Business Environment Final

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994 1

Chapter – one

Marketing environment consists of the actors and forces outside marketing that affect marketing management’s ability to build and maintain successful relationships with customers. By carefully studying the environment, marketers can adapt their strategies to meet new marketplace challenges and opportunities. Like Grameen Phone companies constantly watch and adapt to the changing environment. To compete with the competitors in the competitive market, marketers should have update information and vast knowledge about the marketing environment to take the effective marketing strategies.

A company’s marketing environment consists of the actors and forces outside marketing that affect marketing management’s ability to build and maintain successful relationship with target customers- Marketing environment is made up of microenvironment and microenvironment.

a. Microenvironment: The microenvironment consists of the actors close to the company that affect its ability to serve its customers - the company, suppliers, marketing intermediaries, customers markets, competitors and public which are discussed in below-

Contents of this chapter

1. What is marketing environment?2. Types of marketing environment.3. Discuss the influence of natural environment on business.4. Environmental influence in marketing.5. Socio economic model of business and society.6. Difference between economic and socio economic model.

What do you mean by marketing environment?

Types of marketing environment


1. The company: In designing marketing plans, marketing management takes other company groups into account - groups such as top management, finance, research and development, purchasing, operations and accounting. All these interrelated groups form the internal environment.

2. Suppliers: Suppliers form an important link in the company’s overall customer value delivery system. They provide the resources needed by the company to produce its goods and services. Marketing managers must watch supply availability - supply shortages or delays, labor strikes, and other events.

3. Marketing intermediaries: Marketing intermediaries help the company to promote, sell and distribute its goods to final buyers. They include reseller, physical distribution firms, marketing service agencies and financial intermediaries.

4. Customers: The Company needs to study five types of customer markets closely. These are consumer market, business market, reseller market, Govt. market and international market. Each market type has special characteristics that call for careful study by the seller.

5. Competitors: The marketing concept states that to be successful, a company must provide greater customer value and satisfaction than its competitors do. They must gain strategic advantage by positioning their offerings strongly against competitors offering in the minds of consumers.

6. Publics: A public is any group that has an actual or potential interest in or impact on an organization’s ability to achieve its objectives. The company has to design an offer to this public that is attractive enough to produce the desired response.

b. Macro environment: Macro environments consist of the larger societal forces that affect the microenvironment- demographic economic, natural, technological, political and cultural forces. Which are discussed below-

1. Demographic environment: Demography is the study of human populations in terms of size, density, location, age gender, race, occupation, and other statistics. The demographic environment is of major interest to marketers because its involve people and people make up markets.

2. Economic environment: The economic environment consists of factors that affect consumer purchasing power and spending patterns. Marketers must pay close


attention to the consumers’ purchasing power and consumer spending patterns both across and within their world markets.

3. Natural environment: The natural environment involves the natural resource that are needed as inputs by marketers or that are affected by the marketing activities. Marketers should be aware of several trends in the natural environment.

4. Technological environment: The technological environment is perhaps the most dramatic force now shaping our density. Technological environment is the forces that create new technologies, creating new product and market opportunities.

5. Political environment: Marketing decisions are strongly affected by developments in the political environment. The political environment consists of laws, government agencies and pressure groups that influence and limit various organizations and individuals in a given society.

6. Cultural environment: The Cultural environment is made up of institutions and other forces that affect a society’s basic values, perceptions, preferences, and behaviors. People grow up in a particular society that shapes their basic beliefs and values.

As a marketing manager, he should know how to take the opportunities of marketing environment and how to overcome it.

Natural environment consists of natural resources that are needed as inputs by businessmen that affect the marketing activities. Natural environment can influence the business in terms of both positively and negatively. The influence of natural environment on business are discussed below-

a. Positive influence of natural environment on business: As natural environment determine the living standard of people, their consumption patterns and what types of product and services should be produced or marketed. As it affects standard of living, consumption pattern and production patterns, so it affects the marketing activities directly. Natural environmental factors that are favorable for the business are discussed in below.

Discuss the influence of natural environmental on business


1. Supply of raw materials: Most of the industries are dependent on nature for their raw materials. For example- Paper industry needs fiber stick and woods as raw materials, so we get the availability of raw materials from nature.

2. Reducing energy cost: For production we need energy which mainly comes from nature. Energy may also comes from artificial sources which is costly than natural resources. For example- electricity which comes from natural gas is cheaper than the electricity which comes from artificial like generator.

3. Location of an industry: Natural environment determines the location of an industry. If the industry is not located in suitable place then the production cost will be higher because of higher cost of factors of production. For example - most of the sugar mills are located in Rajshahi division because the raw materials for producing sugar that is sugar cane are available in Rajshahi.

4. Criteria of production: Weather influences the business greatly. For example production in old country is different from warm country.

All these are the positive effect of natural environment on business.

b. Negative influence of natural environment on business: Natural environment threaten the activities of business in many ways-

1. Shortage of raw materials: For natural disaster, production of raw materials is hampered; hence, supply of raw materials is not available. So, it increases the cost of raw materials and also increases the production cost. Shortages of raw materials are increasing day by day because of natural disasters.

2. Increase energy cost: Due to some environmental changes, the production and supply of energy are decreased which causes the increase in energy cost. To produce product and services energy is needed. So, because of increase in energy cost, the cost of production is increasing. As a result the price of products is also increasing which is creating problems for the business.

3. Cost of Research and Development: Public needs and expectations are always changing with the change in natural environment. To adapt the business decision with this change, company has to emphasis on Research and development. For this huge cost is required.


4. Increased packaging cost: Natural environment influence the packaging system. To develop the packaging system, cost of packaging is increased. For example few years ago polythene bags were used for packaging, which was prevented by the environmentalist and government, because it causes pollution. So, now we have to use paper bags or jute bags, which is costly than polythene.

5. Disposal cost of hazardous waste: In industrial production to produce products, it is bound to produce waste which is harmful for environment. So, under the pressure of world and from their responsibility they have to (company) dispose the waste which is produced by them. But it requires huge cost.

Because of environmental affect on business, the costs of production are increasing. As a result the price of product is also increasing. This is creating problem for the business to compete in the international market.

From the above discussion, we can say that natural environment influence the business in many ways. Business cannot run its operation without considering natural environment.

Marketing activities are greatly influenced by the environmental factors. Environmental influence in marketing are discussed in below-

1. Production: Production fully depends on the environment. If the environment is not favorable, productions will be hampered. On the other hand more favorable environment causes the increase in on more production.

2. Price: Price level depends on the production cost and govt. tax. Production cost and govt. tax depends on the factors of production and govt. So, if the govt. activities are favorable to business and factors of production are available then price of product will be low. On the contrary unavailability of raw materials and production factors and high indirect tax may increase the price level.

3. Distribution: Modern business concept requires better service for customer. Proper distribution of product and services is possible only when, there exist good communication and transportation system. As an example, in Africa, there are some

Environmental influence in Marketing


remote areas, where people do not get their basic needs for live, due to poor communication system.

4. Marketing promotion: Marketing promotional mix includes advertising, sales promotion, public relation, and selling, each of them is greatly influence by environment. For example in an Islamic country it is restricted to advertise of win for its promotion.

5. Marketing cost: Marketing cost depends on the channel level, competition, and distribution, each of its cost is determined by marketing environment. Marketing cost may higher if there exist high channel level and competition and high distribution cost.

6. Marketing strategy: Before taking strategy company should consider its environmental factors. If the strategy goes against the social beliefs then the company should give up these types of straggly.

7. Marketing planning: Marketing planning indicates when, who, where and how the marketing activities will be done. To do it, one has to think about the environmental factors, otherwise, it will go vain.

8. Total industry and company sales: Industry and company sales affected by environment in various ways. Such as natural calamity, political disturbance and war may the causes of decrease in industry and company sales.

At last we can say that every step of marketing activities is greatly influenced by the environmental factors.

Some differences between the developing socioeconomic model and traditional model are shown in the following figure.-

Economic model Socio Economic modelExploitation of resources. Conservation of resources and harmony with

nature.Market decision. Some community controls on market decision.Economic return on resources. Balanced economic and social return on

resources.

Differences between Economic model and socio economic model.


Individual’s interest. Community interest people working in system interdependence that requires co-operation.

Business as primarily a closed system.

Business as primarily an open system.

Minor role for govt. Active govt. involves.Production Quality of life.

