External influences on business activity

Question 1

Privatisation

Answer 1

Selling off of state-owned organizations to the private sector owners

Question 2

Advantages of Privatisation

Answer 2

-Private sector businesses lead to greater efficiency than when a businesses is subsided and supported by the state

-Private businesses will have access to private capital markets thus, capital can be invested in other state project.

-Privatisation gives responsibilities for success to managers and employees, this is motivating. There is a greater sense of empowerment than in state-owned businesses.

-Important business decisions are taken for financial reasons not political reasons when in the private sector.

Question 3

Disadvantages of Privatisation

Answer 3

-Privately operated businesses that compete with each other are unlikely to achieve a coherent and coordinated policy for the benefit of the whole country

-Many strategic industries could be operated as private monopolies if privatised and they could exploit consumers with high prices.

-Privatisation breaks up nationalised industries, reduces the opportunities for cost saving through economies of scale.

Question 4

Nationalisation

Answer 4

State buying privately owned organisations to nationalise them

Question 5

Advantages of Nationalisation

Answer 5

-The government will have control of major industries.

-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.

Question 6

Disadvantages of Nationalisation

Answer 6

-There is less profit motive, so less incentive to operate efficiently, government may provide subsidies to loss-making nationalised industries.

-Government may intervene too much in business decision-making for political reasons.

-The cost to the government of buying private companies could be very high.

-It removes the ability of the industry to raise finance from private sources (e.g. through the stock exchange).

Question 7

Legal constraints on business activity

Answer 7

1. Employment practices, working conditions and wages ( WWE )
2. Marketing behavior, consumer rights and control over some products
3. Competition
4. Location of business

Question 8

Law & Employment practices

Answer 8

-Prevents exploitation of workers - insisting appropriate levels of health & safety and minimum wage rates.

-Control excessive use of trade union collective action

Question 9

Recruitment, Employment Contracts & Termination

Answer 9

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

-Minimum ages at which young people can be employed

-Holiday and pension entitlements

-No discrimination against people during recruitment and selection – or while at work – on the grounds of race, color, gender, or religion

-Protection against unfair dismissal.

Question 10

Health & Safety

Answer 10

-Equip factories and offices with safety equipment and train staff to use it

-Provide adequate washing and toilet facilities

-Provide protection from dangerous machinery and materials

-Give adequate breaks and maintain certain workplace temperatures

Question 11

Effects of Minimum Wage

Answer 11

-Prevent exploitation of poorly organized workers by powerful employers

-Reduce income inequalities between the high-paid and low-paid in the economy

-Increased standard of living and purchasing power of low-paid workers

-A work incentive, as working is more worthwhile than being unemployed

Question 12

Why there is legal action to protect consumer rights

Answer 12

-Individual consumers are relatively weak and powerless against businesses with large marketing and promotion budgets. Advertising can also be very influential but misleading.

-Products are becoming more scientific and technological. It is difficult for consumers to understand how they operate and to assess the accuracy of the claims being made for them.

-The globalized marketplace has increased the import of goods. Consumers need protection from products that have different quality and safety standards to those in the domestic country.

-Increasingly competitive markets lead to some businesses trying to take advantage of consumers by reducing quality, service, and guarantee periods in order to offer a lower price.

Question 13

Consumer Protection laws:

Answer 13

-Sale of Goods Act
-Consumer Protection Act
-Trade Descriptions Act

Question 14

Sale of Goods Act:

Answer 14

1. Goods and services must be fit to sell; they should be safe and have no defects that will make them unsafe if they are used in the ways intended.
2. All goods and services must be suitable for the purpose for which they are intended.
3. Goods and services must be performed in the way described.

Question 15

Trade Descriptions Act:

Answer 15

Should match the description, with no misleading description.

Question 16

Consumer Protection Act:

Answer 16

1. Firms that provide dangerous or defective products are liable for the cost of any damage they cause.
2. It is illegal to quote misleading prices (e.g. a retailer cannot claim that the price of a product is $50 less than the manufacturer’s recommended price if that is not true).

Question 17

How complying with consumer protection laws increase costs for businesses

Answer 17

-Redesigning products to meet consumer health and safety laws

-Redesigning advertisements to give only clear and accurate information

-Improving quality-control standards and the accuracy of weights and measures.

