effects on host country - golspie high school business...

GLOBAL BUSINESS

14 ADVANCED HIGHER BUSINESS MANAGEMENT

© Education Scotland 2015

Effects on host country

There are many advantages and disadvantages to a foreign/host country when multinational companies operate subsidiaries in a foreign country. Benefits Job creation • Multinationals directly employ thousands of people. • Jobs are created in firms that supply their raw materials and components. • Jobs are created in the local area as workers in the company spend their

wages in shops etc. Competition • Competition from multinationals may act as a stimulus to domestic firms to

find ways to cut costs and increase efficiency. • Competition tends to stimulate capital investments in plant and equipment

in order to compete with rivals. This can have long-term implications of increasing productivity growth, product and process innovations and greater economic growth.

GLOBAL BUSINESS

ADVANCED HIGHER BUSINESS MANAGEMENT 15


Training • Multinationals often train their workers in new skills, which can be used

later in indigenous firms. • Managers from the home country may train workers from the host country

to take their place eventually and the management skills acquired may be used elsewhere once the worker moves on to another firm.

Technology transfer • Multinationals may bring knowledge of new production techniques, which

will gradually spread through local businesses in the host country. • Local employees can learn about these techniques and the local economy

can benefit from this new expertise. This will depend on how willing the company is to employ and train local workers.

Infrastructure • Multinationals may improve roads, rail networks and communications

facilities if they are not adequate for their needs. This can benefit whole communities.

Improved GNP • The GNP of the host country will increase as will the standard of living

where there has been investment in new manufacturing capability. Improved balance of payments • The balance of payments of the host country may improve for three

reasons.

1. There is a one-off initial capital inflow to the economy when either a local company is purchased or investment is made in a brand new operation.

2. If the FDI is a substitute for imports of goods, it can improve the

current account of the host country’s balance of payments. Much of the FDI by Japanese car manufacturers in the USA and UK, for example, can be seen as substituting for imports from Japan. Thus the current account of the UK balance of payments has improved because some Japanese companies supply the UK market from production facilities in the UK.

3. The multinational can use a foreign subsidiary to export goods and

services to other countries. Examples in the UK include car manufacturers such as Toyota, based in Derby, who export cars to other EU countries.

GLOBAL BUSINESS



Local business improvements • Local companies can benefit from better production and management

techniques used by such companies, eg the introduction of renewable energies and wind power technology from Denmark to Scotland. This is known as technology transfer. Cross-fertilisation of ideas from outwith the host country is often a healthy outcome.

Increased tax payments • Tax raised as a result of the companies’ profits is an important source of

revenue. The host company benefits from increased tax collection on the profits of the multinational.

• Much has been made of companies such as Starbucks and Amazon who

have made millions of pounds operating in the UK whilst paying zero tax. Both companies have since stopped this practice as a result of protests from UK citizens.

Improved choice for consumers • The introduction of new MNCs to countries often results in a greater choice

of goods and services within the host country. • The introduction of an established business will increase choice for

consumers in that country. • The establishment of the new business will also increase competition and

may start a price war as the market vies for the attention of consumers. Problems Job losses • Jobs may be lost in smaller firms if they close due to competition from

multinationals. • Many of the jobs offered by multinationals may be low-skilled jobs. • Multinationals often fill management jobs with personnel from the home

country. • Changing economic or political factors may cause a multinational company

to decide to move one of its factories to another country, causing the loss of many jobs.

GLOBAL BUSINESS



Social responsibility • Many multinationals have set up in countries with less stringent safety laws

than their home country, allowing them to cut the costs of production. • It is claimed that poor safety procedures have caused accidents, eg the BP

oil spillage in the Gulf of Mexico in 2011. Other multinationals have been accused of operating unethically, eg Toyota was recently accused of putting drivers’ safety at risk by delaying a product recall amid safety concerns.

• Multinationals have also been accused of plundering the natural resources

of poorer countries and then moving out when they are exhausted. Barrick Corporation, a Canadian mining company, is accused of removing people from their homes and dumping chemical waste before moving on to other sites.

Balance of payments effects • The balance of payments accounts are an accounting record of all

monetary transactions between a country and the rest of the world. These transactions include payments for the country's exports and imports of goods, services, financial capital and financial transfers. A multinational may repatriate profits, adversely affecting the balance of payments of the host country as the profits are sent home. A multinational may purchase inputs from their subsidiaries in other countries or the home country, thus increasing visible imports.

Transfer pricing • Multinationals have been criticised for adjusting transfer costs between

their subsidiaries so that profits are declared in those countries with lower tax regimes. Multinationals may use this to avoid paying tax on their profits in countries with high tax rates.