An important point is that the earlier model emphasis on production of material goods, but the new model focus on a much broader concern for the quality of life. In seeking production the economic model emphasis on exploitation of resources, but the newer model is more concerned with conservation of resources and harmony with nature. The earlier model largely depends on market decision when they are seen as inconsistent with community goals. Simple economic efficiency gives way to balanced economic and social return on resources so that a broader range of human need is served.

The economic model also focused on individualism, but the socio economic model gives recognition to system interdependence requiring some areas of co- operation.

In the economic model business primarily was closed system (free of govt. interference); but in the newer model system, business is primarily an open system expecting govt. and community involvement.

Clearly the socioeconomic model is broader and more open than economic model.


Chapter – Two

Arguments for social involvement relate to potential benefits for society and for business. Because of social involvement business and also society get some benefits which are as follows-

1. Changing public needs and expectations: One of the most potent arguments for social involvement is that changing public needs have led to changing expectations of business. Increased social response is necessary in order to narrow the gap between expectations and response and keep business in tune with society. Since public expectation are changing, it follows that business is required to move toward more social involvement in order to be accepted and successful.

2. Moral obligation: This argument includes the view that business is a member of society in the same way that all persons and other institutions are members. Acceptance of that membership requires that it must act responsibly in order to maintain the moral system and preserve the interest of other members.

3. Discouragement of further government regulation: Some government regulation may reduce freedom of both business and society. In the case of business, regulations tend to add economic costs and restrict flexibility in decision making. From business point of view, freedom in decision making allows business to maintain initiative in meeting market and social forces. Therefore, if business by its own socially responsible behavior can discourage new government restrictions; it is accomplishing a public good as well as its own private good.


1. What is social system?2. Arguments for social involvement.3. Arguments against social involvement.4. Social interaction – business and society an interactive system.5. Interactive model of business and society.6. Social challenges to business.

Arguments for social involvement


4. Balance of responsibility with power: Business has large amounts of social power. It affects the environment, consumers, community conditions and many other areas of society. In turn, an equal amount of responsibility is required to watch its power, because any other arrangement would invite irresponsible behavior that would reduce the public good. In other words, responsibility is a necessary corresponding with power.

5. System interdependence requires social involvement: Social system is so complex and interdependent that almost any internal act of business has some influence on the external world. In ancient times the social system was a rather simple but modern society is more complex and interdependent. The petroleum refinery that makes candle wax is so interwoven with society in terms of its social effects that it must be concerned about the environment, minority employment, and a host of other social issues, they must show concern about their external influences on the system.

6. Stockholder interest: Another argument for social responsibility is that it is in the interest of the stockholder for business to engage in certain kinds of responsible behavior, as they are the part of society.

7. Problems can become profit: If business innovative ability can be turned to social problems, many problems could be handled profitably according to traditional business concepts. It is recognized that not all problems can be handled in this way, but the fact that some can be so handled should encourage business to become more active in social areas. For example – Chemical companies have found that they can reclaim some wastes at a profit and other companies are examining similar profit possibilities.

8. Public image: Social responsibility improves the public image of business. Every firm tries to enhance public image so that it may gain more customers, better employees, and other benefits. It is easy to extend this public image concept to the accomplishment of various types of social goals. A favorable image is also important in a firm’s money markets. For example some banks have established policies that they will not make business loans for projects which cause substantial pollution.

9. Let business try: Many institutions may fail in handling social problems, so why not turn to business. Many people are frustrated with the failure of other institution and in their frustration they are turning to business. Give business a try, May be it can come up with some ideas.


10. Prevention is better than curing: If business delays dealing with social problems now or later it may difficult to deal. Since these social problems must be dealt with at some time, it is actually more economical to deal with them now before they develop into serious social break downs that consume most of management’s time.

11. Better environment for business: Social responsibility creates a better environment for business. A better society produces environmental conditions more favorable for business operation. The firm which is most responsive to improvement of community quality of life will as a result has a better community in which to conduct its business.

Arguments against social responsibility for business are given below-

1. Profit maximization: The most powerful argument against social responsibility is the classical economic doctrine/policy of profit maximization. The doctrine (principle) explains that business produce a public good when it reduces costs and improves efficiency in order to maximize profit. Business function is economic not social. It responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society.

2. Threat to business primary purpose: Another argument is that involvement in social goals might threat to business primary purpose, and weaken business in the marketplace, with the result that it would accomplish poorly both its economic and its social roles. This means that society would get less productivity and that the economics role of business in society would become confused. Similarly, social goals also would be inadequately achieved, leaving society the poorer both socially and economically.

3. Business costs of social involvement: Another argument is the excessive business costs of social involvement. Business has very significant economic resources, but it must use wisely. Business should not invest major economic resources for social responsibility unless the costs of these resources are paid by government or other institutions. If business is pushed into social obligations, these additional costs will drive out marginal firms in various industries.

Arguments against social Responsibility


4. Cost to society for social responsibility: Some persons may be misled about who will pay the costs of social involvements cost. They think that business will pay while they receive the benefits “free” As a matter of reality; they (customers) will pay, because business will try to add these costs to the price. If the public know that it would have to pay the costs, and if it knows how high the true costs were, it would not demand many of the actions that it is now demanding.

5. Weekend international balance of payments: If social programs add to business costs, then these costs must be recovered and generally they will be added to the price of the product, similarly, if social actions reduce economic efficiency, then this lower efficiency is likely to lead to higher costs and prices. It these firm compete in international markets with others firm, then they will be a competitive disadvantages and they will have fewer sales leading to a weakened international balance of payments.

6. Business has enough power: Business has already enough social power; therefore, society should not give it more. Business influence is felt throughout society. The process of combining social activities with the established economic activities of business would give business an excessive concentration of power. This concentration of power would threaten the pluralistic division of powers.

7. Lack of social skills: An additional argument against social involvement is that many business leaders may lack the perceptions and skills to work effectively with social issues. It is said that their outlook and their abilities are primarily economic. They really do not feel at home in the social area, because it involves acts that go by different rules.

8. Lack of accountability: Businessmen have no direct lines of accountability to the people; therefore, it is unwise to give businessmen responsibility for areas where they are not accountable. Accountability should always go with responsibility, and it is poor social control to allow any other kind of arrangement.

9. Divided support: If business does become socially involved, it will create so much friction among competitors that business cannot perform its social assignment. Divided support for business social involvement means that it will operate somewhat in a hostile environment which could cause it to fail in its social mission and also cause disastrous side effects.

Business and society an interactive system.


Business is normally conducted within a social network. The social networks- both internal and external close around the business firm. Business cannot escape from society and society can’t exist without business. Business is a part of society and society penetrates far and often into business. In spite of the close relationship of business to society, not all business ties to society are the same. Some are directly related to a company’s main functions and some are indirectly related to a company’s functions in society. So the relationship between business and society are categories into two types. Such as.…

1. Internal relationship2. External relationship

1. Internal relationship: A business’s primary involvement with society includes all the direct relationship which is called internal relationship necessary for it to perform its major mission of producing goods and services for society. To carry out its primary mission in society, it must interact with all the below groups.

Distribute sell products labour Invest capital Compete

Buy products sell lend money materials

a. Employees: Employees are the part and parcel of the business. Business cannot run without the employee. Employee provides their labor to the business. Employees contribute their work skills in the business.

b. Stock holders: Business firms collect their funds from the stockholders.

Competitors

Business firm (Owners; managers)

Wholesellers & retailers

Employee (unions)

Stock-holders

Creditors

Suppliers

Customers


c. Creditors: Creditors provide capital for the business firm. Business firm enrich their capital fund by the creditor’s money.

d. Wholesalers and retailers: Wholesalers and retailers help to move the product from the plant to sales outlets and on to consumers.

e. Suppliers: Business firm need raw materials and energy to produce a product. Suppliers sell raw materials, energy, and other needed supplies to the business.

f. Competitors: Most companies compete with others who are selling identical or similar products and services. Because of competitors business firm have to pay greater facilitates to the customers.

g. Customers: In modern world customers are the boss of the business. All business firms need customers willing to buy what is produced for sale.

2. External relationship: Social groups who are not directly related to the business is called external group and the relationship with these groups is called external relationship.

a. Local communities: Many people get job in business organization. Social environment has a great impact on business organization.

Social activities group

BusinessFirms

Local Communities

Local Communities

PublicOpinion

BusinessSupportGroups

Foreign Government

Media


b. Local government: Local govt. imposed some rules and regulations on business organization which has great impact on his functions. Business organizations have to pay taxes for their income.

c. Foreign governments: Two types of relationship such as friendly and hostile may exist between foreign governments and business organization which has positive and negative impact on the business.

d. Social activities groups: Social activities groups like churches, environmentalists, and minorities impact the business functions and its product’s demand.

e. Media: Media like films, newspaper, TV, radio, magazines etc. impact the consumers’ behavior and consumer behavior impact business.

f. Public opinion: Public opinion may be positive or negative for the business.

g. Business support group: Business support group like chamber of commerce, Trade association etc help the business in different ways. Business support groups advice the business and help them to research.

