Business Environment (BUE 112) Chapter 4 PDF

BUSINESS ENVIRONMENT (BUE 112) CHAPTER 4 DEMOGRAPHIC, SOCIO-CULTURAL ENVIRONMENT Introduction In chapter 3 we discussed the economic environment of the PESTEL which was introduced in chapter 1. In this chapter, we will discuss the social environment which contains the demographic and cultural asp...

BUSINESS ENVIRONMENT (BUE 112) CHAPTER 4 DEMOGRAPHIC, SOCIO-CULTURAL ENVIRONMENT Introduction In chapter 3 we discussed the economic environment of the PESTEL which was introduced in chapter 1. In this chapter, we will discuss the social environment which contains the demographic and cultural aspects of the society in which the businesses operate. Nature and impact of culture on business The term ‘culture’ generally refers to a complex set of values, norms, beliefs, attitudes, customs, systems and artefacts which are handed down from generation to generation through the process of socialisation and which influence how individuals see the world and how they behave in it. Defined in this way, culture can be seen to have at least three important features: a. it comprises both material (e.g. human artefacts such as buildings, literature, art, music) and abstract elements (e.g. rituals, symbols, values) b. it is socially learned and transmitted over time c. it influences human behaviour. As a concept, ‘culture’ is often applied in a variety of circumstances at both the macro and micro level: terms such as ‘western culture’, ‘Asian culture’, ‘European culture’, ‘New York City culture’, ‘youth culture’, ‘pop culture’, ‘entrepreneurial culture’ and ‘research culture’ are just some of the examples of its usage in the modern world. What they have in common is that they imply certain shared aspects of human belief, understanding and behaviour that link individuals together into some form of definable group and/or range of activities. In a business context, it can be easy to underestimate the degree to which a person’s perceptions, attitudes and behaviour can be shaped by cultural influences, some of which may be relatively enduring (e.g. certain ‘core’ values and beliefs) while others may be more open to change (i.e. secondary beliefs and values). In the United States, for example, American citizens believe in the right of individuals to bear arms and this is enshrined in the US Constitution. The buying and selling of handguns and rifles is thus acceptable within American society, despite the fact that they are frequently used in violent crimes including robbery and murder. In other countries, trade in such weapons tends to be seen as highly questionable by most people and is usually heavily regulated by the government to certain types of weapons for use in acceptable pursuits such as hunting or rifle shooting. Cultural differences such as this can, of course, apply not only to the kinds of goods and services that are consumed (e.g. eating horsemeat in France is acceptable but not in the UK) but also to other aspects of both the production and consumption process and this can have important implications for an organisation’s behaviour. Examples include:  Who decides what is bought, how it is bought or where it is bought (e.g. in some cultures women have predominantly been the purchasers of household products).  What colours are acceptable (e.g. the colour associated with bereavement varies across cultures)  How far harmonisation of products and marketing activities is feasible (e.g. the EUs perennial debates over what constitutes an acceptable definition of certain products such as sausages, Feta cheese, chocolate)  What factors can enhance the prospect of a sale (e.g. bribes are acceptable in some cultures)  How business is conducted (e.g. the length of negotiations, the meaning of a handshake)  The method of communicating with the target audience (e.g. in the UK a single shared language allows organisations to use national media)  How customer enquiries/complaints are dealt with (e.g. UK businesses using call centres in India often give their operators British names and train them to talk about everyday British preoccupations such as the weather and sport). In effect, culture not only influences an individual’s response to products and the nature of the buying and selling process, but it also exercises a significant influence on the structure of consumption within a given society. For companies which can gain acceptability on a global scale, despite cultural differences between countries, the potential benefits are huge (e.g. global brands such as Coca-Cola, McDonald’s, Nike). While the so-called ‘Americanisation’ of consumption is not to everyone’s taste, other forms of cultural exportation are often more acceptable and can prove highly lucrative for the country concerned. In the UK, for example, overseas earnings from culture and arts-related tourism make a significant contribution to the country’s ‘invisible earnings’ and many other countries benefit in similar ways. Culture and Globalisation Globalisation is a term used to describe the process of integration on a worldwide scale of markets and production. The world is moving away from a system of national markets that are isolated from one another by trade barriers, distance or culture. Advances in technology and mass communications have made it possible for people in one part of the world to watch happenings in far off places on television or via the Internet. Increases in labour mobility have meant that it is possible to buy Chinese food anywhere in the world. Culture is a dynamic force for change rather than a rigid set of forms or parameters that must be strictly adhered to. As the World Commission on Culture and Development (WCCD) noted, a society’s culture is neither static nor unchanging but rather is in a constant state of flux, influencing and being influenced by other world- views and expressive forms. The current era of globalization, with its unprecedented acceleration and intensification in the global flows of capital, labour, and information, is having a homogenizing influence on local culture. On one hand, globalisation has the following merits: i. promotes the integration of societies ii. providing millions of people with new opportunities iii. increased globalisation leads to greater specialisation so that all countries involved benefit from the increased international trade iv. countries that are open to international trade have experienced much faster growth than countries that are not v. barriers to trade encourage industries to be inefficient and uncompetitive vi. it is not just the large multinationals that benefit from globalisation – small and medium-sized companies are also engaged in global production and marketing On the other hand, globalization brings the following demerits: i. loss of uniqueness of local culture, which in turn can lead to loss of identity, exclusion and even conflict. ii. the benefits of globalisation have not been shared equitably throughout the world iii. globalisation undermines the power of nation states – it empowers the large multinationals at the expense of governments – many multinationals are financially bigger than nation states iv. the large organisations that promote free trade (like the WTO and the IMF) are not democratically elected and their decisions are not made in the public eye v. the policies of these organisations are only aimed at trade – human rights and environmental concerns are ignored. Traditional