External influences on business activity

The impact of the government and law on business activity 

• Legal constraints on business activity 

  • Laws on employment practices, working conditions 

  • Laws on marketing and consumer rights 

  • Laws on business competition

  • Laws on location of business 

• The law and employment practices

  • Prevent exploitation of workers (minimum wage, working conditions)

  • Control use of trade union action 

• Recruitment, employment contracts and termination of employment 

  • A written contract of employment must be signed by the employee and employer 

  • Minimum wages, working conditions, working hours are controlled

  • Laws against unfair dismissal 

  • Unfair dismissal:

    • Pregnancy 

    • Refusal to work overtime 

    • Joining trade union 

    • Incorrect dismissal procedure 

• Health and safety laws 

  • Aim to protect workers from injury and discomfort at work 

  • Equip factories with safety equipment 

  • Provide adequate facilities 

  • Provide protection & training from dangerous machines 

  • Give adequate breaks

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Evaluating the impact on business on employment and health and safety laws 

• Increase costs

  • Supervisory cots

  • Higher wage costs

  • Higher costs from giving holidays 

  • Increased number of workers

  • Protective clothing & equipment 

• Benefits

  • Workers feel more secure, increasing motivation 

  • Reduce the risk of accidents 

  • Avoid court cases 

  • Ability to attract highly-skilled workers 

  • Good brand image

The law, consumer rights and marketing behaviour 

• Reasons to protect consumers:

  • Influential advertising is making it difficult for consumers to make rational decisions

  • Protects becoming more scientific and technological, difficult to understand 

  • More pressurised selling techniques 

  • Increased globalisation 

• Laws for consumer protection:

  • Sale of goods act

    • Goods should be fit to sell 

    • Suitable for the purpose 

    • Perform in the way described 

  • Trade descriptions act

    • No misleading descriptions or claims 

  • Consumer protection act

    • Firms providing dangerous or defective products are liable for the cost of any damage 

    • Illegal to quote misleading prices

Evaluating the impact of consumer protection laws on business 

• Business costs rise – redesigning ads, improving quality control

• Require a change of strategy and culture 

• Reduces chances of legal action 

• Improved brand image 

• Increased sales and profits 

• Better brand loyalty

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The law and business competition 

• Benefits of free and fair competition to consumers:

  • Wider choice 

  • Lower prices 

  • Improve quality, design and performance of the product

  • International competition will help strength domestic economy 

• Laws on competition:

  • Investigate and control monopolies 

  • Limit uncompetitive practices

Monopolies

• There is only one supplier with 100% market share

How do monopolies develop?

• Invention of new products 

• Mergers and acquisitions

• Legal protection 

• Existence of barriers to entry 

How are consumers affected by monopolies?

• Benefits:

  • Lower prices 

  • Increased expenditure on R&D 

• Drawbacks:

  • Higher prices 

  • Limited choice 

  • Less investment due to complacency 

  • Lower efficiency

Uncompetitive or restrictive practices 

1. Refusal to supply a retailer if they don’t agree to charge the prices determined by the manufacturer 

2. Full-line forcing – manufacturer forces retailer to stick the whole range of products 

3. Market sharing agreements and price fixing agreements 

4. Predatory pricing – firms charge low prices to block out other firms in the industry

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Social audits 

• A report on the impact a business has on the society – stakeholders, environment, community 

• Benefits:

  • Identifies the social responsibilities met by a business 

  • Sets targets for improvement 

  • Improves company image

  • Increases sales  

• Drawbacks:

  • Expensive

  • Time taking 

  • Consumers main aim is high quality goods 

  • May be window dressed

The impact of technology on business activity 

Technology – what does it mean?