In interacting with society, business faces six fundamental social challenges, these challenges or opportunities- run in continuous way through all business and society relations. Each of these social challenge are discussed below-

1. Achieving Ecological Balance: Industrial production is bound to produce waste and pollution, along with needed goods and services. The social challenge to business in an industrial society therefore is not to stop pollution and waste but to reduce its volume and to lessen its burden on society. Industrial society should achieve a sound ecological balance between nature and industrial production.

2. The human element at work: A second challenge for business is utilizing human

skills and talents for productive work while protecting human dignity and health at the same time. Because work is done by people an enormous number of complex social problems occur in the work place. Safeguarding, an employee’s privacy, allowing a greater degree of employee participation in business decision making & job opportunity for minority and women a safe and healthier job environment and security

The fundamental/ major social challenges to business


in one’s present job and in one’s retirement years are the social challenges for the business.

3. Improving productivity: Productivity is an input and out relationship. Productivity can be increased by anything’s that improve the efficiency with which industrial inputs are converted into outputs. A society well- being therefore depends largely on having a high and rising level of productivity. Improving society’s overall productivity requires a joint effort by all major institution. Business is now challenge to help find the best ways to improve a society’s well- being through higher product.

4. Global pressures, Demands and Needs: The world’s peoples have become accustomed to business and are dependent on it for many of their needs. Private business capital invested by large multinational corporations can boost a nation’s economic growth rate. Business can also help by producing what is needed and selling these things at fair prices; buying the poorer nation’s products also at fair prices, and working cooperatively with international organizations such as the world Bank to find ways to improve food production and build a sounder economic system.

5. Balancing ethics and economics: Society wants business to produce needed

goods and services but it also expect business to conduct its economics operation in ethical ways. Ethical problems in business arise when business practices devote from the society’s nations of what is right and moral. The challenges to business are to find a balance between two social demands - high economic performance and high ethical standard.

6. Designing social partnership: Society seemed to be encouraging business to form a more active partnership with government and with societies other major institutions to help to solve social problems cooperatively, rather than expecting any one institution to do the job alone. This partnership might bring together group that normally compete with and criticize one another; consequently they may than in arguing over who has the “right” to do so. There are 5 principles of social partnership.

Decentralized decision making. Participation by affected groups. Voluntary self help co-operation among competitors Practical approach to problems.

Interactive model of business and society


Primary interactions Secondary interactions With society with society

Free Non-Market Market

1. Primary interactions with society: A business’s primary involvement with society includes all the direct relationship which is called internal relationship necessary for it to perform its major mission of producing gods and services for society. To carry out its primary mission in society, it must interact with all the below groups.

a. Employees: Employees are the part and parcel of the business. Business cannot run without the employee. Employee provides their labour to the business. Employees contribute their work skills in the business.

b. Stock holders: Business firms collect their funds from the stockholders.

c. Creditors: Creditors provided capital for the business firm. Business firm enrich their capital fund by the creditors money.

d. Wholesalers and retailers: Wholesalers and retainers help move the product from the plant to sales outlets and on to consumers.

Stock holders

Employees

Creditors

Suppliers

Wholesalers &retailers

Customers

Competitors

Local communities

BusinessFirms

Federal, state & local govt.

Foreign govt.

Social activities group

Media

Public opinion

Business support group


e. Suppliers: Business firm need raw materials and energy to produce a product. Suppliers sell raw materials, energy, and other needed supplies to the business.

f. Competitors: Most companies compete with others who are selling identical or similar products and services. Because of competitors business firm have to pay greater facilitates to the customers.

g. Customers: In modern world customers are the boss of the business. All business firms need customers willing to buy what is produced for sale.

2. Secondary interactions with society: Social groups who are not directly related to the business is called external group and the relationship with these groups is called external relationship.

a. Local communities: Many people get job in business organization. Social environment has a great impact on business organization.

b. Local government: Local govt. imposed some rules and regulations on business organization which has great impact on his functions. Business organizations have to pay taxes for their income.

c. Foreign governments: Two types of relationship such as friendly and hostile may exist between foreign governments and business organization which has positive and negative impact on the business.

d. Social activities groups: Social activities groups like churches, environmentalists, and minorities impact the business functions and its product’s demand.

e. Media: Media like films, newspaper, TV, radio, magazines etc. impact the consumers’ behavior and consumer behavior impact business.

f. Public opinion: Public opinion may be positive or negative for the business.

g. Business support group: Business support group like chamber of commerce, Trade association etc help the business in different ways. Business support groups advice the business and help them to research.

Chapter – Three


1. What is free market economy?2. Basic components of free market economy.3. Ideology of free market economy.4. Challenges to free market economy.5. What is pluralistic society?6. Elements of pluralistic society/ pluralistic social system.7. Weakness/disadvantages of pluralism.


A free economy market is based upon the principle of voluntary exchange and competition market. People sell their goods and services voluntarily to the market, seeking to obtain a profit from the sale. Other people with wants to satisfy go to market voluntarily hoping to find the things they want to buy. No one forces anybody to buy or to sell. Producers are drawn voluntarily to the market by their desire to make a profit. Consumers likewise go willingly to the market place in order to satisfy their many wants. The producers and consumer then make an economics exchange, in which normally both of them receive an economic benefit.

In a free market economy production is for profit and consumption is for the satisfaction of wants. A producer has to set prices at about the same level as competing supermarkets, and has to supply according to the consumers demand. Because of competition, the consumer achieves an optimum satisfaction of their wants at the lowest cost. In free competitive market, the consumer is “king” or “queen” because producers must obey the wishes and demands of consumers, if they want to make a profit.

Competitive price

Voluntary exchange

ConsumersBusiness firms

What is free economy market?

Basic components of a free market system


Produce goods and services Have wants and needs

Market place Supply Demand

Profits wants satisfied

In a free market system the members of society satisfy most of their economic wants through these voluntary market transactions. Business firms that sells goods and services to consumers for a profit are at the same time fulfilling a social or public need.

In a free economy market, a producer has to increase economic efficiency and productivity. This high level of economic efficiency and productivity lead to more goods for more people. In its ideal form a free market system maximizes economics and social welfare for the largest number of people in society.

Underlying and supporting the free market economics is a traditional ideology of free economy. Like all ideologies, it defines “the good life”. In other words, it makes up an ideal way to organize economic life. Each of these core ideas summarized in below:

1. Individualism and freedom: Individualism exists when a society believes that each individual is more important than society and its institutions. Individualism is linked to freedom. All individuals must be free to promote and protect their own personal interests. This means in economic affairs that they should be free to own property and enter into contracts with others, selling their skills and products when desirable and buying from others when necessary. Free markets can exist only when individuals are free to make these economic decisions on their own initiative and without interference.

The ideology of free market economy


2. Private property and profit: In free economy market, the ownership of property allows one to control one’s own destiny. Property and profits are closely linked. Profit is a payment made to owners who used their property for productive purpose. When individuals make free choices in the market place, they maximize their own personal welfare. And the sum total of these individual welfares is identical to the society’s overall welfare.

3. Equality of opportunity: Equality of opportunity is a strong pillar of ideology for both business and individuals. A system of unequal rank and privilege would hamper the many opportunity for making profits. In free economy market every business man starts their business, having an equal chance to engage in trade and commerce.

4. Competition: Competition is an indispensable part of a free economy system. Competition is society’s way of encouraging high level of economic performance from all its citizens. It tends to keep power from being concentrated exclusively in the hands of a few, because even those who have risen to the top might be challenged by other competing to take their place. In a free economy system the most efficient regulator and the one that encourages the greatest degree of freedom is competition.

5. The work ethics and environment: The ethic of work says that work itself is worthily, admirable, and personally and socially valuable. Since hard work and productivity are so essential to the success of a free market economy, the work ethics occupies a central position in free enterprise ideology.

The Free market

LimitedGovt. Profits

Work ethics

Privateproperty

Freedom

Individualism

EqualOpportunity

Competition

Natural laws


6. Natural laws and limited government: Natural laws were believed to be responsible for governing not just the physical universe but also human affairs also. Adam Smith, father of free market economics asserted that human beings are selfish by nature and will try at all times to promote their own personal welfare. In free economy market, govt. has very limited economic functions. Beyond protecting private property, enforcing contracts, and providing for general security, the government had little to do.