• Multinationals often move vast sums of money between countries in order

to protect the value of their reserves and protect their own interests. • The comparison between positive and negative effects might refer to

different circumstances, eg whether the multinationals makes goods or services, where it is located, the extent to which it supplies an overseas market or the extent to which it stimulates or competes with local businesses.

• Multinationals are sometimes thought to be outwith the control of the host

country’s government purely because of their size and financial power.

GLOBAL BUSINESS



Competition • Multinationals can create competition with domestic companies and result

in such companies cutting their labour force or indeed closing down. This may also lead to a price war, with both businesses lowering prices and profits. The host country will collect reduced VAT payments as a result of any price war. The arrival of Aldi and Lidl in the UK is an example of this.

Retained management • Multinationals often import their own staff for management roles and use

local labour for low-skilled jobs. This leads to a shortage of management positions for the host country.

Effects on home country There are many advantages and disadvantages to the home country (the country where the company is based) when multinational companies operate a subsidiary in a foreign country. Benefits Upskilling • Because of less demand for unskilled labour, people are encouraged to

seek education to ensure they can be employed and as a result have a greater income.

Improved balance of payment • The capital account of the home country’s balance of payments benefits

from the inward flow of foreign earnings and also from the demands created for home-country exports of, for example, capital equipment.

Increased employment • Positive employment effects arise when the foreign subsidiary creates

demand for home-country exports. Increase in skills • As a result of exposure to foreign markets, home companies can benefit

from valuable skills learnt abroad, superior management techniques and processes which can be transferred back to the home country, contributing to economic growth.

GLOBAL BUSINESS



Problems Balance of payments effects The home country’s balance of payments can be negatively impacted in three ways: 1. The capital account can suffer from the initial capital outflow to finance

the FDI (normally offset by future profits). This means the business is paying less in taxation as its profits are being reduced by the increase in spending.

2. The current account suffers if the objective of FDI is to serve the home

market from a low-cost production location as the profit will be made abroad and not in the home country.

3. The current account suffers if the FDI is a substitute for direct exports.

Thus, insofar as Nissan’s assembly operations in the UK are intended to substitute for direct exports from Japan, the current account position of Japan will deteriorate.

Unskilled labour • The low cost of unskilled labour in other countries can cause

unemployment in the home country. • The wage rate for unskilled workers in many advanced countries has

decreased significantly over the years because of competition from other countries.

• The skill mix of employees may change and if there is less demand for low-

skilled work in advanced countries this places a burden on society to invest in education to increase the supply of skilled workers.

Loss of control The home government often loses control of multinationals as they grow in size and power. For example, a large multinational may demand incentives and tax subsidies from a government, with the threat of relocation if the government does not give in to the demands.

GLOBAL BUSINESS



Effects of globalisation As discussed previously, increased globalisation can have positive and negative effects for both the home and host countries. The same can be said for the multinationals themselves: Positive effects for multinationals

GLOBAL BUSINESS



Negative effects for multinationals

GLOBAL BUSINESS



Current EU developments The European Union (EU) was founded in 1957 when six countries initially signed up to the European Economic Community (EEC). Over the next six decades a further 22 countries joined. After the Single European Act in 1987 the EEC changed its name to the EU. Its purpose is to form a common market between members that is not affected by tariff barriers. Member country Date of joining Member

country Date of joining

Austria 1 Jan 1995 Italy Founder

Belgium Founder Latvia 1 May 2004

Bulgaria 1 Jan 2007 Lithuania 1 May 2004

Croatia 1 Jul 2013 Luxembourg Founder

Cyprus 1 May 2004 Malta 1 May 2004

Czech Republic 1 May 2004 Netherlands Founder

Denmark 1 Jan 1973 Poland 1 May 2004

Estonia 1 May 2004 Portugal 1 Jan 1986

Finland 1 Jan 1995 Romania 1 Jan 2007

France Founder Slovakia 1 May 2004

Germany Founder Slovenia 1 May 2004

Greece 1 Jan 1981 Spain 1 Jan 1986

Hungary 1 May 2004 Sweden 1 Jan 1995

Ireland 1 Jan 1973 United Kingdom 1 Jan 1973 The main areas which impact businesses are: • European institutions • the Single Market Act • European monetary union • the Common Agricultural Policy • the Social Chapter • European enlargement. Given the rate of change in Europe, future developments as seen at the time of writing are discussed.

