A Level CIE Business: Business and its Environment

Topic 1 pg.117

privatisation

the act of selling state-owned and controlled business organizations to investors in the private sector.

nationalisation

the transfer of privately owned businesses to state [government] ownership and control

political and legal influences on business activity:

privatisation, nationalisation and legal controls over business activity.

seven arguments for privatisation

• private sector businesses = greater efficiency than when a business is supported and subsidised by the state

• decision-making in state bodies slow and bureaucratic

• privatisation gives responsibility for success to managers and employees = motivating = more empowerment than state-owned businesses

• market forces operate = failing businesses will be forced to change or die and successful ones expand so profits of privatised businesses have increased following theirsell-off

• important business decisions taken for financial reasons, not political

• sale of nationalised industries can raise finance for gov which can be spent on other state projects

• priv businesses have access to priv capital markets = increased investments in these industries.

five arguments against privatisation

• state should take decisions about essential industries which can be based on needs of society not just shareholder interest e.g. keeping open ‘unprofitable’n business activity

• privately operated bus that compete with each other are unlikely to achieve a coherent and coordinated policy for the benefit of whole country

• accountable to country

• many strategic industries could be private monopolies if privatised and they could exploit consumers with high prices

• breaking up nationalised industries e.g. into several competing units, reduces opportunities for cost saving through eos

four arguments for nationalisation

• gov control of major industries

• integrated industrial policy e.g. for water supply is now possible

• prevents priv companies monopolies and customer exploitation

• eos achieved by merging al priv businesses in industry into one nationalised corporation

four arguments against nationalisation

• less profit motive so less incentive for efficiency and gov may provide subsidies to loss-making nationalised industries

• gov may intervene too much in bus decision making for politics

• cost of gov buying priv companies high

• removes ability of industry to raise finance from private source e.g. stock exchange

four categories of laws that control business decisions and activities

• employment practices, conditions of work and wage levels

• marketing behavior, consumer rights and controls over some products

• competition

• location of businesses

two main objectives of laws and employment practices

• prevent exploitation of workers by powerful employers by insisting on appropriate levels of health and safety and minimum wage rates

• control excessive use of trade union collective action

what three areas of employment practices do legal constraints cover

• recruitment, employment contracts and termination of employment

• health and safety at work

• minimum wages

what are the six forms of workers rights protections

• written contract of employment so that employee is fully aware of pay, working conditions and disciplinary procedures to be followed

• minimum age of employment

• max length of working week

• holiday and pension entitlements

• no discrimination during recruit+selection or while at work

• protection against unfair dismissal

four examples of EU protective legislation

• max weekly working hours can be long fiftytwohrs in CARbut thirtyseven in denmark

• no min wage law in sweden, norway and denmark

• minimum working ages vary; for example just ten yrs old in sri lanka

• h+s at work requirements less stringent if not agreed to adopt international labour org

h+s laws require businesses to do what four things

• equip factories and offices w/ safety equipment and train staff to use it

• provide adequate washing and toilet facilities

• provide protection from dangerous machinerye and materials

• give adequate breaks and maintain certain workplace temps

minimum wage

employers are not allowed to pay less than the set min wage per hour

monopoly

market in which there is only one supplier with no close competitors

collusion

businesses agree to work together and restrict competition by fixing prices and sharing contracts between themselves

why are h+s laws essential

to protect workers from discomfort and physical injury at work and providing a heathy and safe working environment but strictiness varies between countries.

what are the two main aims of minimum wage

• prevent exploitation of poorly organised workers by powerful employers

• reduce income inequalities between the high paid and low paid in the economy

two other effects of minimum wage

• increased standard of living and purchasing power of low paid workers

• a work incentive

three criticisms of minimum wage systems

• can be avoided by employers insisting on casual employment w/o contracts or job security

• raising labour costs can make businesses uncomp and make workers redundant

• other workers being paid just above will ask for raise and inflation raises business costs

five examples of changes to law that are constraints that add to business costs

• supervisory costs e.g. checking on recruitment, selection and promotion procedures

• higher wage costs if minimumm wage introduced/increased

• higher costs from increase in paid holiodays, pension contributions and paid leave for sickness, maternity and paternity

• employment of more employees to respond to controls over length of working week

• protective clothing and equipment to meet stricter health and safety laws

what is the benefit for multinationals operating in countries w/ few legal constraints

lower production costs

what are five benefits gained by businesses that meet/exceed minimum standards of law

• workers feel more secure, valued and motivated w/ clear and fair employment contract

• safe working environment reduces risk of accidents and time off work for ill health and injury

• meeting minimum standards avoids expensive court cases and heavy fines

• employees attracted to businesses w/ healthier environments and w/ employment condition policies