Over the years the original free enterprise ideology has been severally challenged by several major changed that has occurred in the business system and in society. Questions have been raised about the continued usefulness and relevance of free market philosophy. The most important of these challenges are given below-

1. The growth of big business: The numbers of big business are increasing day by day. As a result small business gets fewer facilities in free economy market. Small business cannot compete with big business. They cannot make vast market for their product. Because, big business capture most of the market place.

Challenge to free market economy


2. Great depression: Because of free economy market some business enters the whole market; as a result some others fall in depression. Depression discloses social class divisions and inequality, because some groups suffered more and longer than others.

3. World wars: Large- scale wars, especially world wars I and II, expanded the size and economic impact of government. World wars have posed challenges to free enterprise ideology and the free market system.

Less competition

Bigger Bigger govt. Govt.

Less free market Less bigger Individualism Govt.

4. Organizational society: The organizational society composed of big business, organized labour, the welfare state, large- scale agribusiness, a large defense establishment, massive educational institutions, and even huge religious organizations challenged the ideological principles of individualism and self reliance. One or more of these groups participate in them to gain power through independence and self reliance.

Free enterprise ideology

World wars

Growth of big

business

The great

depression

Social concern

Interest group demand

The organizational society


5. Social concerns: worldwide industrial pollution threat to slow down the unbounded economic expansion of free enterprise. Women, minors, and other groups argued that true equality of opportunity has never existed for them. The consumer movement spread doubt among the public about the workability and fairness of competition.

6. Interest group demands: Interest group demands have imposed challenges to free economy market and government. The farmers want guaranteed farm prices, workers want a minimum wage, small business required protection from large corporations, and domestic business appealed for protection against foreign competitors.

A pluralistic society is one in which a variety of organized groups use power and influence to represent special interests of groups of citizens. Pluralism is a basic reality of the modern business culture. The significance of this reality for business is that pluralism defines the fundamental framework within which business must live and grow. Today’s society and political organization are pluralistic.

Major elements of a pluralistic society are as follows-

1. Business pluralistic environment: Unless business leaders understand the “rules of the game” by which pluralism operate, they are disabled in their efforts to make business a responsive social institution. This is their environment. They must know it in order to perform their roles as leaders. Whether they prefer pluralism is not the issue. It likes the weather is here.

2. Diversity of interests and diffusion of power: In pluralism there are numerous economic, political, educational, social, artistic, and other groups organized by people to promote their own interests. There are, therefore, many different points of view represented. Pluralism, operating between the extremes, decentralizes social power. No group is completely independent to do exactly as it wishes, but each has some autonomy to pursue its own private interest. By means of diffusion of power, society is somewhat protected from autocratic dominance by one group.

What is pluralistic society?

Elements of a pluralistic social system


3. Many opportunities for leadership: Since there are a multitude of organizations in a pluralistic society, there are also many opportunities for leadership. There are so many leadership avenues open in a pluralistic society. Pluralistic social organization is a training ground for leadership, and a progressive society needs a large supply of leaders.

4. Improved social inputs: Since pluralism brings many organizations clamoring to present their different points of view, it provides a large variety of inputs into the social decision making process. These inputs should shed more light on social issues than monolithic/colossal social designs are able to do, and the normal result should be an improved decision.

At last we can say, pluralistic system also tends to be creative and innovative because their multiple areas of power and initiative provide alternative choices to society.

Pluralism has some weakness comparing with other systems which are as follows-

1. Lack of central direction: A pluralistic system tends to depend on govt. to provide social goals, long- range plans, and policies to guide institutions towards the long run public interest. If govt. does not accept its guiding role, then pluralistic organizations may become preoccupied with their own pet projects and short run goals.

2. Emphasis on institutional power instead of service: It is a valid social basis for gaining power to perform designated institutional functions. However, in the absence of suitable checks and balances, this valid functional power can be diverted to power for its own sake. This kind of diversion makes organization greedy for power and leads to war among them for power supremacy. Power becomes the measure of success rather than the instrument by which service is rendered.

3. Erosion toward partisanship: One of the most compelling weaknesses of pluralism is the tendency of the system to erode toward more partisanship among group. The negative results are numerous. The sense of community declines. Society loses its unity and common purpose. Conflict and stress increases. It can be categorized into two types.

Weakness of Pluralism


a. Partisan pluralism: In partisan pluralism each group pursues its own interests without regard to the interests of others.

b. Integrated pluralism: In this system Govt. defines common goals for society and works with other institution to support a community of interests and values. This common framework encourages pluralistic groups to pursue their own interests only in ways that also tend to serve the public interest.

Chapter – Four


1. Political involvement of business.2. Types and mechanism of political influence.3. Govt. regulation and control of business/ types of regulations.4. How regulations work?5. Cost of govt. regulations.


Business and politics are different. But the development of the business is depended on the politics of a country. Political parties are a vital element of our pluralistic society. From different aspect effect of political involvement by business are discussed below-

1. Business and politics compared: Business and politics are different, and these differences need to be well understood if business is to be an effective participant in the public policy process. Two of the most important differences are the following-

a. Contrasting/ Dissimilarities of goals: The primary goals of business is production for profit: The primary goal of politics is to allocate power among various groups in society. Without post politician is as powerless as a business firm without profit.

b. Different approaches: Business decisions ideally are made by applying rational, objective, coolly calculated standards. Ideally, a new product will not be brought out nor will a capital investment be made without profit. One the other hand, political decisions are often made on irrational, emotional grounds, where hard-to-measure social and philosophical factors are involved.

2. Justifications for political involvement of business: Those who argue that

business should be an active political participant mention four main justifications.

a. Political representation: Our representative political system gives business the right to express its views, just as other interest groups in society do. A workable pluralistic society depends on active participation of all groups.

Political involvement of business


b. Importance of govt. business relations: Govt. and business relations, whether supportive or regulatory requires active involvement in politics in order to safeguard business interests.

c. Counteract political activity: Business political activity is necessary to counteract political activity by other groups that affect business, such as labour unions, consumerist and environmentalists.

d. Political activities positions as one of societies’ central institutions: Because of its position as one of society’s central institutions, business’s political views may at a time promote the interests of other related groups including workers, consumers, suppliers, and local communities.

3. Against political involvement of business: Political action by business can lead to trouble and should be avoided for the following reasons.

a. People in business are not necessarily qualified: Business should leave politics to politicians, because people in business are not necessarily qualified or knowledgeable in the field of politics and their views often are too narrow.

b. Business leaders are hard disciplined: Business leaders who are trained in the hard disciplined of the business world sometimes prove to be simple/ naive about the complexities and uncertainties of politics.

c. Business political power in view of the size: Business political power in view of the size of many corporations may unbalance pluralism and tend to substitute dominates private interest for the public welfare.

d. Target of public criticism: A great deal of political activity by business, particularly, if successful, makes it a target of public criticism, causing a loss of customers and inviting even more government controls. A low profile type of influence over government policy is more effective and less risky.

Types and Mechanism of Political influence


Business may exercise political influence from two different types.

1. Government politics: An attempt is made to shape government politics, forthcoming legislation and the actions of regulatory agencies which are dealt with governmental politics. The techniques used by business to participate in governmental politics are about the same as those of other interest groups.

2. Electoral politics: Business tries to influence the outcome of elections which is dealt with electoral politics. An interesting development of the 1970s was the emergence of corporate political actions committees (PACs) which are active in electoral politics. Several states place restrictions on corporate contributions in state election. These limits were imposed on all PACs to reduce the role of concentrated wealth in determining the outcome of elections to public office.

Government regulations, like items in supermarket, come in several different varieties indirectly felt. Some are aimed at a specific industry and some are aimed at all industries. Some are for a long time and some are for a short time. These varieties are described in below:

1. Industry specific economic regulations: Govt. regulations are primarily economics in nature. It makes a conscious effort to substitute their judgment for that of the market in such matter as price setting, capital expansion, quality of services offered and admission into the industry of new competitors. A regulatory agency imposed control over the fundamental business matters facing an industry, its prices, capital investments, services offered, customers served and profit. Although the company is still privately owned and managed, scope of decision making is severally restricted by govt. regulations.

2. All industry social regulations: Most of these regulations are aimed at four major social goals of our society: Pollution control, work place healthy and safety, consumer protection, and equal employment opportunity. Law concerning pollution, safety and health, and discrimination apply to all major institution, including business, although some very small firms are usually exclude, and consumer protection laws are apply to all relevant business producing and selling consumer goods. It promotes social goal.

