External Influences on Business Activity

External Influences on Business Activity

1. The impact of the government and law on business activity

   • The doctrine of vicarious responsibility
     • An employer is liable for the damage caused to another person by an employee whilst engaged on the employer's business
       • Irrelevant if it's the employer forbade them from doing so
       • The employers responsibility to employe people who will not do this
   • Legal constraints on business activity
     • Employment practices
     • Consumer rights
     • Business competition
     • Location of the business
   • The law and employment practices
     • Main Objectives
       • Prevent exploitation of workers by powerful employees
       • Prevent loss of industrial output and national income from excessive use of trade union collective action
     • Legal constraints
       • Recruitment, employment contracts and termination of employment
         • Written document stating terms and conditions
         • Discrimination is illegal
         • Termination of employment is also subjective to law
         • If the court case had been won by the workers then the firm has to pay compensation
         • Location is key when thinking about minimum wage and hours
       • Health and safety
         • Aims to protect workers from discomfort and physical injury
         • Equip factories and offices with safety equipment
         • Provide adequate washing and toilet facilities
         • Provide protection from dangerous machinery and materials
         • Give adequate breaks and maintain certain workplace temperatures
   • Evaluating the impact on business of legal constraints on employment and health and safety
     • Business Costs
       • Supervisory costs regarding a firms recruitment, selection and promotion procedures
       • Higher wage costs if less than the minimum wage was being paid before the law was introduced
       • Higher costs from giving paid holidays, pension contribution and paid leave for sickness, maternity and paternity leave
       • Employment of more staff to avoid overloading hours for existing workers
       • Protective clothing and equipment to meet health and safety laws
     • Benefits
       • Conditions of employment
       • Pay levels
       • Working conditions
       • Workers will feel more secure and highly valued if offered clear and fair employment contracts
         • Satisfied and motivated workes
       • Reduces risks of accidents and time off working for ill health or injury
       • Failing to meet minimum standards may lead to expensive court cases and heavy fines
       • Adopt a high profile campaign to attract the best employees
         • Receives good publicity and may help marketing benefits
       • The culture will be looked upon as one that treats workers as partners, equal in status and importance to managers and shareholders
         • Reflect well on the firm and make it easier to attract and keep most effective staff
         • Workers will be keen to ensure quality output as they feel apart of the business

2. The Law and consumer rights

   • An individual consumer is relatively weak and powerless against large firms with large marketing and promotion budgets
     • Hard to make a decision when the power of advertising can be so influential
   • Products are becoming more scientific and technological and it is difficult for consumers to understand how they operate and to assess the accuracy of the claims being made
   • Selling techniques are becoming more pressurised and are increasingly difficult for consumers to resist
     • Such as cheap loans, consumer credit which if not studied can cause consumers to be in debt for many years
   • Increasing globalised marketplace is leading to increase in imported goods
     • Consumers may need protection from producers which adopt different quality and safety standards from the domestic country
   • The increasing competitive nature of most markets leads to firms taking advantage of customers by reducing the quality, service, guarantee periods and so forth in order to offer a 'promotion'
     • Sale of Goods Act 1979 and 1982
     • Trade Descriptions Act 1968
     • Consumer Protection Act 1987
   • Evaluating consumer protection laws on business
     • Costs will have to rise to meet the consumer protection legislation
       • Redesigning products and advertising
       • Quality control
     • Treating consumers fairly and responding to complaints quickly
     • May require a total cultural and strategy change
       • Consumer interests first
     • Become well known and widely publicised that the firm can meet minimum needs and offer consumers genuinely improved deals

3. The law and business competition

   • Benefits
     • Wider choice of goods and services
     • Prices will be kept as low as possible to remain competitive
     • Compete by improving quality, style and performance of the product
     • External benefits such as being more able to compete effectively with foreign firms and this will help to strengthen the domestic economy
   • Governments attempt to pass laws which
     • Investigates and controls monopolies and make it possible to prevent merges
     • Limit or outlaw uncompetitive practices between firms

