Chapter 03

Question 1

SOCIAL FACTORS AFFECTING BUSINESS:

Answer 1

Social factors (e.g. attitudes and life style, culture, demographics) affect business.
Due to changes in social factors:
 demand for some products increase and
 demand for some products decrease.
Therefore, a business has to closely monitor changes in social factors, and must respond to them

Question 2

Attitudes and Lifestyle:

Answer 2

Consumers’ lifestyle and attitudes are changing. People’s habit of busying or responding to
advertisement are changing due to advancement of technology e.g.
 Trend of reading newspaper is almost obsolete. Young generation is using social media.
People in urban areas buy on the basis of rating and reviews.

Question 3

Cultural Values:

Answer 3

Differences in cultural values affect the way business activities are done or products are marketed
e.g.
 Coca Cola and Pepsi use family gatherings as occasions of advertisement in India & Pakistan.
 KFC, Pizza Hut, Mcdonalds, Sub-way offer family deals in India & Pakistan.
 UK likes tea, but USA likes coffee.
 McDonalds did not perform well in China and Japan, until it introduced Asian flavors

Question 4

Ethics:

Answer 4

A business is affected not only by law but also by ethics. Ethical managers follow Honesty, Loyalty,
Respect, Fairness

Question 5

Demography

Answer 5

Demography means composition or characteristics of population e.g. age, gender, race, ethnicity
and location.
Today, every business open its branches based on demographic study of city or area e.g. famous
brands open their outlets in posh areas

Question 6

Age Groups

Answer 6

In their marketing strategy, business focus on different types of generations
e.g. spending habits of generation born after 2000 are different from
generation before 2000.
Young generation is more technology dependent, with comparatively larger
income, but with tendency to spend all and save nothing.

Question 7

Ageing Population

Answer 7

In countries where population is ageing, business offer more products to
appeal middle age and senior market.
In Western countries, birth rate is low and average life is increasing. As a
result, larger population is aged which has created gap for working
population.
Govt. has adopted following policies to tackle demographic changes:
 Permitting immigration.
 Increasing age of retirement.
 Providing tax-incentives or subsidies to individuals who have
children.

Question 8

Migration

Answer 8

Due to migration, there is a large market for eastern goods European
countries

Question 9

Ethnicity and

Nationality

Answer 9

Today, minorities represents around 40% of US population, and in Middle
East. Companies recognize this diversity and develop products and
marketing campaigns that target different ethnic groups.

Question 10

Wealth Distribution:

Answer 10

Business targe their market based on different income groups:
 Some business target only rich and high class of society (e.g. Rolex watches)
 Some business target middle and low class of society (e.g. local departmental store)

Question 11

Health and Education:

Answer 11

Health indicators e.g. birth/death rate are also used by some companies in their business strategy
e.g.
 A higher birth rate indicates demand for baby products e.g. formula milk, and diapers.
 Average life is critical for insurance companies.
 Old Age group and Health conditions of a society are important for industries dealing in
Drugs, Pharmaceuticals and Medial equipment.
 Covid-19 has adversely affected travel and tourism, but has positive impact on
pharmaceuticals and communication technology based companies.
Education (i.e. literacy rate and awareness) of society also play important role in advertisement and
communication by companies

Question 12

Law and Order:

Answer 12

General law and order situation (e.g. robbery, theft, corruption) affects business e.g.
 There is loss of staff and customers.
 Insurance/Security cost becomes expensive.
 Loss due to stolen goods.
 Discourage foreign investment
 Reduced tourism.
During late 80s and early 90s, many business closed their units in Karachi and relocated to other
parts of Pakistan due to law and order situation

Question 13

: LEGAL FACTORS AFFECTING BUSINESS:

Answer 13

A country’s law regulates business practices. It is most important for a manager to study law of the
country where business is being done. Here are some examples:
 In 1970s, private sectors were nationalized by Govt. of Pakistan.
 In 2007 a large shipment of genetically modified corn (which were legal in US) were sent
from US to Europe (which were illegal in Europe). Entire shipment was returned

Question 14

Company Law

Answer 14

If a business is started as a Company in Pakistan, it is required to be registered under Companies
Act 2017. This act includes various requirements e.g. incorporation of company, book keeping,
preparation of financial statements and their audit, general meetings.