Types of govt. Regulations


3. Functional regulations: Some regulations are imposed on the functions of business. Govt. set minimum wages, regulates overtime pay, allows unions to monopolize the supply of workers if they can do so, and often intervenes to settle troublesome and serious labour management disputes that theater national well- being. It attempts to prevent monopolies, preserve competitive pricing and protect consumers against unfair practices.

The legal basis of regulation and regulatory mechanism provide a sound basis for understanding how government regulates business and many other aspects of our lives.

1. The legal basis: The government gets its regulatory authority from two sources - the common law and the constitutional power.

a. The common law: The common law is a body of legal precedents and customs built up over many years as a result of experience, trial and error and court rulings. It contains many commonly accepted principles, such as trial by jury, the protection of property, and the enforcement of contracts. It gives government the right to regulate human affairs in order to achieve fairness and justice.

b. The constitutional power: Most govt. regulations today are based on four constitutional powers such as the power to regulate interstate and foreign commerce, the power to tax and spend the power to borrow, and the power to promote the general welfare. These powers have been used to justify all the direct and indirect regulations.

2. The regulatory mechanism: The main system of regulation follows closely the three branches of govt. Each branch has certain responsibilities where regulation is concerned. These branches are as follows-

a. Legislative: Normally, legislatures respond to various interest groups in society that have a hazarded in the new regulations. These may include consumer advocated, environmentalists, minorities and the affected business groups.

b. Exceptive: Once a law is enacted, the executive branch of government becomes officially involved. It may already have been unofficially involved by lobbying for or

How govt. regulation works?


against the legislation. A new regulatory agency- one like the environment protection agency or the occupational safety and health administration may be created by the new law.

c. Judiciary: The judiciary branch becomes active if serious disagreement arises between the regulatory and those being regulated. The court may be asked to judge the fairness or legality of the regulatory agency’s rules and interpretations, or the entire law may be challenged as unconstitutional.

All social actions including govt. regulations generate costs. These unavoidable costs can be called the rule of costs. This cost rule is applied in all types of socioeconomic systems, whether free market or central state control.

a. Cost-benefit analysis: Cost-benefit analysis is a method of calculating the costs and benefits of a project or activity intended to produce benefits. Cost- benefit analysis can be done in two ways such as.

1. Comparing cost and benefit: If the potential costs are higher than the potential benefits then that project will not be taken. A cost- benefit analysis in business gives a clear answered to whether benefits do or are expected to exceed costs. It identifies all possible benefits and compares them with potential costs. This kind of cost benefit analysis is regularly made by a business before it launches a new product or makes a new investment.

2. Measurement difficulties: Social costs and benefits are more difficult to calculate because many of them cannot be able to be measured in tk. terms alone. For example an urban housing authority decides to build a low- income housing project (a social benefit) by using recreational park loans. But what is the true value of the relaxation and fun people have when using public parks? Social costs and benefits are indeed difficult to calculate perfectly but continuing public pressure for social improvements leaves no choice but try to work out better methods for comparing social factors.

b. Cost problem: Sometimes the benefits are more important than the costs. As a result we have to provide a better payoff in the long run for the society’s problem. We pay for the benefits of social regulations in the following ways-

Cost of govt. Regulation


1. Administrative costs: Regulatory cost takes several different forms. Most obvious are the direct costs of running the regulatory agencies, including salaries of government employees, office equipment and supplies utility bills, and other such items. Govt. authority has to control population, pollution, maintain good working order, training facilities for the unskilled employees etc. which bear cost.

2. Paper work: Business efficiency is hampered by paperwork requirements and long delays sometimes result. Before starting a construction, govt. permission is needed which takes huge time. As a result cost increase. This permission is needed for the environmental facts.

3. Higher prices and taxes: Sometimes hidden taxes are raised when regulation costs of govt. increases. If hidden tax increase then price of products also increase. Regulation costs increase because of social infrastructure. Public have to pay this hidden tax.

4. Opportunity costs: What could I have done with that money if I hadn’t spent it in that particular way? This is the meaning of opportunity cost. Having more Hospitals, better and safer highways, bridges, more business investment in modernizing industrial plants in order to meet foreign competition, more research on life threating diseases etc are the opportunity cost to society for having extensive social regulations.

5. Economic and social tradeoffs: Economics and social tradeoffs occur when society discovers that its social goals involve economic costs and its economics goals incur social costs. If we want cleaner and safer electric power plants (a social goal) then the added costs of installing safe cleaner generators will increase utility bills (an economic cost). The rule of cost is at work as usual because all benefits generate costs. In this way social goal generate an economic cost.

6. Unintended impacts of regulations: Some costs of government regulations are partially or totally unforeseen when the regulation is adopted. It forces to close down when costly environmental controls are required. Industrial productivity become lower and 25% productivity lost because of environmental control systems. Because of lower productivity we cannot compete in world trade.

Chapter – Five


1. Technological environment.2. Features of technology.3. Phases of technology and the social system they create/steps of technology. 4. Technological change and its effects on business.5. Business responsibility for technological change.6. What is a competitive advantage?7. Industry structure and elements of industry structure.


Technological advances are perhaps the most dramatic forces affecting today’s marketing strategies. We have heard the word “online marketing” which is totally based on the technology. Because of the technology we can get the information regarding market, products, customers, prices etc through net. We need not to go market to order something, to know something moreover to buy something. Marketers also can inform or remind the customers about the product through internet.

Technological environment is the forces that create new technologies, creating new product and market opportunities.

It should keep in mind that technological environment changes rapidly. Think of today’s entire common product that was not available 100 years ago.

We live in the age of technology. Because of using modern technology, the quality of life are enhancing day by day. Technology has some special features. These are as follows-

1. Future shocks: The important feature of technology is change and then more change. Technology forces change on people whether they are prepared for it or not. In modern society, it is called future shock, which means change come so fast that it

Features of technology

Technological environment.


approaches the limits of human tolerance and people lose their ability to cope with it. Technology is directly or indirectly involved in most changes that occur in society. For example the compute is an example of fast change and the future shock result from it. Its power is increasing rapidly.

2. Multiplier effects: Another feature of technology is that its effects are widespread. It influences the every sector of our life. People cannot escape from it. In every steps of our life, we are influenced by technology.

3. Self- re-enforcing: This features means that technology acts as a multipliers to encourage its own faster development. It acts with many parts of society so that invention leads to a chance of inventions in other places. Thus invention of wheel leads to invention of many other related appliances.

All these are the important features of technology.

Five broad phases of technology have developed. One phase at a time tends to dominate the work of a nation and in doing. So, it has a major influence on that nation. These phases are described below-

Technology level

Phases of technology

Duration Activity Primary Skill

1 Nomadic Agrarian

Until-1650 Harvests Manual

2 Agrarian 1650-1900 Plants & harvests Manual3 Industrial 1900-1960 Build materials

goodsManual & Machine

4 Service 1960-1975 Provides generals needs

Manual & Intellectual

5 Knowledge 1975- serves the mind Intellectual

1. Nomadic Society: In a nomadic society people live by hunting, fishing, picking berries etc. Rather than producing more, they merely take what is available. They use spears, fishing hooks, and baskets, but their technology is poorly developed. Often they move to wherever a good natural harvest is available.

Phases of Technology and the social systems they create/ steps of technology.


2. Agrarian society: An agrarian society is one in which agricultural activities dominates work and employ the largest proportion of the labour force. Food rising is the main task of this society. Nations tend to remain at this society until they can develop enough productivity to release many of their labour force from farm to other productive occupation.

3. Industrial society: An industrial society is one in which the building and processing of material goods dominate work and employs the largest proportion of the labour force. In this society emphasis is given on machine work. It is the result of industrial revolution. When a nation moves from agrarian society to industrial society then many changes occur. Large factories develop and large labour force is required. People move to the cities for higher wages. In addition life Style of people also changes.

4. Service society: A service society is one in which majority of labour force is employed in providing non- product value (service) like retailing, banking, insurance etc, rather than in direct production. Few years ago it was thought that service societies’ productivity would decline but recently the productivity of service type job is higher than manufacturing job and this productivity boosted the nations general output of goods and service.

5. Knowledge society: A knowledge society is on in which the use of knowledge and information rather than manual skill, dominates the work and employees the largest proportion of labour force. Examples of knowledge jobs are news editor’s accountants, computer programmers, software developers, teachers etc. Examples of knowledge industries are news publishing, education, telecommunication etc. A knowledge societies’ technology is primary electronic in nature and depends on computers, which can process and store a large amount of information at a very low cost. Another important device for bringing information to employees is telecommunicating and teleconference. It is very cheap.