Question 18

Benefits for businesses of consumer protection include:

Answer 18

-Reduced risk of consumer injury from using a product and resulting bad publicity

-Reduced risk of court action

-Improved customer loyalty for products that meet minimum performance standards

-A reputation for dealing with complaints fairly and quickly and for advertising with fairness and honesty.

Question 19

Free and fair competition between businesses benefits the consumers as:

Answer 19

-More options

-Businesses will lower prices to remain competitive

-Improved quality, design, and performance to gain a competitive advantage

-Domestic businesses start getting more competitive with foreign businesses too

Question 20

CSR:

Answer 20

When a business accepts its legal and moral obligations to all stakeholders, by taking responsibility for the impact of their business decision on society and environment.

Question 21

CSR and accounting practices:

Answer 21

Any Deliberate attempt to distort the profitability or value of a company to
give a misleading picture is socially irresponsible and should be against the law. “Accounting window dressing”

Question 22

CSR and the payment of illegal incentives:

Answer 22

Providing “incentive payments” (Bribes) to directors, purchaisng managers or government officials is illegal, as they lead to a distorted marketplace, where it is not necessarily the best product that receives a contract or the
worst wrongdoer who pays fines.

Question 23

CSR and social auditing:

Answer 23

Social Audits: Are Annual social reports, which indicates the social impact of a business over a period of time. They include:

-A health and safety record (e.g. the number of accidents and fatalities)
- Pollution levels
- Contributions to local community events and charities
- The proportion of supplies from ethical sources (e.g. Fairtrade suppliers)
- Employee benefit schemes

Question 24

Benefits of social audits:

Answer 24

-Identification of soical responsibilities the business is meeting and what still needs to be achieved.

-Targets can be set by mangers, for improvement in social performance, through comparison of these audits with best performing firms in industry

-Improve a businesses public image, useful marketing tool to increase sales

Question 25

Limitations of social audits:

Answer 25

-If social audit is not independently checked, may not be taken seriously by stakeholders

-Detailed social audits require time and money

-Some consumers are intrested in cheap goods, regardless of whether the business is socially responsible or not

Question 26

Why businesses need to consider the needs of the community including pressure groups:

Answer 26

A business that aims to be socially responsible will take decisions that consider the needs of the community as well as its shareholders

Therefore businesses need to consider the needs of the community in order to:

• Improving the public image of the business, making it more attractive to investors and socially aware consumers
• increasing the chance that the community will accept business decisions such as expansion or relocation
• increasing the chance that the business will receive government grants and subsidies
• reducing the risk of negative action being taken against the business by pressure groups.

Question 27

Areas in which Pressure groups want changes to be made:

Answer 27

• Business policies to change, thus less damage caused to environment
• Consumers to change purchasing habit, thus businesses which adopt appropriate policies will increase sales, whilst those that continue to pollute or use unsuitable work practices will see fall in sales
• Governments to change their policies, and pass law supporting aims of the group

Question 28

(Areas in which Pressure groups want changes to be made) Theses goals are met through:

Answer 28

• Publicity through media coverage: Effective public relations are vital to successful pressure-group campaigns. The more bad publicity the group can create for the company concerned, then the greater the chance of changing company policy.
• Influencing consumer behaviour: Public sympathy for a pressure-group campaign can increase its effectiveness significantly.
• Lobbying of government. If the popularity of the government is damaged by a pressure-group campaign that demands government action, then the legal changes have a greater chance of being introduced.

Question 29

Demographic changes at a local, national and global level:

Answer 29

• Local level: Increase in the local population due to a large settlement of foreign refugees or the building of large new housing estates.
• National level: Increase or a decline in the national birth rate and an ageing national population.
• Global level: Projected growth in the world’s population

Question 30

Recent global social and demographic changes include

Answer 30

• An ageing population in many high-income countries
• the changing role of women, who increasingly seek employment and fill posts of responsibility in industry
• better provision of education facilities and increasing literacy, leading to more skilled and adaptable workforces
• early retirement in many high-income countries
• rising divorce rates, creating increasing numbers of single-person households
• job insecurity, often caused by globalisation, forcing more employees to accept temporary and part-time employment, although some workers prefer this option.

Question 31

The impact of social and demographic change on business and business decisions

Answer 31

-An ageing population
-Patterns of employment

Question 32

An ageing population:

Answer 32

-Larger proportion of the population over the age of retirement

-Smaller proportion of the population below the age of 25

-Large number of dependents on social benefits, higher tax on working population

Question 33

Impact on businesses of changes in ageing population

Answer 33

-Changing patterns of demand: Older and younger generations have different demand for different products. Market research
will be important to forecast changes in demand for products.

