External influences On Business Activity Flashcards
Privatisation
Privatisation transfers ownership of state owned businesses into the private sector by creating public limited companies
Advantages of privatisation
- Gives responsibility for success to managers and employees. This is motivating. There is a greater sense of empowerment than in state owned businesses.
- The profit motive of private sector businesses will lead to much greater efficiency than when a business is supported by the state.
Disadvantages of privatisation
- Privately operated businesses that compete with each other are unlikely to achieve a coherent and coordinated policy for the benefit of the whole country, for example on the railway system, electricity grid and bus services.
- The state should take decisions about essential industries. These decisions can be based on the needs of society and not just the interests of shareholders. This may involve keeping open business activities that private companies would consider unprofitable.
Advantages of nationalisation
• It prevents private companies operating as monopolies and exploiting consumers.
• Economies of scale can be achieved by merging all private businesses in an industry into one nationalised corporation.
Disadvantages of nationalisation
• There is less profit motive, so less incentive to operate the industry efficiently, and the government may provide subsidies to lossmaking nationalised industries.
• Government may intervene too much in business decision-making for political reasons.
How can legal constraints such as minimum wage affect a business
- Increased minimum wage increases labour costs thus reducing profit
- Other workers being paid just above the minimum wage will ask for a wage raise, and inflation might increase as business costs increase further.
How can legal constraints such as employment rights affect a business
- Can constrain the decision making of managers eg. ending zero hours employment contracts. This can make it difficult to remove unproductive employees.
What are the constraints that add to business costs :
• higher costs from an increase in paid holidays, pension contributions and paid leave for sickness, maternity and paternity
• employment of more employees to respond to controls over length of the working week
• protective clothing and equipment to meet stricter health and safety laws.
What are the benefits of a business meeting standards laid by law
• Workers will feel more secure, more highly valued and more motivated with a clear and fair employment contract.
• A safe working environment reduces the risk of accidents and time off work for ill health or injury.
• Meeting minimum standards avoids expensive court cases and heavy fines.
How do governments attempt to encourage competition
By passing laws that :
• investigate and control monopoly activities and make it possible to prevent mergers and takeovers that create monopolies.
• limit or outlaw uncompetitive practices between businesses, such as collusion.
CSR
Considering the interests of society by taking responsibility for the impact of decisions and activities on stakeholders not only shareholders
Benefits of CSR
- Improved public image - improving the brand image, therefore gain control over pricing to consumers enabling an increase in profit in the long term.
- Greater brand loyalty from consumers can increase sales and profit.
- Increasing the chance that the business will receive government grants and subsidies.
Issues associated with CSR
How important is CSR to consumers? Willy they care more about taste and price rather than the impact of the materials.
- Increased costs in the short term may reduce profit but in the long term increased brand loyalty will enable a higher price to be charged.
Why do businesses need to consider the needs of pressure groups
Businesses are accepting the need to incorporate environmental and ethical considerations into their strategic decision-making. One of the main reasons concerns the growing power and influence of pressure groups at both national and international levels.
Impact on business of social and demographic change
• Changing patterns of demand. Older consumers demand different types of products from those bought by younger consumers. A construction company might, for example, switch from building large apartments for families to smaller units with special facilities for the elderly.
• Age structure of the workforce. There may be reduced numbers of young employees available. Younger employees may be more adaptable and easier to train in new technologies.