GLOBAL BUSINESS



European institutions The economic policies of the EU are currently formulated and implemented by five main institutions: • the European Council • the Council of Ministers • the European Commission • the European Parliament • the Court of Justice. The European Council The European Council meets at least twice a year to resolve major policy issues and set policy directions. It is composed of heads of state of the EU’s member nations and the president of the European Commission. The Council of Ministers The interests of member states are represented by the Council of Ministers, one representative from the government of each member state. The membership varies depending on the topic of discussion, for example transportation ministers attend when transportation policy is being discussed. Draft legislation can only become EU law if the council agrees. The European Commission The European Commission in Brussels is responsible for proposing EU legislation, implementing it and monitoring compliance with EU laws by member states. It comprises 28 commissioners (one from each country) appointed by each member country not to represent the best interests of each individual country, but to have responsibility for a particular policy area, eg agriculture policy. The commission makes legislative proposals which then go to the Council of Ministers and the European Parliament. The European Parliament The European Parliament, which meets in Strasbourg, has 751 MEPs (Members of European Parliament) directly elected by the population of the member states. It is primarily a consultative rather than a legislative body, debating legislation proposed by the European Commission and forwarded to it by the Council of Ministers. It proposes amendments to legislation, which are often taken up by the commission and the ministers. The Court of Justice One judge from each member country sits in the Court of Justice to hear appeals under EU law. Like commissioners, they do not represent their

GLOBAL BUSINESS



individual country’s interests, but act as independent officials. Members can be brought to court for not meeting treaty obligations. Effects on UK of EU policy Social Chapter The aim of the Social Chapter is to standardise working conditions throughout the EU so that all workers within the community are guaranteed basic rights. This includes: • minimum wage being paid to all workers • maximum working week • minimum paid holiday per year • freedom to join a union • access to appropriate training • protection of young workers • the right to be consulted and informed about company plans. Impact • Workers’ rights are protected, which may improve motivation and

productivity. • Increased worker participation could enhance decision making in firms. • Fewer industrial relations issues. • additional costs and bureaucracy on firms. • High labour costs through minimum wage, paid holidays etc may increase

costs. • UK businesses may struggle to compete with countries that do not have to

meet these requirements. Single Market Act This Act removed barriers to trade for EU member countries, such as barriers preventing entry into markets, barriers which caused organisations’ costs to rise and barriers leading to market distortions such as subsidies given by governments to domestic industries. Impact Lower costs of doing business in Europe, such as: • simplified tax regimes • harmonised product standards • free movement of goods across borders.

GLOBAL BUSINESS



This may lead to new opportunities in industries that were previously heavily regulated. Increased economies of scale will benefit firms that get business from within the EU. Access is opened to a potential market of some 500 million customers, which could increase sales. • Some countries continue to favour local suppliers in public contracts. • Services are less easy to trade than goods and are often more culturally

dependant. • National markets are still often separated by the realities of cultural and

language barriers between countries. • Companies outside the EU will be faced with more competition from EU

companies who have reduced their cost structures and can now compete more globally.

EU enlargement impact • Export opportunities as new members join. • Standards of living are not always high in some new members, so the

extent of opportunities may depend on the product/service offered by the company.

• EU grants may be available to expand into the new member countries, encouraging UK firms to set up facilities.

• Availability of skilled workers and lower wage levels initially will also attract UK businesses.

• It may open up sources of recruitment for UK firms, which can help them alleviate skills shortages.

European monetary union European monetary union (EMU) describes the introduction of one currency for member states: the euro. Many but not all countries in the EU have joined the Eurozone and participating countries fixed their exchange rates so that they cannot move against each other. The European Central Bank is responsible for setting interest rates throughout the participating countries.

GLOBAL BUSINESS



Effects for the UK in joining the EMU

Effect Explanation

No transaction costs

• UK firms would no longer have to pay transaction costs to exchange sterling for euros.

• As credit deals will be priced in euros there will no longer be any concerns about unfavourable movements in exchange rates before payment is due.

• UK firms would find it easier to set up subsidiaries in other EU countries as large sums of capital could be moved without the cost of conversion to another currency.

Price transparency

• UK firms would be able to compare the prices of suppliers in the UK with those in other Eurozone countries and choose the cheapest.

• UK customers will be able to compare prices across the Eurozone, which may lead to the loss of sales for uncompetitive UK firms.

• This could act as a stimulus to greater efficiency in order to cut costs to compete.

• Customers in other Eurozone member countries may buy from UK firms whose prices are now seen to be lower, eg e-commerce.

Menu costs • UK firms will face one-off costs of converting to the euro,

equipping the business and training personnel to deal with euros rather than sterling.

• Firms which mainly trade with countries outside the Eurozone will have to pay these costs but will still have to pay transaction costs for exchanging the euro for other currencies.

Increased competition

• More multinational firms are likely to be attracted to the UK as by setting up here they gain access to a large European market using a single currency; this will increase competition for UK firms.

GLOBAL BUSINESS



Interest rates • These would be set by the European Central Bank.