• good publicity if business culture considered to treat workers as partners in business, equal in status and importance to managers and shareholders

five reasons why governments around the world take legal action to protect consumers of g&s from unfair/unscrupulous business activity and marketing behavior

• individual consumers are weak and powerless against businesses w/ large marketing and promo budgets. advertising can be influential but misleading

• products more scientific and technological so hard for consumers to understand how they operate and assess accuracy of claims

• selling techniques are very pressurized and harder for consumers to resist e.g. cheap loans → consumers pay off debt for many years at high interest rates

• globalised market place has increased import of goods so consumers need protection from products w/ diff quality and safety standards

• increasingly competitive markets = businesses try take advantage of consumers by reducing quality, service and guarantee periods to offer lower prices

three different uk consumer protection laws

• sale of goods act

• trade descriptions act

• consumer protection act

sale of goods act three main conditions

• g&s must be fit to sell - safe, no defects to make unsafe if used

• all g&s must be suitable for purpose intended

• g&s must perform in way described

what is the trade descriptions act

most important condition is that there should be no misleading description of/claims for goods being sold e.g. plastic chair cover cant claim to be leather

consumer protection act two main conditions

• firms that provide dangerous/defective products are liable for cost of any damage caused

• illegal to quote misleading prices

examples of products that cannot be sold at all

• guns

• illegal substances

• tribal knives

• harmful pesticides

example of things other laws govern

• consumer credit regulations

• safety and prep of food products

what three things do complying with consumer protection laws increases business costs for

• redesign of product to meet consumer h&s laws

• redesign ads to give clear and accurate info

• improve quality-control standards and accuracy of weights and measures

four possible benefits of consumer protection

• reduced risk of consumer injury from using product and resulting bad publicity

• reduced risk of court action

• improved customer loyalty for prods that meet minimum performance standards

• a reputation for dealing w/ complaints fairly and quickly and for advertising with fairness and honesty

what may laws to protect consumers require in a business

change of strategy and culture because putting consumer interests at the forefront of company policy may demand change of attitude among very senior managers

free and fair competition between businesses has what four benefits

• wider choice of g&s than when just one business dominates a market

• businesses have to keep prices as low as possible to be competitive

• businesses compete by improving quality, design and performance of product

• competitive markets within one country also have external benefits. rival businesses become more competitive against foreign firms which helps strengthen domestic economy.

governments attempt to encourage and promote comp between businesses by passing laws that do what two things

• investigate and control monopoly activities and make it possible to prevent mergers and takeovers that create monopolies

• limit or outlaw uncompetitive practices between businesses e.g. collusion

monopoly

market in which there is only one supplier with no close competitors

social audit

a report on the impact a business has on society

demographic

relating to the structure of the population

when does a business show csr/corporate social responsibility

when a business accepts its legal and moral obligations to all stakeholders, not just investors.

accounting window dressing

csr practices and other forms of making accounts appear more favourable

what is the issue with csr and accounting practices

companies can:

• report misleading profit figures to make the company seem like a good investment to shareholders

• inflating value of business so lenders give more loans

what is a widely held view about csr and accounting practices

any deliberate attempt to distort the profitability or value of a company to give misleading picture is socially responsible and should be against the law

examples of csr and the payment of illegal incentives

• awarding ‘incentive payments’/bribes to directors/purchasing managers so a contract is awarded to a particular company

• awarding ‘incentive payments’ to government officials to obtain subsidies or avoid legal action for breaking environmental laws

what is wrong with incentive payments

most countries have effective laws preventing these because they lead to distorted marketplace where its not necessarily the best product that receives a contract or the worst wrongdoer who pays fines

what is there a growing demand for businesses to do

report annually on how socially responsible they have been

what do social audits/annual social reports show

the social impact of a business over the same period as annual accounts and if profits were made at the expense of stakeholder interests or if businesses made real efforts to meet its social responsibilities.

are social audits a legal requirement

no, they do so voluntarily

social audits usually include what seven things

• h&s record e.g. no. accidents/fatalities

• pollution levels

• contributions to local community events and charities

• proportion of supplies from ethical sources e.g. fairtrade suppliers

• employee benefit schemes

• feedback from customers and suppliers on the ethical nature of business’s activities

• annual targets for social responsibility measures

three benefits of social audits

• identify what social responsibilities the business is meeting and what still needs to be achieved

• managers can set targets for improvement in social performance by comparing these audits w/ best-performing firms in industry

• improve a company’s public image which is useful to increase sales

three limitations of social audits

• if not independently checked, it may not be taken seriously by stakeholders

• detailed social audits require time and money

• some consumers are just interested in cheap goods not whether businesses they buy from are socially responsible or not

what will a business that aims to be socially responsible do

take decisions that consider the needs of the community as well as its shareholders

four benefits of a business attempting to meet the needs of the community

• improving public image of business making it more attractive to investors and socially aware consumers

