standards for consumers in all countries involved. THE ROLE OF TECHNOLOGY IN INTERNATIONAL TRADE 1. Better internet communication between businesses, suppliers, and customers has helped international trade grow. New technologies like blockchain, artificial intelligence, and mobile payments will make trade faster and cheaper. 2. Artificial intelligence and machine learning can help find efficient shipping routes, manage traffic, and translate e-commerce searches into different languages. 3. Digital platforms connect service providers with global customers, revolutionizing international trade in services. 4. Mobile payments, like Apple Pay and M-Pesa, help people in developing countries buy products online, even if banking systems are weak. 5. 3D printing might reduce international trade in the future as it might be cheaper to produce goods in-country instead of importing them from low-wage countries. MULTINATIONAL BUSINESSES AND RELATIONSHIPS WITH GOVERNMENT A big business that is a multinational has many offices in different countries and makes lots of stuff. These businesses are huge and can cause problems for governments. They often have offices in rich countries but factories in poorer countries. If they need to save money, they might not fire people in the rich countries. Countries where these businesses operate have to think about if it's worth it to have them there. WHY BECOME A MULTINATIONAL? 1. Businesses become multinationals to be closer to their main markets, saving money on transportation and knowing more about what consumers want. 2. They become multinationals to save costs by paying less for wages, rent, and dealing with less government restrictions. 3. To avoid import restrictions, businesses produce goods in the country they are selling in. 4. Multinationals can obtain natural resources that they may not have access to in their home country. POTENTIAL PROBLEMS FOR MULTINATIONALS 1. Starting factories in other countries can be risky because communication with the main office might not be good. 2. It could be hard to communicate because of differences in language, laws, and cultures. 3. Working with other factories in the group might be harder. 4. Local workers might not have the skills needed, so companies might have to spend lots of money on training. EVALUATION OF THE IMPACT OF MULTINATIONALS ON HOST COUNTRIES 1. Investing in foreign countries can bring in foreign money and create jobs. 2. Local companies can benefit from supplying materials or services. 3. Multinationals can help improve local companies' quality and productivity. 4. Tax revenues increase when multinationals earn profits. 5. Expertise in managing businesses grows when locals are trained to replace foreign supervisors and managers. 6. But, there can be downsides to multinationals' expansion: 7. Labour laws in some countries aren't strictly enforced which could lead multinationals to exploit workers. 8. Multinationals might pollute the environment or use too many natural resources because they don't have to follow strict laws. 9. Local companies might go out of business because they can't compete with multinationals. 10. Some western companies force their culture on other people through advertising and promotions. 11. Profits sometimes aren't reinvested in the host country. 12. Multinationals might use up natural resources without caring because they can move somewhere else when they run out. 6.6 ENVIRONMENTAL INFLUENCES ON BUSINESS ACTIVITY Businesses can have a big impact on the environment we live in. This can happen in a few different ways: making the air and noise around factories polluted, causing traffic from lots of trucks, moving into areas where nature is important, making gases that make the world hotter, and using up natural resources that we can't replace. Many people care about these problems and think they are getting worse. HOW ENVIRONMENTAL ISSUES INFLUENCE BUSINESS BEHAVIOUR 1. Consumers prefer companies that have eco-friendly policies and tend to boycott those who harm the environment. Businesses that adopt green policies can benefit in various ways, such as reducing pollution, using recycled materials and disposing of waste responsibly. 2. Companies benefit from eco-friendly decisions by avoiding bad publicity, heavy fines, and breaking laws. They attract betterqualified employees who would love to work for an environmentally responsible business. 3. Some business decisions might seem costly in the short-term, but there could be long-term financial benefits with environmentally responsible ideas. Solar panels might require high capital expenditure, but they are cost-effective in the long run. 4. Eco-friendly decisions avoid potential costs of cleaning up the environment or compensating locals for lost livelihoods. The arguments for businesses not taking environmentally friendly decisions include: 1. 2. 3. 4. • • • Environmentally friendly decisions might be very costly, pushing up product prices and lowering sales. Consumers might prioritize low-priced goods over avoiding environmental harm. High costs due to eco-friendly choices may limit future investments and reduce profits. Weak legal protection and inadequate inspection systems in some countries might influence businesses to avoid environmentally friendly options due to little risk of legal action or heavy fines. In developing countries, low-cost methods might be preferred over environmentally friendly options to boost economic growth. Businesses should be truthful about their eco-friendly claims to avoid negative publicity due to greenwashing. CSR activities with the environment may be seen as a tactic for firms to lessen legal restrictions from the government by some critics. A business may use CSR projects as a distraction from harmful environment activities they've done, but it may lead to negative consequences if discovered ENVIRONMENTAL AUDITS 1. An audit means someone checks to make sure things are correct. Normally, this happens with a company's financial records. But, some companies have started using audits to check how they handle the environment. This is difficult because environmental things are hard to measure and don't have to be recorded like financial things. 2. Some people want the law to say companies have to do environmental audits. This will let us compare different companies' environmental impact. Now, audits are optional. Companies that have good environmental records do audits and share their results. Companies with a bad record don't do audits unless it's the law. HOW STAKEHOLDERS MAY USE ENVIRONMENTAL AUDITS 1. Businesses do environmental audits to check how much pollution, waste, and energy they use. They compare it to their previous years and targets, and sometimes to other businesses. 2. Managers make goals for the next year to be more environmentally friendly and check their progress in the next audit. 3. Consumer groups - People may buy more things from companies that do well in environmental audits, or if the media talks positively about them. This can help the company make more money. 4. Investors - People who invest in companies like to see good environmental audits because it helps them decide if they want to lend or invest in the company. 5. Employees - If a company has a good environmental record, it can make employees proud and bring managers and employees closer. People who are applying for jobs may want to work for companies with a good reputation and nice teamwork. EVALUATION OF ENVIRONMENTAL AUDITS 1. Some people won't trust environmental audits until they become mandatory and everyone agrees on what they should cover and how to check them. 2. Some companies use environmental audits to look good while hiding bad actions. 3. Environmental audits can take a lot of time and money, which is hard for small businesses with limited funds. SUSTAINABILITY AND BUSINESS DECISIONS 1. Companies can show their commitment to saving the environment by making eco-friendly business decisions. 2. Sustainable business decisions can help us maintain our current standard of living. Protecting the environment leads to a more sustainable business world. By replanting forests and not overfishing, we can ensure that future generations will also enjoy a good quality of life. 3. Government laws on the environment, green consumerism, and group activities push corporations to make sustainable business decisions. Chapter 23 has more details.
