Chapter 5: Other influences on business

External constraints and constraints on business activity

Businesses cannot survive by neglecting the "real world", which includes influences that forces a business to make certain decisions or constraints that limits or controls actions. External constraints are things that businesses cannot control, these are: Technological change: New products. Technological change: New production processes.

Increased competition. nvironmental issues.

!ere is a table from the book giving e"amples and the possible impacts on business activity: Technological changes Technological change bring about constant changes in consumer products and production processes. By using R&D to develop new products, companies could open up new ar!ets and make huge amounts of money. #uch companies include $icrosoft, #ony and %pple. !owever, new products &uickly replace old ones 'ust like how achines are replacing wor!ers in production processes. There are two general things a firm could do when facing technological change: "gnore the changes and operate in the "traditional and old fashioned way". !owever, they can only sell to a small and li ited ar!et. Co pete by welco ing changes and have an access to huge ass ar!ets. !ere are some pros and cons of technological change:

#ros:

New products encourage customers to buy ore. If a business comes up with a new product first, they gain a huge co petitive advantage. $%igh&tech$ production methods make production more efficient. 'ewer wor!ers are re&uired. New production methods can be adapted very (uic!ly which gives businesses more flexibility in meeting consumer wants.

E&co

erce opens up new markets and the Internet is a

ediu

of advertising.

Cons:

()* is expensive, without guaranteed success. Businesses that do not develop new products will fail, leaving workers unemployed. New production methods and machines are expensive. +orkers will need retraining which is expensive. They might be reluctant to learn or fear that they will not do well. This could lead to a fall in otivation. ,commerce lacks personal customer service. #maller businesses cannot afford these things.

"ntroducing technological change successfully +orkers and managers may fear change. +orkers might think: +ill I be able to operate the new machines +ill I lose my 'ob because the machines are more efficientOlder workers are especially afraid of loosing out to younger and better trained workers. )anagers also fear change, since recruiting technology e"perts will make them look more inferior in some way. To make these changes work better, workers need to be involved in the changes. +orkers might be told why the new machines are necessary and how they will be trained to use them, as well as letting them suggest ways to make work more efficient with the machines. It leads to more opportunities for trained and skilled staff and can lead to new ideas and products. Co petition $ost businesses have competitors. $ost business decisions are based on: +hat competitors are doing !ow they might react+hen you develop a successful product, other businesses will undoubtedly copy you. Therefore, you will need to research and develop even more products, !eeping ahead of them. .ompetition is a ma'or influence on business activity. Environ ental constraints on business activity There are two general opinions on caring about the environment: & Opinion *: /eeping the environment clean is too expensive. +e want to keep prices low and this is what consu ers want too. 0rotecting the environment is too expensive and reduce profits. "ncreased prices mean increased costs.

1irms could become less co petitive compared to others who are not environmentally friendly.

+overn ents should pay to clean it up.

& Opinion ,: .onsumers are now starting to prefer businesses with social responsibility. .leaner and more efficient machinery benefit the business in the long,run. nvironmental issues affect us all and businesses have a social responsibility to deal with them. 2sing up scarce resources leaves less for future generations and raise prices.

.onsumers are becoming more socially aware. $ore now prefer firms that are environmentally friendly which could become an ar!eting advantage. If a business damages the environment, pressure groups could protest and damage its i age and reputation. a!e a business ore environ entally friendly

-ays to

3overnments make these business activities illegal: locating in environ entally sensitive areas. du ping waste products into waterways.

making products that cannot be easily recycled.

$anufacturers often complain that these laws raise prices. Therefore, so e governments usually do not make these laws strict with the hope of increasing output and in turn e ploy ent. 'inancing penalties. including pollution per its #ollution per its are licences given to a business to pollute up to a certain level. If "dirty" businesses pollute over the permitted level, they either have to buy per its from "cleaner firms" or pay heavy fines. This encourages firms to be cleaner and sell their permits to dirtier companies for more oney. 4ther penalties include additional taxes. Consu er action and pressure groups .onsumers are becoming more socially aware, and many of them will stop buying goods from companies which pollute the environment, harming a business5 reputation and i age. Bad publicity means lower sales. If they want to keep their sales revenue up firms would have to adapt to more environmentally friendly production processes again. #ressure groups are becoming very powerful nowadays. They can severely damage businesses that are not socially responsible. These are their powers: Consu er boycotts #rotests

,loc!ing waste pipes. edia coverage.

These are times when they are likely to take action: They have popular public support and has a lot of

The group is well organised and financed.

These are times when they are less likely to take action: +hat a company is doing is unpopular but not illegal. 6e.g. testing drugs on rats7 The cost of making the company cleaner is ore than losses that could be made by losing image and sales.

The firm supplies other firms and not customers, public support will be less effective.

Environ ental issues and cost&benefit analysis 3overnments are increasingly concerned about the social and environ ental effects of business activity. They have started to use a new type of analysis on businesses and government proposals which will not only take into account financial costs but also external costs. Cost&benefit analysis re&uires and awareness of external costs 6costs to the rest of society7 and external benefits 6gains to the rest of society7. !ere are some e"amples. *ecision: % new chemical plant will be built.

/ocial costs are worked out from private costs and external costs. /ocial benefits are worked out from private benefits and external benefits. In other words: /ocial costs 8 private costs 9 external costs. /ocial benefits 8 private benefits 9 external benefits.