Question 15

Partnership Law:

Answer 15

If a business is started as a Partnership in Pakistan, it may be registered under Partnership Act,
1932. This act includes various requirements e.g. registration and dissolution of firms, right and
duties of partners.
Partnerships have more ‘ease of doing business’ as compared to company law, as partnerships have
less legal requirements.

Question 16

Employment Law

Answer 16

Employment laws are made to protect employees from exploitation. Business organizations should
understand employment laws and their impact on business

Question 17

Minimum Wages:

Answer 17

It means minimum wage (per month or pre day or per hour) which must be paid to
employees.

Question 18

Working Conditions:

Answer 18

It means minimum acceptable facilities at working place e.g. maximum hours of work,
safety conditions at work place, retirement age, employment of children.

Question 19

Unfair Dismissal and Redundancy

Answer 19

If an employee is fired without valid reason, he may file legal case against employer. If
employer is unable to prove a valid ground for dismissal, he may have to pay a substantial
compensation to employee.
However, there is no claim if an employee is fired because of redundancy provided:
o Transfer of employee is considered before removal.
o There is no bias in selection of redundant employees.

Question 20

Discrimination

Answer 20

Discrimination means unjust treatment to different categories of people based on race,
religion, gender, age etc.

Question 21

Gender Equality:

Answer 21

Gender Equality means Men and Women should have equal access to resources, and
opportunities (including education, job opportunities)

Question 22

Health and Safety Law:

Answer 22

These laws specify minimum requirements to protect employees and society. Employers are
required to provide safe workplace to employees which has no risk to health.

Question 23

Data Protection Law:

Answer 23

Business Organizations should:
 Hold and use data only after permission of individual.
 Ensure that personal data is kept confidential and accurate.

Question 24

Cyber Laws

Answer 24

Cyber laws mean laws relating to internet. Cyber law provides legal protections to people using the
internet. This includes both businesses and individuals.

Question 25

Competition Law

Answer 25

Competition Laws discourage any activity which restricts fair competition in market e.g.
 Monopoly:
Law prevents control of market by a single organization, because such company may charge
higher prices and may create barriers for other organizations to enter the market.
Govt. usually investigates when a company grows too much, or merges with other
companies to create monopoly in market.
 Collusion:
Collusion means two or more businesses secretly make agreement to do something (e.g. to
set minimum prices, or to avoid competition at a place) for mutual benefit but against public
interest. It is usually illegal.
 Price Controls:
Govt. normally imposes control on prices of certain good and services which are necessities
of life e.g. Utilities (Water, Electricity, Gas)

Question 26

Consumer Protection:

Answer 26

There are some legislations to protect consumers e.g.
 Contract Law
These laws specify damages if goods/services are not delivered as per terms of the contract.
 Sale of Goods Laws
Such laws protect buyer and ensure that seller provides:
o Good Title to buyer
o Goods as per Description
o Goods meeting satisfactory Quality.

Question 27

Copyrights, Patents and Licenses:

Answer 27

These laws protect intellectual property of individuals and businesses.
 Copyrights:
Copyrights protect original creations (e.g. books, music, art) from being copied or
reproduced.
 Patents:
Patent gives exclusive right to inventor to produce a good.
 Licenses:
License is a permission from owner of a right to a third party to use rights.

Question 28

EASE OF DOING BUSINESS:

Answer 28

World Bank ranks 190 countries according to ease of doing business in those countries. This is
considered most authentic indicator of regulatory environment for business.
Following are ten indicators on the basis of which ranking is issued:
 Starting a Business
 Getting credit
 Construction permit
 Getting electricity
 Registering property
 Enforcing contracts
 Paying taxes
 Protecting minority investors
 Trading across borders
 Resolving insolvency
In Pakistan, Board of Investment has been established which has responsibility to meet people
across globe and persuade them to invest in Pakistan