Technological change and effects on business


1. Economic effects of technology: Business is the principles institution that uses technology. Technology has a great effect on business. The economic effect of technology are given below-

a. Higher productivity: The most fundamental effects of technology are greater productivity in terms of both quality and quantity. Automated factories are made possible by computers and extensive use of robots that can perform many works rapidly. As a result productivity increases.

b. Upgraded job skills: With the advance of technology, jobs tend to become more intellectual and upgraded. For example the job that once required a clerk, now requires a computer expert. In modern business many scientific and professional people are required.

Money Former skill Intermediate skill R & D skill Distribution distribution distribution

few Low ----- skill------ high

Figure: changes in skill distribution in business by technological changes.

c. More scientific and professional workers: Modern businesses require more scientific and professional workers because of technological advancement. Creative and intellectual workers expect relatively high job freedom. They are motivated by opportunities that offer a change and achievement. Business is trying to meet the needs of intellectual workers through providing high salary, flexible work schedule etc.

d. Techno structure: Scientific and specialized workers make up techno structure of modern organization and action much influence on decision making process since majority within techno structure are technically trained persons, care must be taken to assure that they do not become so powerful to dominate business and society. So,


business managers must consult with various groups of business, while making decision about the use of technology.

e. More emphasis research and development: As technology has advanced, research and development become an important activity. Research concerns with creation of new ideas and development concerns with their application. With faster technology many companies now developed goods, produce them and sell them. Research and development becomes a major department of the business.

f. Capital requirement: Another effect of technology is its continuous demand for capital. Large amount of capital are required to build the big production system that save labour and provide other benefits of technology. For example in the last decade Tk 700-800 for each worker was adequate but now in garments industries it is more than 4000 Tk for each worker.

All these are the economic effect of technology.

2. Social consequences or effect of technological change: Technological advance bring both benefits and costs to society. Technological change has a great effect on society. These are as follows-

i. Social cost and benefits: Technology has some social side effects. Technologies effect on social costs and benefits can be divided into two ways-

a. Technologies social cost: When the side effect of technological change become negative then they are called social costs. From societies point of view these social cost must need to be calculated in the cost benefit analysis of every proposed technological change. Social effects of technological change are frequently unpredictable.

b. Technology assessment: Technological assessment/ evaluation is a useful technique that seeks to provide feedback about technology’s effect and try to guess the unconscious, indirect and harmful effects of new technology. A positive side of technological change is that technology can be used to correct, side effect that it caused. For example- Technology causes pollution, however, technology also can be used to reduce pollution.

ii. Restraints/ Hindrance on technological growth: There are three major factors that may limit technology’s ability to contribute positively to society. These are-


a. Pollution: Pollution is an unavoidable consequence of industrial production. In addition many consumer items like- automobile are responsible for much pollution. This pollution have very harmful effect on biosphere, that means the land, air, water and natural conditions on which all life on earth depends.

b. The industrial resource base: Another factor limiting technology growth is the reduction of world’s industrial resources base. This base is composed mainly of minerals, energies, skilled labour forces and human knowledge. Some studies have questioned whether the globe’s supplies of resources are sufficient to support unlimited industrial and technological expansion.

c. Social institutions: A third factor limiting technology is social values and institutions. There are many social groups like- environmentalist opposes the technology causing pollution or harmful effects.

From the above discussion we can say that technological change has many social consequences. Before installing new technology the manager should consult with various social groups.

Figure: Factors limiting technological growth.

Pollution of biosphere

Technology

Resource base

Social Institutions and

values

Push Against

Business responsibility for technological change


Business has some responsibility at the time of technological change. These are as follows

1. Technological foresight: Society wants new technology to be introduced with greater care and more foresight concerning long run results for individual and society. For these reasons business follow premarket testing of drugs, safety guideline for genetic engineering project and govt. regulation of waste management.

2. Compensatory payments: Another responsibility is compensatory payments or other type of support by business that would help individuals or groups to readjust their lives when damaged by technological changes. Example of such include industrial retraining program, advance notification when plants are to be closed and compensatory payments to lay off employees.

3. Co- operation among stakeholders: Many social groups like universities, laborer union, nonprofit organization and many local groups have made important contributions to technological advance. All of these groups and institutions are technological stakeholders. Business should consider the interest of all groups.

Competitive advantage is at the heart of a firm’s performance in a competitive market. Competitive advantage means how a firm actually puts a group of strategies into practice. These straggles for achieving competitive advantage are-

i) Cost leadership.ii) Differentiation. iii) Focus.

Through competitive advantage firm can gain sustainable cost advantage. It can differentiate itself from competitors. A firm can choose a segment so that competitive advantages grow out of a focus strategy.

Competitive advantage grows fundamentally out of the value of a firm which it is able to create for its buyers. It may take the form of prices lower than competitors for equivalent benefits or the provision of unique benefits. Potential sources of competitive advantage are everywhere in a firm. Every faculty, department, branch office and other organization unit has a role that must be defined and understood.

What is Competitive Advantage?


All employees must recognize their role in helping a firm to achieve and sustain competitive advantage:

In any industry, whether it is domestic or international or, produces a product or a service, the rules of competition are expressed in five competitive forces, these are- the entry of new competitors, the threat of substitutes, the bargaining power of buyers, the bargaining power supplies, and the competition among the competitors.

Fig: Five competitive forces that determine industry profitability.

1. Potential competitors/ entrants: The threat of new entrants places a limit on prices and shapes the investment required to prevent new entrants.

PotentialCompetitors

Industry Competitors

Competitionsamong

Existing firms

Suppliers BuyearBargaining

Power of buyers

Substitutes

Threats of substituteProducts or services

What is a competitive force?


2. Buyers: Buyers power influences the prices that firm charges. The bargaining power of buyer can also influence cost and investment because powerful buyers demand costly services.

3. Suppliers: Suppliers supply raw materials and other inputs to the industry. The bargaining power of suppliers determines the cost of raw materials and other inputs.

4. Industry competitors: There is always exist competition among existing firms. The intensity of competition influence price as well as the cost of competing in areas such as plant, product development, advertising and sales forces.

5. Substitutes: Competitive firms always try to produce a substitute product of a product. The threat of substitute product and services influence the prices that firm charge.

The five forces determine industry profitability because they influence the prices, costs and required investment of firms in an industry.

The strength of five forces varies from industry to industry. In industries where the five forces are favorable, many competitors earn attractive returns. But where pressure from one or more forces is intense, few firms earn attractive returns.

From the above discussion we can say, that five competitive forces determine industry profitability.

Every industry is unique and has its own unique structure. A five complexities and find out those factors that are critical to competition in its industry. The strength of each of the five competitive forces is a function of an industry structure. The elements of an industry structure are shown by a figure.

New Entrants

Industry Competitors

Competitions among Existing firms

Suppliers Buyer

BargainingPower of buyers

Substitutes

Threats of substitute

Competition Determinant

Threat of new Competitors

Bargaining power supplies

Determinants of supplier power

Determinants of buying power

What is industry structure?


The main elements are described below-

1. Entry barriers: The threat of new entry influences the industry structure. The determinant of entry barriers are as follows:

Economics of scale Proprietary product differences Brand identity Switching cost Capital requirements Access to distribution Absolute cost and advantage Access to necessary inputs Govt. policy.

2. Determinants of competitions: The intensity of competition influences price as well as cost of competing in areas like plant, product development, andvertising and sales. The determinants are.

Industry growth Fixed cost


Product differences Brand identity Switching cost Informational complexity Exist barriers Diversity of competitors

3. Determinants of suppliers power: The burgaining power of supplier determiines the cost of raw materials and other inputs inputs. Determinants of suppliers power are given belwo-

Determination of inputs. Switching cost of suppliers. Presence of substitutes inputs Supplier concentration Importance of volume to supplier Impact of inputs on cost Threat of forward itegration.

4. Determinants of buyers power: The burgaining power of buyer influence the price, cost and investment of an industry. Determinants of buyers power can be divided into two types.-

i. Burganining leverage: It dpends on Buyer concentration Buyer volume Buyer swithcihng cost relative to firm buyer information Ability to backward integrate Substitute product.

ii. Price sensitivity : Buyer’s price sensitivity depends on. Total purchase Product differences. Brand identity Impact on quality. Buyer profit. Decision maker’s incentives.