• UK firms would no longer be able to move surplus funds between European countries to take advantage of variations in interest rates for sterling and the euro.

• Interest rates would depend on the economic situation of the Eurozone as a whole rather than that of the UK and not be as responsive to the needs of British business as before.

Loss of autonomy

• The countries in the Eurozone do not have full control of fiscal policy. The Bank of England (the lender of last resort in the UK) would lose the autonomy it currently has. As well as losing the ability to set interest rates, the Bank of England would not be able to pursue quantitative easing to try and stimulate economic activity.

Effects on profitability

Cause Effect Explanation

Social Chapter

Increased labour costs of firms, eg training; maximum working week

• May mean organisations may need to employ more people, raising costs and reducing profit.

• High labour costs make it difficult for UK organisations to compete with low wage countries such as China.

• Industrial relations may improve if employees are involved in making company decisions, which might lead to increased motivation and so increased production, making organisations more efficient.

GLOBAL BUSINESS



Single European Market

Allows for easier trade between countries in EU so increased competition

• Prices may have to be reduced to compete as the number of businesses in the one market increases. This is particularly true in the public sector, where foreign firms can bid for Government contracts.

• The reduction in the number of customs posts and the amount of paperwork that is required for goods traded between EU countries should save organisations time and reduce costs.

• Organisations have had to alter their products to meet safety aspects of EU regulations, which increases costs.

• Greater mobility of labour, giving UK businesses a wider choice of employees and reducing wage costs.

European monetary union

UK businesses have to quote their prices in euros

• Staff have to be trained to deal with this. • The competitiveness of the business will

depend on the value of the UK’s currency against the euro. If the value of the pound against the euro falls then this makes UK exports to countries in the Eurozone more attractive.

European enlargement

Expanded free trade area

• This means more opportunity for increased sales.

• It has given UK business access to different resources/products to sell to British customers.

• Including Eastern European countries in EU should generate greater economic and political stability within them, which will provide improved investment opportunities within these countries for UK businesses.

GLOBAL BUSINESS



Effects on UK of European enlargement In 2004 the EU expanded to include 10 new countries, including Hungary, Poland and Slovakia. This increased the size of the market to nearly 500 million and has allowed more potential workers entry to UK.

Effect Explanation

Efficiency • The larger market gives more scope for economies of scale because it gives firms the chance to produce more and therefore lower average costs.

Joint ventures more feasible

• The UK firm may provide finance, machinery and expertise while the Eastern European firm provides land, buildings and labour.

• Many new member governments are unstable and have a bureaucratic structure left over from the Communist era. This can cause delays as firms seek to comply with regulations.

• Corruption can be a problem in some countries where bribery of officials is accepted as the norm.

Lower wage costs

• New member states will help firms to cut costs by relocating their operations abroad, although EU membership may cause wage rates to rise over time.

Increase in free trade barriers

• Businesses will be able to source supplies free of any trade barriers from a wider market, which may allow them to cut costs and increase profitability.

• This may lead to firms reducing prices in the face of increased competition.

• Wider choice of suppliers could lead to higher quality inputs.

New markets available

• The total population of the new member countries is between 75 and 100 million. This will be especially beneficial to firms whose UK market is saturated, such as Tesco.

• However, the low average income in most of the new countries may limit demand for products of UK firms and so constrain their ability to expand.

GLOBAL BUSINESS



Fewer grants available

• As most of the new countries have below-average living standards, EU regional development funding is likely to be channelled to them rather than long-standing members so fewer EU grants may be available to UK businesses, limiting their prospect of development.

Greater competition

• The enlarged EU will create greater competition as firms in the new member countries take advantage of reduced trade barriers to expand into older member countries.

• This may initially reduce the profit of UK firms. • It may also give firms an incentive to reduce prices,

improve efficiency and develop new products and markets to compete.

GLOBAL BUSINESS



Association of South East Asian Nations (ASEAN) and China UK businesses trade without borders. In the past, the European Union and Americas provided the largest export opportunities. The increasing dominance of Asia has shown the world is a truly global market place. ASEAN The Association of Southeast Asian Nations (ASEAN), was established on 8 August 1967. It comprise of 10 Asian countries:

Member country Date of joining

Brunei Darussalam 1984

Cambodia 1999

Indonesia Founding country

Lao PDR 1997

Malysia Founding country

Myanmar 1997

Phillippines Founding country

Singapore Founding country

Thailand Founding country

Viet Nam 1995 The ASEAN charter was agreed in 2005 and sets clear targets for the association, as well as setting out its rules and values. The Chair of the association changes annually. Each member country takes it in turn, with the order based on the alphabetical order of the member states. Currently, each member of ASEAN has its own currency. They have been proposing a single currency, similar to the Euro, for the past 2 decades. One of the main obstacles is the fact that 80% of the exports from the member countries go to countries outside of ASEAN. ASEAN, China, Korea, Japan, Australia, New Zealand and India concluded a free trade agreement in 2015. The agreement with China created the ASEAN-China Free Trade Area (ACFTA) in 2010. They are currently negotiating a free trade agreement with the European Union.