4. Monopolies

   • How they develop
     • Invention of products or processes which are patented to give a monopoly production
     • Merging or taking over other firms in the industry
     • Legal protection
     • Barriers to entry into an industry
   • How are consumers affected
     • Lower prices
       • Large scale production
     • Increased expenditure
       • New products and technological advances
       • Profits
     • Higher prices
       • Due to little competition and less variety
     • Less investments due to complacency
     • No incentives to lower costs and improve efficiency
   • Uncompetitive or restrictive practices
     • Refusal to supply a retailer if they do not agree to charge the price determined by the manufacturers
     • Full line forcing
     • Market sharing agreements and price fixing agreements
     • Predatory pricing

5. The impact of technology on business activity

   • Limitations
     • Costs
     • Labour relations
     • Reliability
     • Data protection
     • Management
   • Benefits in decision making
     • Obtains data quickly and frequently from all departments and regions
     • Can be used to analyse and process the data rapidly so managers can interpret them
     • Accelerates the process of communicating decisions to those in the organisation who need to know
   • Applications
     • Word processing
     • Pagemaker
     • Database
     • preadsheets
     • CAD
     • CAM
     • Internet
   • Drawbacks of decision making
     • Ease of data transferring can lead to too many messages being received and hence a system overload and the process can slow down
     • Power that information brings can be abused leading to a reduction of authority and empowerment
       • Can reduce job enrichment and hence motivation
   • Introducing technology effectively
     • 1. Analyse
     • 2. Involve
     • 3. Evaluate
     • 4. Plan
     • 5. Monitor

6. Social and demographic influences on business activity

   • Chnages
     • Ageing population, reduced birth rates and longer life expectancy
     • Changing role of women
     • Better provision for education facilities
     • Early retirement in high income countries
     • Rising divorce rates
     • Job insecurity
   • Evaluating effects on business of the changes in the pattern of employment
     • Higher quality and better qualified workers makes the business more efficient but comes at a great cost
     • Part time workers provides more flexibility but would be difficult to place into a team
     • Employing females and removing their barriers to progress helps provide greater choice and motivation but maternity costs may increase
     • Most successful business adapts to changes most quickly and attempt to turn them to their own competitive advantage

7. Environmental constraints on business activity

   • The environment and corporate social responsibility
     • For
       • Reducing pollution by using 'green' equipment or recycled materials have a marketing and promotional advantage
       • Low pollution and proper disposal methods will reduce chances of the business breaking the law and bad publicity
       • Switching to environmentally friendly methods often leads to improved quality applications from employees
       • Long term financial benefits such as solar panels
     • Against
       • Marketing advantages from keeping prices low despite environmental damages
       • Lowers profits due to costly equipment and may reduce future investments
       • Legal protection is weak and little inspection therefore law breaking risks are reduced
       • Economic development is more important than environmental protection
   • Environmental Audits
     • Difficult to measure in monetary value
     • Checks pollution levels, waste levels, energy use, transport and recycling rates
     • Entirely voluntary
     • Those that publish their reports expect something in return
   • Social Audits
     • Health and safety records
     • Contributions to local community
     • Proportions of suppliers who use ethical sources
     • Employee benefit schemes
     • Feedback from customers and suppliers on how they perceive the ethical nature of the business activities
     • Annual targets
     • Improves firms public image
   • Evaluation of environmental and social audits
     • Until made compulsory and general agreement about what should be included some firms will not take them seriously
     • Companies have been accused of using them as publicity stunts to hide true intentions
     • Can be very expensive and time consuming to produce and publish and make them of limited value for those of limited finance
   • Environmental and ethical issues : Pressure groups
     • How they opperate
       • Governments change policies and pass laws to support the aims of the group
       • Businesses to change policies to cause less damage
       • Consumers to change their purchasing habits so businesses can adopt appropriate policies to increase sales
     • How they achieve these goals
       • Publicity through media coverage
       • influencing consumer behaviour
       • Lobbying of government