-Age structure of the workforce: Low number of young employees. Workforce planning may be required to include provision to employ older employees or keep existing workers, working longer hours than ususal. It is easier to train and young employees in new technologies as they are more adaptable. Older employees are more loyal and have experince that could improve customer service.

Question 34

Patterns of employment:

Answer 34

-Changes in methods of production to capital intensive, Thus can improve efficiency and output, Employment rate will also fall.

-Increasing number of women employees

-Part-time employment is increasing

-Temporary and flexible employee contracts are increasing, thus the business can reduce their fixed costs of full-time jobs and allow for flexibility when faced with seasonal demand.

-More women take maternity leave and then return to work

Question 35

Advantages of social and demographic change:

Answer 35

• Demand is increasing for products aimed at ethnic groups or age groups.
• Rising population increases the demand for housing and household products.
• Increasing numbers of high-income, middle-class people increase consumer spending on luxury products.
• Part-time employment patterns allow for greater flexibility of operations.

Question 36

Disadvantages of social and demographic change:

Answer 36

• Reduced demand for products aimed at age groups or social groups that are becoming relatively less important.
• Shortage of labour supply due to ageing population.
• Increased taxation to working population due to population 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.

Question 37

Opportunities from new technology include:

Answer 37

• New products: as in developing new consumer electronics products.
• New processes: automation and robotics are being widely adopted.
• Reduced costs: resulting from much higher levels of productivity.
• Better communications: for example, from increasing use of social media.
• More information: IT systems are providing much more data for business decision-making.

Question 38

Threats from new technology:

Answer 38

• Reliability: Breakdowns in automated production or inventory-handling systems can hault the production.
• Competition: Rival companies might be even more innovative and adopt technology more rapidly, leaving a business less competitive than before it invested in technology.
• Costs: Capital costs can be substantial. Due to training costs and updated IT systems. Redundancy costs will be incurred if existing employees are being replaced by technology.
• Data protection: The right to hold data on staff and customers is controlled by national laws and the business must keep up-to-date with these legal constraints on its use of IT.

Question 39

Benefits of using IT systems to provide data with decison-making:

Answer 39

• Managers can obtain data quickly and frequently from all departments, which aids overall control.
• Computers can be used to analyse and process the data rapidly. This allows managers to interpret data and take decisions based on it quickly.
• Management information systems accelerate the communication of decisions to those in the organisation who need to know.

Question 40

Limitations of using IT systems to provide data with decison-making:

Answer 40

• The ease of transferring data electronically can lead to information overload. More difficult to identify important information and areas of the business which requires most action
• The power that information brings to central managers could reduce the authority and empowerment given to work teams and middle managers. Central control can become oppressive, reducing job enrichment and motivation levels.

Question 41

Introducing technology effectively:

Answer 41

• Analyse the potential use of the new technology and the ways it can make the business more effective.
• Involve managers and other employees in assessing the potential benefits and pitfalls of introducing the new technology.
• Evaluate the different systems available, comparing cost, and expected efficiency and productivity gains. Consider the budget available.
• Plan for the introduction of the new system, including extensive training for all users and demonstrations to all staff.
• Monitor the introduction and effectiveness of the system.

Question 42

Impact of competitors and suppliers on business and business decisions:

Answer 42

-The greater the number of competitors and their total market share, the less market power individual businesses have

-Competitive pricing must be implemented, unless there is effective product differentiation.

-The fewer the number of suppliers, less likely a customer business is able to influence prices and credit terms. The more the suppliers competing with each other, the higher change customer business is able to force prices to decrease and demanding longer credit terms

Question 43

Importance of international trade and its impact:

Answer 43

With the rapid growth of international trade, countries can strengthen business, political and social relations as well as their economic development by trading globally.

