External Non Economic Influences Ch 6

(Technological, Legal, Social and Environmental)

Technology and Business
Technology has great impact on following areas of business, positively and adversely.
 Products
 Communication
 Production process
 Material used
 Business Operations and skills required
 The Market
 Benefits of technology
 Increased Productivity
 Reducing waste
 Improved working environment
 Benefits to society
 Improvements in effective communication
 Problems with technology
 Cost
 Labor relations
 Job skills
 Breakdown
 Motivation
 Management
 Unemployment /employment
 IT problems
 Increasing dependency ratio

Legal Constraints on Business Activity

Law has great impact on following areas of business, positively and adversely.
 Law and Employment Practices
 Law about induction programs, contracts and termination
 Law about health and safety at work
 Minimum wage legislation
 Trade Unions
 Law and Consumer Rights
Some examples of consumer protection laws are as follows
 Trade description act 1968
 Food safety act 1990
 Sales of goods act 1893 and 1979
 Weights and measures acts 1963 and 1985
 Consumer Protection Act 1984, 1987
 Sale of goods Act 1979 and 1982
This law is EU specific but is similar to the laws in Pakistan as this law indicates that goods
sold must not be defective and must meet standards set up by the government.
Ultimately these laws results in higher costs for the business thus these results in conflicts of
objectives between stakeholders like shareholders and management as their dividends are
reduced due to increased cost & reduced profits, as well as save them from exploitation.
 Law and Business Competition

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 Free and fair competition is always in the consumer favor. Govt. passes laws which encourage
fair competition among business. These laws are to control monopolies and try to prevent
mergers as well as try to control uncompetitive practices like Cartel.
 Monopolies: - A legal monopoly in UK is that which has over 25% market share.
 Problems due to formation of monopolies
o Excessive prices due to profit making incentives
o Fixed prices
o They adopt range of restrictive policies
 Benefits of monopoly
o More efficient as monopolistic business are huge & achieve economies of sale (EOS).
o Monopolies can use abnormal profits to do R&D projects.
o Monopolies are able to survive abroad easily like PIA.
 Uncompetitive/restrictive practices : -
o Refusal to supply retailers if they do not agree to charge price determined by the
manufacturer.
o Unjustified shortage to increase price
o Full line forcing: - forcing retailer by manufacturer to stock every product produced
by them either it is in high demand or in low demand.
o Cartel : - agreement to fix price, divide market to operate etc
o Predatory pricing: - charging very low price to stop new competitor keeping in view
that when new compotator will fail to survive and decide to quit from competition
they will come back to normal price.

Social Influence on Business Activity

Businesses operate in society and affected by the surroundings. There is a change in social values,
life style, role of members from society (male & female) etc is changed with the passage of time. If
businesses have to survive and grow, it has to keep a close watch over these changes. These changes
do not occur in few days or months; it is a slow process and expands over the years. Business can
not stop any social change but have to adopt it. Examples of changes
 An ageing population: - large portion of population over the age of retirement.
 A young population: - smaller portion of population over the age of retirement
 Culture of part time employment:- In UK students works as part time
 Availability of women for part time, full time jobs
 Changes in patterns of employment: - flexible timing, offering part time jobs etc
 Increasing provision of education
 Family structure

The Environment, Ethical Codes, Corporate Responsibility

 Environmental Issues affecting Business
 Pollution
 Recycling
 Global Warming
 Environmental Audit
It is an independent check on the pollution emission levels, wastage level and recycling
practices of a business.
 Business Ethics
 Ethics can be defined as a code of behavior considered morally correct. Business ethics
can provide moral guidelines for the conduct of business affairs.
 Ethics are the moral principles that should underpin decision making. A decision made
on ethics might reject the most profitable solution in favor of one of greater benefits to

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 society as well as the firm. (Should an advertising agency accept a pharmaceutical
company as a client?)
Ethical Code
A document setting out the way a business believes its employees should respond to
situations that challenge their integrity or social responsibility.
Pressure Groups
Organizations formed by people with a common interest or shared goal, who join together to
further their interest or achieve their goals by putting pressure on general public, Govt. or
businesses.
How Pressure Groups affect Business
 Changing Consumer Behavior: - campaign for consumers to change
their behavior towards purchasing. (Switchover due to pollution, child labor etc).
 Rising Cost: - anti pollution measures, fulfilling social responsibility etc.
 Reputation and Image: - affected due to pressure group action on any
social or environmental issue.
 Corporate Responsibility
Legal and social responsibilities are the duties of an organization towards its stakeholders,
environment and society in general.