societies and communities, which are exposed to rapid ‘modernisation’ based on models imported from outside and not adapted to their context, are the ones which lose their uniqueness of local culture. This might lead to change of consumer taste, which can lead to businesses being affected. Balancing the benefits of integrating into a globalized world against protecting the uniqueness of local culture requires a careful approach. Placing culture at the heart of development policies does not mean to confine and fix it in a conservative way, but on the contrary to invest in the potential of local resources, knowledge, skills and materials to foster creativity and sustainable progress. Recognition and respect for the diversity of cultures also creates the conditions for mutual understanding, dialogue and peace. Demographic Environment Demography is the study of populations both in terms of their overall size and their structural characteristics. From a business point of view the key areas of interest include the age structure of a given population, its gender balance, its geographical distribution and the tendency for both the size and structure of the population to change over time. As noted above, demographic change can have important implications for both the demand and supply side of the economy and hence for organisations of all types. The following are factors which influence demographic change. 1. Population size A country’s population normally increases over time and will vary according to such factors as changes in the birth and death rates and in the rate of net migration. Differences in overall population size have important economic implications in areas such as: i. potential market size ii. workforce availability iii. public expenditure iv. economic growth v. international trade. 2. The birth rates Birth rates tend to be expressed as the number of live births per thousand of the population in a given year. In many countries this figure has been falling steadily over a long period of time for a number of reasons. These include:  a. A trend towards smaller families as people become better off and health improves and death rates fall. b. The increased availability of contraception. c. The trend towards later marriages and later childbearing. d. Declining fertility rates e. Changing attitudes towards women and work. In some countries governments have offered financial and other incentives to married couples to try to reduce the birth rate (e.g. China) as a means of controlling population growth. In other countries incentives have been offered to try to reverse the actual or potential decline in the birth rate because of its economic consequences (e.g. France, Singapore). It is worth remembering that declining birth rates are an important contributor to an ageing population. 3. The death rate Death rates are usually measured per thousand of the population in a given year. For developed economies such as the UK this figure has tended to fall over time before reaching a plateau (climax). Among the main contributors to this trend have been: a. Rising living standards, including better housing, sanitation and nutrition. b. Developments in medical technology and practice. c. Better education. d. Improved working conditions. The difference between the birth rate and the death rate represents the ‘natural change’ in the population (i.e. increase or decrease). 4. Age structure Age structure refers to the proportion of different age classes. Population dynamics are influenced by age structure which is characteristic for populations growing at different rates. Age structure varies according to the age distribution of individuals within a population. Fast growing population with a high proportion of young people have a triangle- shaped age structure, representing younger ages at the bottom and older ages at the top. Slow growing population with a smaller proportion with a smaller population of young people have a column shaped age structure, representing a relatively even distribution of ages. Furthermore, improvements in health care has led to the population explosion in underdeveloped countries, causing a “young bulge” which is associated with social unrest. Demographic change and business Changes in the size and/or structure of a country’s population can have important consequences for enterprises in the public, private and voluntary sectors both in the short and long term. Given increased globalisation and international trade, the impact of demographic change has an international as well as a national dimension for a growing number of trading organisations. The following examples provide illustrations of how a changing demography can influence both the level and pattern of demand within an economy, and in turn help to explain why changes can occur in a country’s economic and industrial structure and why some countries engage in international trade. Demographic change can also have important effects on the supply side of the economy. You should try to think of other examples. i. As populations grow in size the demand for many types of goods and services also tends to grow (e.g. energy, consumer durables, food). A growing population also provides a larger workforce, other things being equal. ii. An ‘ageing population’ increases the demand for a range of public, private and voluntary sector goods and services (e.g. healthcare, pensions, specialist holidays, sheltered housing). It also creates an increasingly ‘dependent population’. iii. A declining birth rate influences the demand for education, children’s products, childcare, certain TV programmes, comics, toys, etc. It can also reduce the numbers of young people available to enter the workforce to replace those who retire. iv. Changes in the ethnic make-up (culture)of the population can affect the demand for particular food products, clothing and media services and can place increased demands on public authorities (e.g. documents printed in different languages). Some researchers also argue that a more diverse workforce can improve an organisation’s performance. v. The regional redistribution of the population will affect the consumption of a range of goods and services including housing, education, healthcare, transport, energy and many day-to-day products. It can also affect prices (e.g. in the housing market) and the make-up of the local labour market. On a more general level, it is also worth noting that demographic change can impact on a country’s social as well as its economic structure and that this can result in increased (or reduced) demands on a range of organisations, particularly those in the public sector. For example, the growing imbalance being experienced in many countries between an increasing and dependent elderly population and a diminishing population of working age touches on many areas of public policy, from healthcare and social provision on the one hand to pensions and fiscal policy on the other. Governmental responses to the consequences of demographic change can have both direct and indirect consequences for a wide variety of organisations across the economy. REFERENCES 1. Worthington, I and Britton, C (2014), The Business Environment, 7th Edition, Pearson Education 2. Ferrell, O.C, Geoffrey, H and Ferrell, L (2008), Business, a changing world, 6th Edition, McGraw-Hill 3. Marx, S, Reynders, H.J.J and Van Rooyen, D.C (1993), Business Economics, 1st Edition, J.L. Van Schaik Publishers, Pretoria