5. Determinants of substitution threat: The threat of subsititute product and services influence the price that the firm charge. Determinants of substitution threats are-

Relative price performance of substitute witching cost. Buyer propensity to substitute.

All these elements from an indusry structure. Industry structure is relatively stable but can change as industry evolves. Industry profitibility depends on industry structure.

Chapter – Six

Contents of this chapter1. What is ethics, business ethics and morality?2. Ethical reasoning.3. Ethical problems and issues in business.4. Types and sources of ethical problems in business or constraints on better business ethics.5. General ethical guides and simplified guides

6. Variety of value system.7. Perspective on pollution.8. Impact of environmental issues on business.9. Controlling environmental pollution.10. Results and impacts of pollution control.


Ethics: All persons whether in business, Govt. University, or any other enterprise are concerned with ethics. Ethics is defined as the discipline dealing with what is good and bad and with moral duty and obligation.

Ethics is an individual’s personal beliefs about whether a behavior, action or decisions is right or wrong. And ethical behavior that conforms to generally accepted social norms.

Business ethics: Ethical issues relate to what is considered rights. Businesses are concerned with both individual and corporate ethics. So, business ethics is concerned with truth and justice and has a variety of aspects such as the expectation of society, fair competition, advertising, public relation, social responsibility, consumer autonomy, and corporate behavior in the home country as well as abroad.

Morality: Ethical rules of conduct attempt to provide guidelines for human behavior that will preserve a society’s, a group’s or an individual person’s notion of morality. Morality is considered moral or immoral, a decision or action must either promote or endanger one or more of our fundamental values.

What is ethics, business ethics and morality?

Ethical Reasoning


The activities of individuals, organizations, and societies can be analyzed to determine their ethical significance. This analysis asks there basic questions- Do the activities being judged maximum social benefits and minimize social costs? Do they respect a person’s moral rights? Are they fair and just in distributing benefits and burdens? Each question raises slightly different ethical issues.

1. Benefits and costs: It is used to determine whether an action produces utility or useful things for society as a whole. If benefits exceed costs then some useful results. It suggests that plans and actions should be evaluated by their importance. The underlying idea is that plans and actions should produce the greatest good for the greatest number of people. The main limitation of cost- benefit analysis is the difficulty of accurately measuring both cost and benefits.

2. Rights: Human rights are another basis for judging ethics. It holds that all people have basic rights such as the rights to freedom of reservations free speech and due process. Nobody can interfere about the basic rights of others. Denying these rights or failing to protect them for other persons and groups in normally considered being unethical.

3. Justice: A third principle of ethical reasoning concerns justice. The theory of justice demands that decision makers be guided by fairness and equality as well as impartiality. Each society must work out its own ways of establishing justice amongst the people who live there. The rules will vary from society to society. Justice refers to the fair distribution of benefits and burdens among the people in a society, usually expressed by some agreed upon rule.

At last we can say, utility, rights and justices may be used in ethical reasoning. There is no simple rule to tell which questions is the most- important. In most situations, all three ideas can be usually applied to shed greater light on the ethics involve.

Ethical challenges in business take several forms and raise different kinds of ethical dilemma. The approach and solutions to one problem may not work with others.

1. Failure of personal character: Business sometimes employs people whose personal values are less than desirable. In the selection process there is an effort not to employ ethically undesirable applicants but ethical qualities are difficult to measure,

Types and sources of ethical problems in business / Constraints on better business ethics.


such persons may get job unexpectedly for the business benefits. There is a little reason to believe that business employees more of these ethically undesirable person than other organizations in the society. It should be clear that business is not to blame for its existence.

2. Conflict of personal values and organizational goals: A major source of ethical puzzles/problems in business in the conflict that can occur when a company pursues goals or uses methods that are unacceptable to some of its employees. The contrast between their personal values and the goal and methods of their companies created an ethical dilemma. So business should balance between values and organizational needs.

3. Organizational goals versus social values: An organization can find itself at odds with social values also, especially when a society is undergoing social change on a broad scale. In these cases traditional business values may lead the firm to take actions that are seen to be unethical by various stakeholder groups.

4. Hazardous but popular products: Sometimes business have to sell some harmful products for the customers which is unethical for the business. After that they have to sell these types of products for its popularity. For example- cigarette smoking is associated with lung cancer heart diseases and circulatory disorders, after that business sell and customer buy it.

5. Other ethical challenges: Business decision makers are drawn into other ethical situations are included questions of justice and price fixing by allowing a business to take advantages of customers, may shift an unfair share of wealth to producers; or discriminatory wage scale may be unfair to some groups of employees.

The primary tasks for business are to be aware of the ethical dimension, to learn how to reason ethically as economically, and to incorporate ethical consideration into the firms’ operation.

General ethical guides and simplified guides


a. General ethical guides: Certain general ethical guides have developed out of the experience of civilization, including the teachings of great religious leaders.

1. Golden rule: Do unto other as you would have them do unto you.

2. Public welfare: Act to provide the greatest good for the greatest number.

3. Justice: Treat all human beings with fairness typically is related to rights, duties, needs and investment in a situation.

4. Long range utility: Act to produce long- range maximum individual benefits.

5. General Law: So act that your action could be made a general law that could be proved from human experience to work towards general human and social benefits. This law essentially asks decision makers, “Suppose everybody did this”

b. Simplified guides: Since many ethical decisions are complex and difficult, business people search for simply stated guidelines that will help them when quick hard decisions are faced.

A company board chairman has offered the following short ethical guide for both business and personal ethics.

1. Always be fair and just. 2. Alleviate pain and suffering, rather than create it. 3. Do not take advantages of one another.4. Have respect for the planet which we all share

Business people make decisions that involve a complex combination of many value systems. Instead of making just a technical or an economic decision managers also must consider social, psychological, political and other values. Most of these decisions also have some ethical content, so they must be examined additionally for their ethical rightness. Basic differences among selected value systems are as follows-

Spiritual Technical EconomicValues values values

Ethical SocialValues values

Ecological PhychologicalValues values

Asthetic Legal PoliticalValues values values

Decisions

A variety of value systems


1. Technical values: Technical values based on physical facts, science and logic.

2. Economic values: Economic values based on market values determined by supply and demand.

3. Social values: Social values based on group and institutional needs.

4. Psychological values: Psychological values based on personal needs of individuals.

5. Political values: Political values based on general welfare needs of the state.

6. Legal values: Legal values based on what the law requires.

7. Aesthetic values: Aesthetic values based on beauty.

8. Ecological values: Ecological values based on living system and their environment.


9. Ethical values: Ethical values based on what is believed to be right.

10. Spiritual values: Spiritual values based on what God has revealed.

Pollution is increasing day by day. People through their waste into the social and water since the beginning of the civilization smoke from household fires has polluted the air since the Stone Age.

1. Natural pollution: Natural also pollutes the air. Pollution primarily occurs when there is so much of an item that it interferes with the natural ecosystem. Natural forest fires cast smoke over mountain valleys and lighting creates certain chemical compounds. Although pollution has existed for many centuries, it was usually of minor significance. Only a few serious problems developed.

2. Industrial revolution: Because of industrial revolution we are facing the bellow problems-

a. Industry and agriculture pollution: A primary causes of air and water pollution is the industrial revolution. The complex chemical process of industry produce undesirable by products and wastes that pollute land, water and air. Its mechanical process often creates dust, grime and unsightly refuse. Agriculture also uses chemical, fertilizers which are polluting water and soil.

b. Chemical hazards: One major result of the industrial revolution is production of manufacture chemicals that have cancer censing potential.

3. A higher standard of living: Industrialization has raised the standard of living enormously. As people consume more, their consumption tends to create more wastes. For example, when people buy more, the more paper and packaging are required, most of which becomes refuse. Every rise in the standard of living means a related rise in per capital pollutants, since people have been improving their standard of living for centuries.

4. Population explosion: The more people, the more pollution, the ultimate time bomb in pollution is a speedup in population growth. Population growth is not the result of a higher birth rate, because the birth rate is declining in many parts of the

Perspective on pollution


world. Instead, population is expanding because people live longer, primarily as a result of economic and medical progress. Each additional person adds pollutants to land, air and water.

5. Changes in social values: High consumption technologically advanced society tends to live through important shifts in social values. The changes have a powerful effect on people’s attitudes toward the environment.

Impacts of environmental issues on business are discussed in below. When the full effects of environmental issues are considered, it is evident that business is significantly affected and will continue to be so.

1. More obligations: One certain result is that business must live with more regulations from all levels of government. Involvement of government is necessary in order to establish priorities and maintain controls in such areas as pollutions.