• increasing chance that community will accept business decisions e.g. expansion and relocation

• increasing change that business will receive gov. grants and subsidies

• reducing risk of negative action being taken against the business by pressure groups

four examples of pressure groups + what they do

• greenpeace - campaigns for greater environmental protection by businesses adopting green strats and govs passing tighter anti-pollution laws

• fairtrade foundation - aims to achieve better deal for agricultural producers in low-income countries

• amnesty international - supports human rights esp. in countries at risk as result of gov action

• extinction rebellion - encourages demonstrations to force govs to take action against climate change.

pressure groups want changes in what three important areas

• businesses to change policies e.g. so less damage is caused to environment

• consumers to change purchasing habits so businesses adopt appropriate policies and see increase in sales and those that continue to pollute/use unsuitable practices sales fall

• govs change their policies and to pass laws supporting aims of group

what three ways do pressure groups try achieve their goals

• publicity through media coverage

• influencing consumer behavior

• lobbying of government

how can publicity through media coverage support pressure groups

• frequent press releases giving details of undesirable company activity

• coverage of direct-action events e.g. meetings, demonstrations, consumer boycotts keep campaign in public eye

• more bad publicity for company = greater chance of changing policy

how does influencing consumer behavior support pressure groups

• can be so successful that consumers stop buying products long enough that urge to change policy becomes stronger

• e.g. shell petrol after they dumped an old oil plaftform in sea

how does lobbying govs support pressure groups

• legal changes asked for stand greater chance of being introduced if popularity of gov is damaged by pressure-groups campaign that demands gov action

lobbying of govs meaning

putting the arguments of the pressure group to government members and ministers because they have the power to change the law.

changes in size and structure of population can occur at what three levels:

• local e.g. increase in local pop due to large settlement of foreign refugees or new housing estates built

• national e.g. increase/decline in national birth rate and ageing national pop.

• global e.g. projected growth in world’s pop from almost 8 billion in 2020 to 11 billion by 2100

six recent global social and demographic changes

• ageing population for hics

• changing role of women who increasingly seek employment and fill posts of responsibility

• better provision of education facilities and increasing literacy leading to more skilled and adaptable workforces

• early retirement in many hics leading to more leisure time for growing no. relatively wealthy pensioners

• rising divorce rates = more single-person households

• job insecurity caused by globalisation = more employees accept temporary and part-time employment although some workers prefer this option

globalization

increasing freedom of movement of goods, capital and people around the world

ageing population

avg age of population rising

three things ageing population is often associated with

• larger proportion of population over age of retirement

• smaller proportion of population below 25 years old

• larger no. dependents on social benefits, putting a higher tax burden on working population

2 impacts on business of lower birth rates, more women in work and longer life expectancy

• changing patterns of demand - older consumers demand diff types of products than younger consumers. market research important to forecast changes in demand for products as consequence of ageing population

• age structure of workforce - less young employees available so need more planning including provision for employing older workers or keeping existing longer than usual. younger workers more adaptable and easier to train in enw tech, older said to show more loyalty to business and will have years of experience that can improve customer service

12 main features of changing employment patterns in many countries

• labour replaced by capital equipment e.g. automated machines esp in secondary sector of economy. output and efficiency rise due to increasing prod. yet total employment falls

• labour transferring from old established industries e.g. steel to new hi-tech industries e.g. comp-games design

• no. women in employment and in wider range of occupations is increasing

• part-time employment is increasing

• learner employment on part-time basis increasing e.g. mcdonalds and supermarkets

• temporary and flexible employment contracts increasing e.g. to reduce fixed cost of full time jobs and for seasonal demand/uncertainty

• flexible work patterns more common e.g. work from home/flexi-hours benefit employee and employer

• ageing population increases dependency ratio e.g. increasing retirement age reduces dependency ratio

• women tend to stay in full-time employment for longer, families smaller, more women childless or later in life

• more women take maternity leave and then return to work

• many countries are increasingly multicultural which effects pattern of women at work

what is a crucial factor of production and likely the greatest single expense

labour

four possible opportunities of social and demographic change

• demand is increasing for products aimed at ethnic groups or age groups

• rising population increases demand for housing/household products

• increasing numbers of high-income, middle-class ppl increase consumer spending on luxury products

• part-time employment patterns allow for greater flexibility of operations

the most successful companies are those that…

adapt quickly to social and demographic changes

four possible threats of social and demographic change

• reduced demand for products aimed at age groups/social groups that are becoming relatively less important