GLOBAL BUSINESS



China China is the world’s second biggest economy (behind the United States of America) but is growing at the fastest rate. It uses its wealth to invest in other businesses from around the globe. For example, in recent years China has invest $3bn in Barclays bank, $2bn in BP and $1.9bn in Weetabix. The growing dominance of China, as well as the increasing force of ASEAN will have both positive and negative effects on UK and UK business: Positive effects for UK businesses

GLOBAL BUSINESS



Negative effects for UK businesses

CASE STUDY 1



Case study 1

Burger King takeover? Burger King is in talks to buy Canadian doughnut chain Tim Hortons and create a new holding company headquartered in Canada, a move that could shave its tax bill. Such an overseas shift, called a tax inversion, has become increasingly popular among US companies and a hot political issue. Burger King was founded in 1954 with a single restaurant in Miami, where it is currently based. Shares of Burger King and Tim Hortons both jumped 17% before the opening bell, heading toward all-time highs. In a tax inversion, a US company reorganizes in a country with a lower tax rate by acquiring or merging with a company there. Inversions also allow companies to transfer money earned overseas to the parent company without paying additional US taxes. That money can be used to reinvest in the business or to fund dividends and buybacks, among other things. A recent report by KPMG found that total tax costs in Canada are 46.4% lower than in the United States. Tim Hortons, known for its doughnuts and coffee, has been paired with US fast-food chains in the past. It was purchased by Wendy’s International Inc in 1995. Then in 2006 it completed an initial public offering and was spun off as a separate company. Burger King and Tim Hortons say the deal would also allow the doughnut chain to accelerate its growth in international markets. The company had 4,546 restaurants at the end of June, with 3,630 in Canada, 866 in the US and 50 in the Persian Gulf area. The companies say Burger King Worldwide Inc and Tim Hortons Inc, based in Ontario, would continue to operate as separate brands but would share corporate services. The talks were first reported by The Wall Street Journal. The new company would have 18,000 restaurants in 100 countries with about $22bn in sales, which the companies say would make it the world’s third-largest fast-food restaurant company.

Adapted from: http://www.theguardian.com/business/2014/aug/25/burger-king-tim-hortons-in-tax-inversion-deal

CASE STUDY 1



You should note that although the following questions are based on the case study above you will need to also make use of other knowledge and understanding you have gained whilst studying the course.

Marks 1 Describe other possible methods of growth for Burger King. 6 2 Burger King is a worldwide organisation. Discuss the effects of

globalisation on UK organisations. 6 3 Discuss the benefits to both a multinational and a host country when the

multinational establishes operations in that country. 8

Total 20

CURRENT ISSUES



Current issues Business ethics Business ethics can be described as a set of values and principles which influence how organisations behave. Company ethics help with decisions such as should a product harmful to consumers be withdrawn from the market or should a bribe be used to help win a contract. Business ethics and social responsibility operate within the general business environment affected by political, economic, social and technological (PEST) issues. This section looks at how some of these issues impact businesses in the area of ethical and socially responsible behaviour. Likewise, opportunities and threats (from SWOT analysis) to the business are impacted by the external environment. Examples include changing social attitudes from green consumers which can provide both an opportunity for a company, eg to market a more environmentally friendly product, consumers may vote with their feet and not purchase products which contain CFCs. Changing social attitudes may lead to customers demanding environmentally friendly goods. If these are not provided a business may see a reduction in its sales or bad publicity. This has an effect on the processes businesses use, their products and how they market them. Legislation, consumer demand and pressure groups are often instrumental in having company policies changed to be more responsible. EU legislation, for example, dictates that companies have to have an equal opportunities policy for employees. If a product is not selling because consumers don’t want to buy it as a result of publicity that it is tested on animals, then organisations will stand up and take notice. Likewise if a pressure group such as a trade union or Greenpeace put pressure on politicians or invest in an advertising campaign to publicise ‘bad practice’ this too can affect a company’s ethical policy.

CURRENT ISSUES



Benefits to businesses of ethical behaviour Companies which operate in an ethical or socially responsible way can benefit in several ways.

Increased sales

Consumers have been shown to be influenced to buy from companies which behave ethically, for example many people refused to buy products from South Africa at the time of apartheid. Investors in the Co-operative Bank know that their money will not be used to finance countries with poor human rights records.