• Technology means the use of tools, machines and science in an industrial context

• High-technology machines and processes that are based on information technology (IT) 

• They are opening new product markets and making businesses more flexible 

• Business applications of technology:

  • Word processing 

  • Pagemaker and publishing programmes 

  • Databases

  • CAD

  • CAM 

  • Internet 

• Benefits:

  • Accurate

  • Fewer administrative staff 

  • Easier and quicker communication 

  • Lower costs 

  • Flexible 

  • Increased productivity & efficiency

  • Add to a firm’s competitive advantage 

  • Wider target market

Applying technology to business – limitations 

• Increased capital costs 

• Training costs 

• Redundancy costs 

• Reduced job security 

• Fall in motivation 

• Breakdowns can halt production 

• Legal constrains on the use of IT 

• Managers fear change

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IT and business decision-making 

• Provision of huge amount of data to management through the use of IT is known as management information systems 

• Obtain data quickly 

• Easy to process and analyse data 

• Quick decision making

• Better communication 

• Information overloads can lead to information lost 

• Power can be abused 

• Reduction in authority and empowerment 

• Reduce job enrichment and motivation

Introducing technology effectively 

• Analyse – the use of IT 

• Involve – managers and other staff 

• Evaluate – different systems and programs (cost, efficiency, budget)

• Plan – introduction of new system, training 

• Monitor – introduction and effectiveness of the system

Social and demographic influences on business activity 

• An ageing population 

  • A larger part of the population is over retirement age

  • Smaller proportion is in lower age range

  • Businesses will have to adapt their goods and services to cater to

  • older people 

  • Older population means lesser people in the workforce, increasing demand for workers, increasing wages 

  • More training may be required 

  • Businesses will have to be more aware of their employees retiring since they are of an older age

  • Since there are more dependents, cheaper products may be more popular

• Changing role of women 

• Better education facilities 

• Early retirement 

• Job insecurity 

Patterns of employment 

• Transfer of labour from secondary to tertiary sector 

• Increase in temporary and flexible employment contracts

• Increase in part time employment 

• Increasing pressure on pensions and healthcare services due to an ageing population

• Increase in student employment (on a part-time basis)

• Capital is replacing labour

• Women returning back from maternity leave

• Increase in number of women staying full time

• Part time workers increase flexibility and lower fixed costs 

• But it becomes difficult to manage and encourage team work

• Employing more women gives businesses a wider choice of staff and improved motivation amongst workers

• Gives access to higher quality and more qualified workforce

• But costs increase when they take maternity leaves

• Businesses which are able to quickly adapt to changing environments are able to survive successfully

• Having a younger workforce:

  • cheaper

  • more flexible

  • geographically mobile

  • innovative

  • technologically skilled

  • keep changing jobs frequently

  • require greater training

• Having an older workforce:

  • more loyal

  • greater experience

  • hard-working

  • demand higher wages

  • reluctant to change

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Environmental constraints on business activity 

The environment and corporate social responsibility 

• when a firm accepts it legal and moral obligations to stakeholders other than investors, it is said to be accepting corporate social responsibility 

Arguments for and against adopting environmentally friendly business strategies 

• For:

  • Marketing and promotional advantage 

  • Better brand reputation 

  • Avoid pressure group activity 

  • Avoid legal problems and court fees 

  • Access to skilled employees 

  • Long-term financial benefits 

• Against:

  • Higher costs, increased prices, lost sales

  • Loss of competitive advantage 

  • Reduced profits, limiting expansion 

  • Not too strict laws regarding environment 

  • Economic development > environment – developing countries

Environmental audits

• Assessing the impact of a business activities on the environment 

• Difficult to measure in monetary terms 

• No legal requirements 

• Better publicity 

• Higher sales 

• Better skilled workers 

Social audits 

• Pollution

• Health and Safety

• Supply Sourcing

• Customer Satisfaction

• Social Contribution

• Accounting and Financial Transparency

• Diversity

• Annual targets to improve social responsibility 

Evaluation of environmental and social audits 

• Expensive 

• Time consuming 

• Companies accused of using it as a PR activity 

• No general rule and compulsion on these policies

Environmental and ethical issues – the role of pressure groups 

• A pressure group is an organization created by people with a common interest or aim who put pressure on businesses and governments to change policies so that an objective that seeks to influence elected officials to take action or make a change on a specific issue.

How do pressure groups affect businesses?

• The primary goal of a pressure group is to influence some aspect of the way a business operates, including which types of products businesses manufacture. 

• Pressure groups can exert influence by finding allies in the media, by organizing protest marches, and by running marketing campaigns to express their concerns.

How do they operate?

• Encourage government to change rules and laws  

• Encourage businesses to change policies

• Encourage consumers to change purchasing habits 

How they achieve their goals?

1. Publicity through media coverage 

2. Influencing consumer behaviour 

3. Lobbying of government