Question 44

Benefits of increased international trade:

Answer 44

• Consumers have more choice on goods and services
• Increased competition for domestic markets can arise through import of products, thus will encourage businesses to keep costs and prices low, and produce well-designed, high quality goods
• Imports of raw materials will allow a developing country to increase rates of industrialization.
• Imports acting as competition, encourages domestic firms to produce better quality products, to make revenue.
• Rising living standards of countries that trade with each other.
• Improved risk management by becoming less dependent on a singular market

Question 45

Risks of increased international trade:

Answer 45

• Unemployment and low generated income for domestic firms
• Lost business for domestic firms that produce essential goods- if a political conflict were to arise, it could put the country at risk/ lead to a loss of imports.
• Prevents new businesses from growing domestically and competing with imports.
• Some importers dump goods at below cost price to eliminate domestic competitors.
• Currency depreciation

Question 46

Impact of international trade agreements:

Question 47

The role of technology in international trade:

Question 48

Environmental influences on business activity

Answer 48

Environment is affected by business activity, Through Air and Noise pollution, manufacturing processes, road congestion by heavy trucks, emissions of gasses that lead to global warming, and many more.

Question 49

How environmental issues influence business behaviour:

Answer 49

Consumers will support business that adopt green policies, and boycott companies that damage the environment.

Question 50

Advantages for business of adopting environmentally freindly decisons:

Answer 50

• Businesses can benefit by making decisions that reduce negative environmental impact, by reducing pollution by using low-energy equipment; using recycled materials instead of scarce natural
  products, disposing of waste responsibly.
• Marketing and promotional advantage, Reduces the chance of breaking laws that protect the environment, avoiding bad publicity and heavy fines. Able to employ better-qualified employees who are keen to work for an environmentally responsible business.
• There could be long-term financial benefits. such as solar panels, which requires heavy capital expenditure but is low cost once the equipment has been paid for, compared with rising prices for oil and gas.
• The potential costs of cleaning up the environment or compensating locals will be avoided. These might include the cost of clearing polluted waste from rivers or land, or compensation for lost livelihoods and the cost of healthcare for those affected by pollution.

Question 51

Disadvantages for businesses adopting environmentally friendly decisions include:

Answer 51

• Environmentally friendly decisions can be very costly. May increase selling price of products. Keeping prices low may increase sales. Consumers will benefit from low-priced goods and may overlook the environmental consequences.
• Higher costs may reduce profits. Limits future investments
• In many countries, legal protection of the environment is weak and inspection systems are inadequate. If there is little risk of legal action or heavy fines, some businesses will choose cheaper, less environmentally friendly options.
• In developing countries, economic growth may be more important than protecting the environment. as Increasing output using low-cost methods is better than using the greenest production methods.

Question 52

Why businesses should ensure their environmental claims are genuine

Answer 52

Businesses should ensure their environmental claims are genuine. Misleading or untrue claims is called greenwashing, results in bad publicity.

Question 53

Environmental Audits

Answer 53

An independant check to evaluate their environmental performance

Question 54

How stakeholders may use environmental audits

Answer 54

• Environmental audits to report on businesses pollution and waste levels, energy and transport use, and recycling rates. It compares these factors with previous years and pre-set targets, and with other similar businesses.
• Managers may set sustainability targets for the coming year, then report their performance against these targets in the next annual audit.
• Consumer groups may use these audits to influence consumers’ purchasing behaviour. Favourable consumer reaction to an environmental audit could lead to increased sales. Positive media coverage will give free publicity.
• Investors, particularly ethical investors, will use these audits to help decide whether to invest in or lend to the company.
• Able to employ better-qualified employees who are keen to work for an environmentally responsible business. Working towards a common aim of reducing harm to the environment could help to bring employees and managers together as a team.

Question 55

Evaluation of environmental audits

Answer 55

• Until environmental audits are compulsory and there is agreement on what they should include, some observers will not take them seriously.
• Companies have been accused of using them as a publicity stunt or a smokescreen to hide their true intentions and potentially damaging practices.
• They can be very time-consuming and expensive to produce and publish, and this may limit their value to small businesses or those with very limited finance.

Question 56

The important factors of sustainability that influences business decisions include

Answer 56

-Reputation and brand image: a business adopting sustainable style can enhance the companies reputation, increase customer loyalty and leads to higher sales, prevents pressure group action.

-Cost savings: Sustainable practices reduces cost savings in the long run, waste reduction and resource conservation lowers operations expenses

-Government regulations: governments will implement plethora of regulations, Businesses that showcase sustainable measures will prevent being fined or other legal issues.

-Competitive advantage: Sustainable businesses would attract more socially responsible investors, increasing capital and stock valuation.

-Access to markets: Sustainable businesses attract suppliers that meet sustainable standards, opening doors to more markets and revenue streams, knows as consumerism, in which consumers on buy products that do not harm the environment.