Increased employee motivation

Employees who are aware that their company operates in an ethical manner are more likely to be committed to the success of the company and therefore be more motivated.

Attraction and retention of quality staff

This is likely to be easier for a company with a good track record of behaving in an ethical manner. Providing non-salary benefits such as good maternity or childcare policy often results in a more loyal workforce who are keen to stay with the company, thus cutting recruitment and retraining costs.

Increased productivity

As a result of their ethical stance, many organisations may attract a better quality of applicants, leading to greater productivity from employing a more skilled workforce than less ethical firms, thus reducing average cost. The commitment of existing employees may be enhanced by the knowledge that they are working for a caring firm, increasing their motivation and productivity.

Lower costs

Some ethical measures, such as energy saving and recycling, may lower costs directly. Having environmental standards and safety requirements in excess of those prescribed by current legislation means that firms avoid penalties for issues such as pollution and the cost of altering their operations to comply with changes in legislation. For example, new car CO2 emissions targets came into force in 2013. Many manufacturers were already exceeding this new target, whilst others needed to make changes to ensure they were complying.

CURRENT ISSUES



Customer loyalty

Increasing environmental awareness of consumers means an ethical firm may attract more customer loyalty. As part of their commitment to protecting natural resources M&S have introduced their own forestry programme and are using information gathered on suppliers’ commitment to such programmes when deciding who to do business with.

Marketing advantages

An ethical firm may be able to establish a niche for itself based on a positive reputation. The Co-op was the first firm to offer a wide range of Fair Trade products such as chocolate, which attracted consumers concerned about exploitation of lesser developed countries and helped them gain a competitive advantage.

Ethical measures may bring the firm good publicity and can be used in promotion. However, a firm may state it is ethical because it thinks it will earn more profit and not because of principle, which would be unethical and may harm the firm’s reputation in the longer term.

Firms may be able to charge a premium price as consumers will be willing to pay more for a product if it has been manufactured in an environmentally friendly manner, for example Ecover environmentally friendly soap powder is more expensive than other brands.

Increased innovation

Being ethical is a stimulus to firms to innovate to find more environmentally friendly ways of operating, for example Sainsbury’s invention of biodegradable wrapping for fruit and vegetables. This could lead to increased sales.

CURRENT ISSUES



Disadvantages to businesses of ethical behaviour Businesses can be negatively impacted in a number of different ways.

Being ethical may mean that firms have to spend more on environmentally friendly equipment, ethical sources of supply, or better wages and conditions for their employees. This will increase costs and reduce profitability. Companies which publicise their ethical stance are subject to greater publicity scrutiny than others; a small amount of adverse publicity can severely damage the reputation of a company. Examples include customers feeling betrayed by McDonalds’ takeover of Pret a Manger or Coca Cola taking over Innocent Smoothies.

CURRENT ISSUES



Corporate social responsibility Social responsibility is shown by companies which are ethical within society as a whole or within the community in which they are based. The revival of interest in social responsibilities has occurred for a number of reasons, such as growing environmental awareness, corruption and fraud in the business sector, stakeholder empowerment and the development of equal opportunities. Examples of corporate social responsibility:

CURRENT ISSUES



Social responsibility applies to all sectors of the market – profit and non-profit organisations:

A subset of socially responsible and ethical business behaviour is environmental policies deployed by companies. We are surrounded by information as to why companies should pay attention to the environment and green issues. The accident at the Chernobyl nuclear power plant is a well-cited example, but companies from the very small to the global organisation can make a difference to the environment. Environmental initiatives in many cases save money and help to improve profitability and competitiveness. Many companies have seen benefits to the bottom line, new product opportunities or increased market share. However, there are many excuses for inaction, as shown below.

CURRENT ISSUES



Environmental policies in organisations Environmental initiatives within industry include the following: • using less energy since most sources of energy have polluting effects on

the environment, for example fossil fuels give rise to sulphur dioxide and nitrogen oxides, the main components of acid rain

• using less water and reducing water pollution because water shortages not

only affect the organisation but also may cause rivers to dry up or flow to become so low that wildlife cannot be supported, and of course discharge of waste to our rivers and seas affects the environment

• making waste reduction a primary goal, with re-use and recycling as back-

up strategies (waste reduction is different to recycling in that it aims to minimise wastage in processes in the first place)

• reducing packaging – a European Directive is considering placing

responsibility for the disposal of packaging waste with the producer, likewise landfill tax in the UK has been increased dramatically to make it a more expensive option than incineration and recycling

• reducing noise pollution, such as noise from a production facility, because

noise pollution impacts both people and animals negatively, and laws exist stating the acceptable levels of noise allowed

• reducing the impact of transport by consolidating loads, compacting

products or waste, and eliminating packaging, or at least making it more space efficient – these are all ways of effectively helping to reduce carbon dioxide emissions and improving air quality.

