GAC 012 Business II: Business Studies PDF

## GAC 012: Business II: Business Studies ### **Part B** ### **Additional External Factors Influencing Business** | Factors | Impact | |---|---| | 1. Economic - covered in Unit 2 | | | 2. Political | | | Government and government policy influence all businesses. In many countries, the politic...

## GAC 012: Business II: Business Studies ### **Part B** ### **Additional External Factors Influencing Business** | Factors | Impact | |---|---| | 1. Economic - covered in Unit 2 | | | 2. Political | | | Government and government policy influence all businesses. In many countries, the political environment encourages: | | | Self-reliance: The government may decrease subsidies to certain companies or industries to encourage self-development. | | | Cutbacks in government spending: As the government decreases its spending, it can directly affect those companies that did business with them. | | | Increased privatisation: Freeing up industries that were previously owned by the government allowing either local or foreign companies to participate. | | ### **Free Trade** 2.1 Free trade Free trade is the buying and selling of goods and services (and not labour or capital) without restrictions such as tariffs, quotas or lengthy legal processes. Free trade agreements may present obstacles to local small businesses. In Australia, for example, small businesses have high employment costs: wages are high and the law has stringent requirements (for example: provisions for sick leave, workers' compensation and superannuation). This makes it very difficult for them to compete in a global marketplace. The "Triad", consisting of North America (NAFTA - North American Free Trade Agreement), the Pacific Rim (AFTA ASEAN Free Trade Area), and the European Union (EU) make up the major free trade blocs in the world. In 2009, together with the South America bloc (MERCOSUR), they made up about 65% of the world's GDP and 27% of the world's population. #### **Task 3.1** Conduct Internet research to find the following: * What is free trade? * What is trade liberalisation? * What is the opposite of free trade? * What are some positive and negative impacts that free trade has on a country? * Provide examples from your own country. Bring your notes to class to discuss. ### **Globalisation** #### **2.2 Globalisation** The term globalisation is far more wide-reaching than international business, which refers to businesses engaged in transactions across multiple borders. Globalisation is: ...the worldwide movement toward economic, financial, trade, and communications integration. Globalisation implies opening out beyond local and nationalistic perspectives to a broader outlook of an interconnected and inter-dependent world with free transfer of capital, goods, and services across national frontiers. A borderless world is developing with world exports of goods and services accounting for almost a quarter of the world GDP. (US$18.71 trillion out of US$87.25 trillion, estimated 2013). Businesses compete domestically and internationally and invest globally. In 2014, Apple was rated as the top global brand, closely followed by Google. | Brand | Home Country | % of revenue earned out of home country | |---|---|---| | Apple | USA | 60% | | Google | USA | 55% | Note: A global brand is one that is recognized by people from all over the world. This is contrary to a local brand which operates and conducts its affairs in the home country. Fohlke Ahlback, Chairman of the Finnish company, Nokia (China) Investment Co., identified the biggest challenges for the global marketplace as "politics, culture and the use, transfer and protection of technology" (cited in Deresky, 2002, p.4). You will increase your understanding of globalisation in GAC 022, Business III, International Business Studies. #### **Task 3.2** Work in groups to discuss the following: * Select a product or service and then find a local company and a global company (global brand) that offers the same product/service. * How are the products/services different and/or similar? * How are the companies different and/or similar? * What characteristics does each company have that make it either a local brand or a global brand? * What are the advantages and disadvantages of a company staying local or becoming global? Be prepared to present your group's ideas to the class. ### **Social** Social influences on business are concerned with how changes in society impact on the work force and consumers. Examples include demographic (composition of the population) and lifestyle changes. #### **3.1 Workforce Demographics - Aging Population** Forecasts indicate that by the year 2050, there will be 9.55 billion persons over the age of 60 in the world, compared to 7.16 billion in 2013. For the first time in human history, older people will outnumber children (persons under age 15). In more developed countries, 32% of the population is expected to be 60 years old or over. Less developed countries still have a relatively young population, but even in these places the number of older people is expected to double, reaching 19% of the population by 2050. **Figure 3.2 Development of Major World Population Groups** (Image Description: A bar chart with 2010 and 2050 population figures by age group for the World, More Developed countries and Less Developed countries.) The term workforce demographics refers to the distinguishing features of a target workforce. These features include gender, marital status and in this case, age. In Australia, the baby boomers *(*the very large number of babies born between 1945 and 1960)* have caused an imbalance in the workforce. Their presence in the workforce, coupled with an increasing life expectancy for both sexes, as well as a lower birth rate than in the past, means that the average age of employees is rising. It also means that there are proportionately fewer young people in the workforce. Of course, older workers cost businesses more in terms of wages, pensions and medical costs. However, it is against the law in Australia for a business to discriminate against a prospective employee on the basis of their age. In fact, recently, the Australian Government has encouraged people to stay in the workforce beyond retirement age due to labour shortages. #### **Task 3.3** Work with a partner and discuss the questions below. Then report back to the class. Be prepared to discuss