• shortage of labour supply if there’s an ageing population

• increased taxation to pay for more people dependent on social benefits

• need to restructure work patterns to suit more part-time workers

• part-time workforce may be more difficult to build into a loyal team

globalization

increasing freedom of movement, goods, capital and people around the world

information technology/it

the use of electronic technology to gather, store, process and communicate information

four recent developments that have transformed business operations

• products consumers demand

• ways products are made

• ways businesses communicate

• ways businesses collect, store, and use information

five opportunities from new technology

• new products - developing new consumer electronics products

• new processes - automation and robotics widely adopted

• reduced costs - resulting from higher levels of productivity

• better communications - from increasing use of social media

• more information - it systems providing more data for business decisions

what six threats do technology present to businesses

• costs

• workforce relations

• reliability

• data protection

• management

• competition

how can technology create costs threats to business

• capital costs can be substantial

• labour training costs necessary

• redundancy costs incurred if employees replaced by tech

how can technology bring workforce relation issues to business

• can be damage if tech change isn’t explained/presented to workers in positive and justified way

• if jobs lost during change, workers have less job security damaging motivation levels

• trade unions can oppose tech change if risks too many members’ jobs

how can technology bring reliability issues to businesses

• breakdowns in automated production/inventory handling systems = whole process halted

• teething problems w/ new systems

• expected gains in efficiency may take longer to be realised than forecast

how can technology bring data protection issues to businesses

• right to hold data on staff and customers is controlled by national laws

• business must keep up to date w/ legal constraints on use of IT

how can tech bring management issues to business

• some managers don’t welcome new tech

• recognizing need for change and managing process of change require good management skills

how can tech bring competition to businesses

• rival companies even more innovative and adopt tech more rapidly so business less comp before investing in tech

3 benefits of management info systems using IT for data about business operations

• managers can obtain data quickly and frequently from all departments and regional divisions of business which aids overall control

• computers can be used to analyse and process data rapidly allowing managers to interpret data and take decisions based on it quickly

• management information systems accelerate the communication of decisions to those in orgs who need to know

info gives managers the opportunity to…

review and control business operations and management info systems give central managers substantial powers

2 drawbacks to management information systems

• ease of transferring data electronically can lead to info overload making it more difficult to identify most important info and areas of business most in need of action

• power that info brings to central managers may reduce authority and empowerment given to work teams and middle managers. central control can be oppressive, reducing job enrichment and motivation levels

how do the best managers use it systems info

speed up decision making given to work teams and middle managers. central control can become oppressive, reducing job enrichment and motivation levels

job enrichment

aims to use the full capabilities of workers by giving them the opportunity to do more challenging and fulfilling work

what are the five important stages businesses should go through when updating tech

• analyse the potential use of new tech and ways itll make bus more effective

• involve managers and other employees in assessing benefits and pitfalls of introducing new tech. good ideas may come from workers using > managers who bought

• evaluate diff systems available, comparing cost and expected efficiency and productivity gains. consider budget available

• plan introduction of new system including extensive training for all users and demos to staff

• monitor intro and effectiveness of new system

the greater no. competitors and total market share…

less market power individual businesses have

even if there are few competitors….

it is easy for new businesses to join an industry, the market power of any one business will be low

decisions on pricing have to be taken in line w/ competitors prices unless…

effective product differentiation is achieved

the smaller the no. suppliers…

the less likely a business customer is able to influence prices and credit terms

why is it good when there are many suppliers competing

customer business has better chance of forcing prices of supplies down and demanding longer credit terms

the opportunities presented by international trade mean that…

increasing proportion of businesses either use imported materials or export their own or both [all countries engage in international trade]

potential risks from international trade include what six things

• may be loss of output and jobs from domestic firms that can’t compete effectively w/ imported goods

• may be decline due to imports in domestic industries that produce essential goods e.g. steel/foodstuffs which could put the country at risk if there was conflict between countries or anything leading to loss of imports

• switch from making goods that cannot compete w/ imports, to those in which country has a comparative advantage may take long time causing job losses and factory closures before other production increases

• newly established businesses may find it impossible to survive against comp. from existing importers which prevents ‘infant industries’ from growing domestically

• some importers may dump goods at below cost price in order to eliminate competition from domestic firms

• if value of imports exceeds value of exports for several years = loss of foreign exchange

protectionism:

use of barriers to free trade to protect a country’s domestic industries

what are the three most common forms of trade barriers

• tariffs

• quotas

• voluntary export limits

why has there been significant reductions in protectionism over recent years

series of international trade agreements

what have the recent moves towards free international trade with less protectionism been driven by

• world trade organization

• free trade blocs

tariff

tax imposed on an imported product

quota

physical limit placed on the quantity of imports of certain products