CURRENT ISSUES



Initiating environmental initiatives can have both positive and negative effects on an organisation: Positive effects Negative effects

• Can help to reduce costs, which can then be passed on to the consumer – using redesigned packaging or

minimising transportation costs • Can be used in marketing

campaigns: – M&S’s ‘Plan B – because there is

no Plan A’ leaflet – M&S’s posters in stores stating

no GM foods used • Being seen to be environmentally

responsible can develop customer loyalty – Sainsbury’s is reducing the

amount of waste packaging on its own-brand Easter eggs

• Can make consumers feel they are helping less-developed countries’ wellbeing – Fair Trade products.

• By initiating changes to become environmentally responsible firms are more ready to deal with changes in the law than competitors

• New technologies (eg cutting emissions, cleaner engines) allow companies to access a growth market – eg hybrid cars

• Firms may be able to access a niche market or create a new one – eg Scottish Nappy Company

provides home delivery of cotton nappies and collection of soiled ones

• Some Fair Trade products are more expensive – consumers may prefer to

buy cheaper non Fair Trade goods

• Some changes may be costly as the firm may have to buy or upgrade machinery and might need to pass costs on to consumers through higher prices

• Environmental mistakes can affect profit and share price – eg oil spill in

environmentally sensitive area (fines, clean-up costs, boycotts, reputation)

– in 2004 Chrysler recalled 2.7 million cars due to faulty gearboxes

– Mattel recalled almost 850,000 toys worldwide in 2007 because they contained dangerous levels of lead paint

• If not seen to be environmentally friendly firms may lose business to competitors – in 1991 Shell was

boycotted by German car users when it proposed dumping an oil rig in the sea

CURRENT ISSUES



Case study The Single Use Carrier Bags Charge (Scotland) Regulations 2014 Legislation has come into force that requires all retailers in Scotland to charge a minimum of 5p for each new single-use carrier bag given out to customers. What are the reasons behind the charge, how will retailers will be affected, where will the money go and exactly which bags will customers be paying for? Why has the charge been introduced? Scotland currently works its way through more than 800 million bags every year – that's more bags per head than England, Wales or Northern Ireland. Plastic bags blowing in the wind are a depressingly familiar sight and one with environmental repercussions because they can take up to hundreds of years to decompose. They often end up in water courses and are particularly damaging if they get into the marine environment. The charge has been introduced to encourage shoppers to reuse bags and where possible get into the habit of using ‘bags for life’. From now on, Scots will have to remember to bring bags with them, even on that impromptu trip to the supermarket. What do the new rules mean for consumers? ‘Single-use’ means any bag provided with the intention that it is only used once. Among the Scottish government's detailed definitions of ‘carrier bag’, ‘small paper bag’ and ‘handle’, there are a few surprises in the legislation. The crucial point is that not only plastic bags are included in the new rules. Customers will also be required to pay for paper bags, as well as bags made from some plant-based materials. Where's the money going? All retailers are required to charge a minimum of 5p for every single-use carrier bag they hand out, but they can charge more if they choose. It is also up to individual businesses to decide what to do with the revenue. The government is gently encouraging them to donate the profits to good causes, ‘particularly ones that benefit the environment’. Zero Waste Scotland have signed up 160 retailers to their Carrier Bag Commitment, meaning that they have agreed to donate the proceeds to good

CURRENT ISSUES



causes and report on how many bags they have sold and how they've used the money. M&S, McDonald's, the Co-operative Group and Superdry are among those who have made this committment.

Source: http://www.bbc.co.uk/news/uk-scotland-29687760 Conclusion For many reasons, whether they be consumer pressure, legislation, government policies or potential cost savings, more and more organisations are becoming more environmentally aware. The impacts on businesses include: • production techniques or materials may have to be changed, for example

the use of more energy-efficient manufacturing equipment or use of recycled materials

• increased costs are likely, for example costs to treat waste products rather

than dumping untreated waste into the sea • decreased costs may apply as a result of new environmentally friendly

policies • increased investment in research and development may have to be made

to look at more environmentally friendly production techniques or materials • possible increased demand for products by consumers who are attracted to

companies who show themselves to have environmentally sound practices.