your ideas. * Is the phenomenon of an older workforce typical of your country? * How are older workers regarded in the workforce? Is ageism (discrimination based on age) a problem? How? * Are there any other aspects of discrimination in your country which could have an impact on business? What are they and what impact do they have? * What are the advantages and disadvantages of specific workforce demographics? #### **3.2 Gender-related Issues** Another form of discrimination that is more widely practised than acknowledged is discrimination on the basis of gender. For example, although women now officially outnumber *men* in the Australian workforce, women collectively still only earn about three-quarters of *men's* medium pay *(where median refers to the pay of the person ranked in the middle of a list of incomes)*. Not only are women paid less, but even where qualifications and experience are the same, they also find it difficult to earn promotions. <start_of_image>*The Fortune 500 is a list of the top 500 American companies based on sales revenue. The list is compiled annually by Fortune magazine.* **Figure 3.3 Women in Fortune 1000 corporate positions** (Image Description: A table that shows the number and percentage of female CEOs, board of directors, all directors, and top earners for the Fortune 1000 companies. The years 1995, 2000, 2008, and 2014 are headings for columns. ) The above figures show that despite making progress, there remains an invisible barrier or glass ceiling that prevents women from attaining the highest positions. By 2014, there were only 24 female CEOs in the Fortune 500 companies, including Ginni Rometty at IBM, Mary Barra at General Motors, Marillyn Hewson at Lockheed Martin, Indra Nooyi at Pepsi, Brenda Barnes at Sara Lee, Irene Rosenfeld at Kraft Foods and Constance Lau at Hawaiian Electric Industries. This figure represents only 4.8% of CEOs in Fortune 500 companies. Yet research shows that women managers are at least as competent as their male counterparts on a wide range of performance indicators. #### **Task 3.4** Work in a small group to discuss the questions below. Then report your findings to the whole class. Be prepared to explain your reasons. * Why do you think fewer women are attaining high positions than men? * Do you believe it is an international dilemma? * Is it true of every business sector? * Name some women who are in positions of power. #### **3.3 Behaviour Changes in Attitudes, Values, and Beliefs** People's taste for goods and services are constantly changing. One day a certain present is the Christmas buzz and demand for this product exceed the supply. Then the next year, a new product becomes 'the buzz'. We see this phenomenon in the way changes in people's preference for products occurring year in year out is influencing how some businesses operate. Businesses are constantly required to keep up-to-date on the changes in people's behaviours or else they will fall behind compared to other competitors. ### **4. Technological Factors** Technology is driving a third industrial revolution. Microelectronics and optics have turned the manufacturing, transportation and communication industries upside down (McCallum 1997). The availability of these new technologies adds to the economic pressures as a result of changes in national and international markets. Each new technological innovation opens up the possibility of change: change to production methods, skill requirements or even the product itself, whether it is goods or services. For example, new goods (e.g. a satellite dish, the Internet) together with new services (e.g. home television shopping, online auction and shopping websites) have spawned new businesses. Products can be distributed from a home country to customers around the world allowing local companies to have a global reach. Organisations are obliged to anticipate and manage the forces of technological change if they wish to survive and prosper. #### **4.1 E-Commerce** E-commerce is electronic commerce. It is the increasing use of the Internet and other electronic networks to conduct business transactions. The transactions may be B2B (business-to-business) or B2C (business-to-consumer). One of the main reasons for existing companies to adopt e-commerce is to generate cost savings from operational efficiencies and additional revenue (Advancing with E-Commerce 2001, pp. 2-3). While e-commerce enables both buyers and sellers to reap many benefits, at the same time there are costs involved. As you read below, work with a partner and discuss which points belong to a buyer's or seller's point of view or even to both. | Benefits | Costs | |---|---| | Have access to narrow market segments | High cost of developing and maintaining a website | | Access to global markets | Choosing whether to develop in-house or outsource, and finding the right developer | | Larger product availability from a variety of sellers | Time delay from purchase to receiving product | | Virtual market allows many competitors which reduces price | Inability to feel the product | | New marketing tool for existing products | Missing out on the social experience of shopping | | Create a 'level playing field for small businesses with big businesses | | | Location and time independence | | | Ease of communication | | | Improved relationships with stakeholders | | The trend towards developing an online presence is becoming especially widespread in the area of small business. This poses a number of challenges to established organisations. For example, it allows innovative businesses such as ebay.com to overcome previous barriers to entry such as substantial capital outlay and other start-up costs. E-tailers (online stores) such as amazon.com use the Internet's search engines to connect customers to their Web sites, enabling customers to perform real-time transactions. The 4 main types of online retail business models are: | Model | Description | |---|---| | Virtual Merchants | Generates all revenues from online sales. (e.g., Amazon) | | Bricks-and-Clicks | Companies that have physical stores as well as online offerings. (e.g., Wal-Mart) | | Catalog Merchants | Established companies with offline catalog operations as well as online capabilities. (e.g., Victoria's Secret) | | Manufacturer Direct | Manufacturers who sell directly online to consumers without intervention of retailers. (e.g., Dell) | #### ** Task 