2. Higher cost: Another result, caused partly by the first one, is that business is faced with increased capital and operating costs for environmental improvement and maintenance. These additional costs tend to contribute to inflation and customer dissatisfaction with business because of higher costs.

3. Complex decision: A further effects is that the business decision making environment has become much more uncertain and difficult. Environmental problems are complex, and the participation of many pluralistic groups in the decision system will make decisions even more difficult. For example, new ecological management units in organizations have a major influence in policy making and operating decisions. Ecological influences are being felt in all functions and at all levels of the organizations.

4. Broader thinking: A further impact of environmental issues is that business is required to do much brooder thinking than formerly. Business cannot confine itself strictly to economic issues, leaving ecological problems to be considered by others. Management thinking requires more extensive long term planning in order to incorporate environmental complexities into business actions. For example, environmental issues often become a major factor in plant location.

Impact of environmental issues on business

Results and impacts of pollutions control


Major efforts to clean up the environment began in our country and in the world. How effective has our nation been in protecting its environment, what has it cost, and what is left to be done?

1. Environmental improvements: There is no doubt that definite progress has been made in cleaning up an improving air and water quality. For cleaning up air the govt. impose some rules on the vehicles and industry sectors. For improving water govt. are trying their best.

2. Toxic substance and disposal of hazardous wastes: Two of the most serious continuing problems were toxic (that is poisonous) materials used by manufactures and farmers and findings safe ways to dispose of hazardous industrial wastes.

a. Controlling toxic substances: A huge amount of chemical substances sold each year as well as the 500 new chemical introduced annually, which is threat to the human life. Rules about labeling the product and how and where it is to be used are permitted by the law.

b. Hazardous waste disposal: Not all industrial wastes are hazardous, although may be unsightly. Acting under provisions of a cleanup law, an agreement is made with the companies to pay for the removal of the wastes.

3. Costs and other impacts: The nations pollutions control bills is a big one and it grows larger every year. The cost of air water and solid waste controls are distributed among consumers, govt. and private business. The pollution control burden is not felt equally by industry but the percentage is significantly higher for metals manufactures, paper plants, chemicals, and others, while some find the costs relatively small.

Controlling environmental pollution/ Approaches toward pollution control


Peoples of the world are in dangers because of pollution. Different types of approaches are taking by the govt. and several groups for controlling the environmental pollution.

1. Pluralist approaches to pollution control: Several approaches pollution control used by different branches of govt. professional groups such as engineers and scientists, labour, business groups with different interests environmentalists, and neighborhood groups which are discussed in below-

a. Business initiative: One approach to pollution control is business action to prevent pollution or to remove it. Huge amount of money are being invested annually in this way. We used to consider mostly minimum capital and maximum efficiency in the plant design, but now we have third elements, pollution costs. Different types of business response is to improve a products desirability by designing improved pollution control into it, such as producing a less- polluting automobile engine or manufacturing process.

b. Countervailing powers among business: Different types of business firms want different condition in the environment consequent powerful countervailing pressures arise with business itself. For example, commercial fishers filled a damage suit against certain chemical companies wanted an economical dumping ground for their waste, which create pressure for taking necessary steps for controlling pollution.

c. Environmental groups: Strong removal actions for a cleaner earth are taken by the organized environmental groups, as well as individuals who enjoy fishing, camping, boating and outdoor life in general. Different types of seminar are organized by them to aware the people about the pollution and the process by which pollution control is possible.

2. Role of government: Certainly govt. has a major role in pollution control. It has strong capabilities for setting priorities, general policies, and minimum standard for environmental quality. It also can provide economic incentives to encourage businesses, communities, and regions to reduce pollution and it can offer just legal and administrative systems for resolving disputes about pollution.

a. Major laws and regulatory agencies: To cope with today’s pollutions problems, government at all levels in the country enacted laws and created regulatory agencies to police the environment. The principal types of pollution and shows the jurisdictional authority of four regulatory agencies--


i. Environmental Protection Agency (EPA): EPA is obviously the nation’s main pollution control agency. It sets standard for air and water quality, controls the use of toxic substance including pesticides, monitors radiation levels, solid waste and noise control programs and toxic substance controls.

ii. Nuclear Regulatory Commission (NRC): NRC licenses and regulates nuclear facilities and materials including their possible impact on the environment. It is often a target of groups protesting the licensing and building of nuclear power plants.

Iii. Occupational safety and health administration (OSHA): OSHA attempts to make the work environment safer for employees by controlling discharging from production process and chemicals used by workers.

iv. Regional, state and local agencies: In a typical state, there is a state department of environmental control, some countries have special bureau monitor and enforce controls and many citizen have ordinance regulating solid waste disposal, noise and other kinds of pollution.

b. Ways of applying govt. controls: Government applies pollutions controls in a variety of ways, because the situation is too complex for just one approach to work.

i. Incentives for environmental improvement: The govt. may offer various types of incentives to firms that reduce their pollution. For example, the govt. may decide to purchase only from those firms that meet certain pollution standard, or it may offer aid to those that install pollution control equipment.

ii. Environmental standards: Another type of pollution control is environmental standards. These standards are established by legislative action and applied by administrative agencies and courts. An advantage of environmental standards is that they are embraceable in the courts.

iii. Pollution charges: Another type of pollution control is establishment of pollution charges. Each business pays fees for the quantity of undesirable waste that it releases and the fees vary with the amount of waste released. The result is “The more you pollute, the more you pay”.


Chapter – Seven


1. Causes of environmental threat.2. Environmental threat from the point of marketing.


There are many causes behind the environmental threat, which are discussed in below-

1. Natural change: Pollution primarily occurs when there is so much of an item that it interferes with the natural ecosystem. The temperature is increasing day by day because of natural changes which are threatened for the environment.

2. Industrial and agriculture threat: Air and water are polluting because of industrial and agriculture revolution. The complex chemical process of industry produces under sable by products wastes that pollute land, water and air. In agriculture, the farmers are using different types of chemical and fertilizers for more production which is threatened for the environment.

3. Chemical hazards: Different types of virus in the air are increasing because of the production of manufactured chemicals. Most of the people are attacked by the cancer and the cause of cancer is the chemical hazards. Chemical increase the rate of cancer when the chemicals contact with the human system in high concentrations or for prolonged periods of time.

4. Pollution explosion: Population is increase day by day. Each additional person adds pollutant to land, air and water, although the amount of these vital natural resources remains the same. So, we can say population explosion is the threat for the environment unless people take steps to reduce pollution.

5. Change in social values: High consumption, technologically advanced societies tends to reform important shifts in social values. The changes have a powerful effect on people’s attitudes toward environment. More concern is expressed about industrial pressures on the natural environment. This is threatened to the ecological balance.

6. Increased pollution levels: The level of pollution is increasing rapidly, which is the cause of environmental threat. It is not possible for anybody to stop the pollution but to save our environment we have to reduce or remove the pollution.

Causes of environmental threat


7. Change of technology: Because of change of technology the use of machines are increasing. As a result, noise and air pollution are creating. Different types of nuclear bombs are making by the different nations with the use of technology which is threatened for the environment.

At last we can say, pollution is the cause of environmental threat, and pollution is a global problem. Whatever the way of life of the people, problems of pollution arise. Mainly three conditions- industrial revolution, population explosion and natural changes are the cause of environmental threat.

Environmental threat in marketing indicates to unexpected situations which creates barriers in the way of marketing activities. There are some environmental threat from the view point of marketing which are discussed to the below-

1. Shortage of raw materials: Raw materials are necessary to produce goods and services. For natural disaster, production of raw materials is hampered; hence supply of raw materials is not available. So, it increases the price of raw materials and creates the shortage of raw materials.

2. Increased energy cost: In case of production energy is a vital element, due to some environmental changes the production and supply of energy is decreased which causes the increase in energy cost.

3. Cost of research and development: Public needs and expectations are always changeable with the change of environment. To adapt the marketing decision with this change of environment, company has to emphasis on Research and development (R& D) department. For this research and development huge cost is required which refers to increase in cost.

4. Increased packaging cost: Environmental threat increase the packaging cost of marketing. As an example, few years ago ‘pollithin’ was used for packaging which was prevented by the environmentalist, because it produces pollution. So now we have to use alternative packaging system which tends to more cost.

Environmental threat from the point of marketing


5. Disposal cost of hazardous waste: Industrial production is bound to produce waste which is harmful for environment. So, it is the responsibility or company is to dispose, those types of waste which is hazardous for the environment. To do this disposal cost is required.

Business Environment Final

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