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Summary A2 Section 1: Business and Its Environment
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A2 summary of Section 1: Business and Its Environment
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Unit 1: Business & its EnvironmentChapter 6: External Influences on Business Activity
Privatisation= act of selling state-owned & -controlled business organisations to investors in private
sector.
Pros:
1. Greater efficiency.
2. Decision-making in state is slow & bureaucratic (paperwork & systems).
3. Gives responsibility for success to managers & employees (motivating).
4. Successful ones can expand.
5. Important business decisions taken for financial reasons, not political.
6. Sale of nationalised industries can raise finance for government.
7. Access to private capital markets, leading to increased investment in industries.
Cons:
1. State makes decisions about essential industries, based on need of society not stakeholders.
2. Privately operated businesses unlikely to achieve a coherent & coordinated policy for benefit
of the whole country.
3. State ownership can be made accountable to the country.
4. Monopolies created in industries, exploiting consumers with high prices.
5. Breaking nationalised industries, reduces opportunities for cost saving by economies of scale.
Nationalisation= transfer of privately owned businesses to state (government) ownership & control.
Pros:
1. Government will control major industries.
2. Integrated industrial policy now possible.
3. Prevents monopolies & consumer exploitation.
4. Economies of scale achieved by merging all private businesses in industry into one
nationalised corporation.
Cons:
1. Less profit motive & incentive to operate the industry efficiently & government may provide
subsidies to loss-making nationalised industries.
2. Governments may intervene too much in business decision-making for political reasons.
3. Cost to the government buying private companies is very high.
4. Removes ability of industry to raise finance from private sources (Stock Exchange).
Two Main Objectives of Legal Constraints on Business Activity:
- Prevent exploitation by minimum wage rates and health & safety.
- Control excessive use of trade union collective action.
Employment Practices, Conditions of Work & Wage Levels:
Legal Protections of the Rights of Workers:
1. Written contract, workers fully aware of pay, working conditions & disciplinary procedures.
2. Minimum ages at which young people can be employed.
3. Maximum length of working week.
4. Holiday & pension entitlements.
5. No discrimination (racer, colour, gender, religion).
6. Protection against unfair dismissal.
Minimum wage= employers are not allowed to pay less than the set minimum wage per hour (in some
countries it is a minimum payment per week or per month).
Benefits:
- Prevent exploitation. - Work incentive.
- Reduce income inequalities.
- Increased standard of living & purchasing power of low-paid workers.
Limitations:
- Can be avoided by employers insisting on casual employees.
1
, - Raising labour costs makes businesses uncompetitive, making workers redundant.
- Workers paid just above minimum ask for raises, & inflation & business costs increases.
Health & safety at Work:
Requirements aim to protect workers from discomfort & physical injury at work.
Laws Usually Require Businesses to:
1. Equip factories & offices with safety equipment & train staff.
2. Provide adequate toilets.
3. Protection from dangerous machinery & materials.
4. Adequate breaks & maintain certain workplace temperatures.
Impact on Business of Changes:
1. Supervisory costs. 2. Higher wage costs.
3. Higher costs from increase in paid holidays, pension contributions & paid leave for sickness,
maternity & paternity.
4. Employment of more employees to respond to controls over length of working week.
5. Protective clothing & equipment to meet stricter health & safety laws.
Marketing behaviour, consumer rights and controls over some products:
Reasons why governments take legal action to protect consumers of G&S from unfair scrupulous
business activity & marketing behaviour:
1. Individual consumers are powerless against large marketing & promotion budgets.
2. Difficult for consumers to keep up technological & scientific advances (claims made for them).
3. Selling techniques consumers can’t resist (apparently cheap loans have high interest rates).
4. Consumers need protection from products that have different quality & safety standards.
5. Increasingly competitive markets reduce quality, service & guarantee to offer a lower price.
Consumer Protection Laws:
Sale of Goods Acts (3 main conditions):
1. G&S must be fit to sell, safe & no defects.
2. All G&S must be suitable for purpose they are intended.
3. G&S must perform in way described.
Trade Descriptions Act: no misleading descriptions/claims of the goods sold.
Consumer Protection Act (2 main conditions):
1. Firm providing dangerous or defective products liable for cost of any damage caused.
2. Illegal to quote misleading prices.
Complying Increases Costs:
- Redesigning products meeting health & safety laws.
- Redesigning advertisements to give clear & accurate data.
- Improving quality-control standards & accuracy of weights & measures.
Benefits of Consumer Protection:
- Reduced risk of consumer injury by using a product & resulting bad publicity.
- Reduced risk of court action.
- Improved customer loyalty for products.
- Reputation for dealing with complaints fairly & quickly.
Competition:
Benefits:
1. Wider choice of G&S. 2. Keep prices low.
3. Businesses compete by improving quality, design & performance of products.
4. Help in straightening domestic economy when local businesses compete against foreign.
Laws that encourage & promote competition:
1. Investigate & control monopoly activities & possible to prevent mergers & takeovers that
create monopolies.
2. Limit or outlaw uncompetitive practices between businesses, such as collusion.
Monopoly= a market in which there is only one supplier with no close competitors.
2
, Collusion= businesses agree to work together & restrict competition by fixing prices & sharing
contracts between themselves.
Location of business: (Chapter 26)
Corporate Social Responsibility= when a business accepts its legal & moral obligations to all
stakeholders.
1. Attempts to distort the profitability or value of a company to give a misleading picture is
socially irresponsible & should be against the law.
2. Laws to prevent these & other forms of incentive payments, which lead to a distorted
marketplace where it's not necessarily the best product that receives a contract or the worst
wrongdoer who pays fines.
3. Growing demand for businesses to report annually on social responsibilities..
Social Audit= a report on the impact a business has on society. Normally include:
- Health & safety records. - Employee benefit schemes.
- Pollution levels. - Feedback.
- Contribution to local community & - Annual targets for social responsibility
charities. measures.
- Supplies from ethical sources.
Pros:
1. Identify what social responsibilities the business is meeting & what still needs to be achieved.
2. Managers set targets for improvement in social performance by comparing audits with best
performing firms in industry.
3. Improve a company's public image.
Cons:
1. Not independently checked (not taken seriously by stakeholders).
2. Time & money consuming.
3. Consumers just interested in cheap goods.
Benefits of Why Businesses Need to Consider Community Needs:
1. Improving public image.
2. Increasing chance that the community will accept business decisions.
3. Increasing chance businesses will receive government grants & subsidies.
4. Reducing risk of negative action.
Pressure Group= organisations created by people with a common interest or aim, who put pressure
on businesses & governments to change policies so that an objective is reached.
Want change in 3 main areas:
1. Businesses to change policies.
2. Consumers to change their purchasing habits.
3. Governments to change policies & pass laws supporting aims of the group.
Achieved by:
1. Publicity through media coverage. 3. Lobbying of government.
2. Influencing consumer behaviour.
Globalisation= the increasing freedom of the movement of goods, capital & people around the world.
Demographic Changes= changes relating to the structure of the population.
Changes can occur in:
1. Local levels. 3. Global levels.
2. National levels.
Recent demographic changes:
1. Ageing population in many highñ-income countries.
2. Changing role of women seeking employment & responsibility.
3. Better provision of education facilities & increasing literacy (skilled & adaptable workforce).
4. Early retirement in many high-income countries (more leisure time for wealthy).
3
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