3.5** Work in pairs and discuss the following. Then report back to the class: * What effect has e-commerce had on the world of business? * Can you think of points that have not been raised before in this manual? Complete the table below. | E-commerce development | Impact on Business | Example | |---|---|---| | Quick access to information via search engines | Quite simple to attract new customers | amazon.com | | No need to rent expensive store | | | | Shipping costs of goods bought online are significant | | | | Some jobs will disappear - example customer service can be handled electronically and customers can access databases and manuals online | | | #### **4.2 Technology in the Future** The future holds many uncertainties that businesses and consumers must embrace. As we enter a world in which technology is capable of performing hundreds of tasks per second, many more and much faster than a normal human can perform, many businesses are embracing this new 'supercomputer' by allowing these machines to perform tasks for them which would, in the past, have required many human beings. For example, some businesses have gathered thousands of pieces of data into one supercomputer and now are taking recommendations from the computer regarding certain business decisions. The decision generated by the computer is calculated based on all the data it has stored in its memory, so it comes up with the most likely and/or ideal scenario for the business. Of course not all businesses rely on computers to make decisions for them. Some managers will still want to rely on their experience and 'gut' feelings. ### **5. Ethical Considerations** ***What do we mean by 'ethics' and what is its importance in the business world?*** Ethics are the rules that define right and wrong behaviour. As such, they influence the decisions that managers make on a day to day basis. In the past, business goals were focused on the economic necessity of increasing profits. The social responsibility of a business was not a high priority. Now there is a growing belief that management is also responsible for protecting and improving society's welfare. This is called socio-economics. The perception is that there has been a steady decline in ethical business behaviour since the early 2000s. In the USA, the Gallup Honesty and Ethics of Professions Annual Survey tracks how American people rate the honesty and ethics of workers in different professions. Bankers and business executives have shown a marked decrease, with regard to respect, among Americans in recent years. **Figure 3.4: Gallup Honesty and Ethics of Professions Annual Survey** (Image description: A table that shows the percentage of respondents rating professions as "high" or "very high" for honesty and ethics. It includes the years 2010, 2011, 2012 and 2013. The professions are: nurses, clergy, and business executives.) Since 1976, Gallup has conducted polls to gather people's opinions on their perception of the honesty and ethical conduct of various professions. Three professions that have been near the top since the beginning are nurses, pharmacists, and primary school teachers. On the other hand, the three near the bottom are lobbyists, members of Congress and car salespeople. Recently, the survey has found that people's perception of the clergy has fallen to a record low of 47%, a marked contrast to its ranking in previous years in where it ranked near the top. A major challenge for business leaders today is to make a profit while at the same time 'doing the right thing'. Ethics in business refers to both moral conduct and addressing environmental concerns. Consumers are increasingly expecting businesses to adopt sustainable practices. Governments are heightening their efforts to address worldwide environmental concerns such as global warming and biodiversity. #### **CSR** The business response to increased social awareness is now known as **Corporate Social Responsibility (CSR).** Corporate social responsibility involves businesses acknowledging they impact the well-being of the wider community and the environment. By accepting this responsibility, their reputation is enhanced. Examples of CSR include: * Ben and Jerry's uses only fair trade ingredients and developed a dairy farm sustainability program * Microsoft's YouthSpark was created to find opportunities for youth in terms of education, employment and entrepreneurship. * Marks & Spencer creates sustainable eco-factories * Tom's Shoes donates a pair of shoes to a child in need for every pair a customer purchases. On the negative side, we see increased opportunities for unethical behaviour. Cheating or plagiarising is becoming easier with the use of the Internet. Time and earning pressures are causing businesses to cut corners or cover up incidents. One of the positive features is that ethical business behaviour offers the opportunity to create a competitive edge. For example, in 2001, two young entrepreneurs in San Francisco founded a home-cleaning products company called Method. From the outset, ecological and health issues were central to their business strategy. By 2009, Method employed 115 people and had an annual revenue of over US$200 million. #### **Task 3.6** Conduct research to find another company which has made ethical business practices central to its strategy. Start with the following questions. * What does this company stand for? * How has it created and sustained a competitive advantage by adopting this ethical stance? Share your results with the class. #### **Task 3.7** In pairs, brainstorm the many external and internal factors that have an impact, both positive and negative, on business. There are some examples for you to expand upon in the table on the next page. Add to the list. Use your own ideas and don't restrict your answers to the information contained in this manual. Then compare your findings with other pairs. | Factors | Issues | Impact - Positive or negative? | |---|---|---| | Political | Free trade | Opens up country for more imports | | | Reduced tariff protection | Good for consumers, harder for local industries to compete | | Technological | E-commerce | Less costly to set up a business and can be quicker to make a profit | | | Smart office communication & technology | | | Social | Working women | People lead more productive lives | | | Aging population | More expensive workforce | | | Diversity | | | Ethical | CSR | |