CURRENT ISSUES



Technological developments Technology makes a significant impact on how organisations do business. The internet is possibly the biggest business change in our lifetime. What it means is that any company or individual in the whole world can get in touch with, exchange information and trade with anybody else in the whole world, any time of the day or night, cheaply and conveniently – the global business. Information technology allows the data which it holds to be used by companies to advantage. What we buy at our supermarket using loyalty cards gives us a buyer profile so we can be targeted by marketing departments for other products and services in the future. The way we pay for our goods and other financial information is used by companies to attract us to spend money in other ways. High street stores like M&S are good examples – in the past they were purely retail outlets, now they provide financial services of almost every kind. For organisations, this means their products and markets, how they get to their markets and their systems must always be under review. They must change to embrace new technology as it becomes available in order to be competitive. E-commerce E-commerce is the buying and selling of goods online. This continues to grow, with e-tailer Amazon planning to hire 1000 permanent staff at its UK distribution centres to meet growing demand for goods online. Britain’s biggest online retailer employs 6000 people at its warehouses and customer service centres in the UK. It will take on the extra staff in the next few months (October 2014). Methods of E-commerce B2C (business to consumer) Internet use, as typified by Amazon.com for buying books or Easyjet.co.uk for booking cheap flights, is a huge growth market. Any individual with access from a PC at home today can order their shopping from Tesco and have it delivered to them, or order a birthday gift and have it gift wrapped and sent to a friend across the Atlantic without leaving their armchair. B2C affects large, medium and small businesses. A one-man entrepreneur can set up a web-based company operating from home while large companies are providing customers with the ability to buy their products online, often with a reduced cost to reflect a lower cost of sales.

CURRENT ISSUES



B2B (business to business) Business to business use of the internet is where the companies do business electronically with their suppliers. B2B provides the opportunity for improving relationships with business partners and suppliers, with the efficiencies and cost-savings that can be made as a consequence. C2B (consumer to business) This describes the individual reaching out to the entire market. An example might be where you want to buy a used car of a specific make, model, mileage etc and dealers will bid for your business, or if you want a mortgage you supply your terms and wait for building societies and banks to bid. This is commonly seen on comparison sites. C2C (consumer to consumer) The biggest growth in online sales have been consumer to consumer. One common example is online auctions, such as eBay, where an individual can list an item for sale and other individuals can bid to purchase it. Auction sites normally charge commission to the sellers using them. They act purely as intermediaries who match buyers with sellers and they have little control over the quality of the products being offered, although they do try to prevent the sale of illegal goods, such as pirate CDs or DVDs. Regulations and safety of the internet Despite the opportunities provided to businesses who use the internet there are a number of areas which companies should be aware of in planning their use of e-commerce. Hackers are not uncommon and a company website should be made secure to ensure that confidential information cannot be intercepted by unwanted third parties. The Electronic Communications Bill (April 2000) seeks to boost user confidence in the security of the internet. Despite this Bill, there has been an increase in organisations failing to protect user information. For example, Sony was fined £250,000 by British regulators for failing to protect its users from their personal details being leaked online in April 2011. The Computer Misuse Act (1990) was introduced to combat the rise in hacking attacks. Despite this, in the past year the size and volume of distributed denial-of-service attacks has substantially increased, with a 389% jump in average attack bandwidth between the third quarter of 2013 and the third quarter of 2014, with banks and social network sites being hit the most.

CURRENT ISSUES



The Data Protection Act sets out strict principles and criteria for obtaining and handling personal data held by organisations to help prevent data being misused. As always there is a period before technological and legal developments are fully aligned with the online world. Technological developments There are three main developments currently impacting on how businesses work and develop.

CURRENT ISSUES



Video conferencing Video conferencing provides the ability for people to hold meetings across multiple sites (and often countries) in real time. Web cameras, TVs or microphones in each of the sites are needed along with communications technology to transmit visual and audio data. Holding video conferences using ISDN communication links is a routine part of life for many large organisations. Holding a company meeting between a marketing department in Boston and a manufacturing plant in Scotland no longer needs people to fly across the Atlantic. They simply sit in their own offices, each with their video equipment, and communicate with each other as if they were in the same office, only they see each other on a TV screen talking in real time. Changes to technology mean that companies will no longer have to buy expensive special purpose equipment. High-end PCs come with video-conferencing software as standard and the company LAN is being used as the communications backbone.

Technology Advantage

Internet

• Ordering online allows firms to reduce lead times and storage costs

• Allows firms to see what competition is doing • No need to pay for staff wages or for retail outlets • Attractive website can be marketing tool • Can sell to wider market • Can sell 24/7 • Immediate communication with customer (social media) • Can source cheaper suppliers from all over the world • Allows employees to work from home, reducing costs • Allows firms and customers to track orders • Online banking allows firms to manage cash flow more

effectively

Intranet • Allows sharing of software and hardware, reducing costs • Internal email allows instant communication and

collaboration between employees in different locations • Allows instant communication, which means firms can

react to changes in local markets quicker

Mobile phones

• Can contact employees even when out of office • Employees can check emails on the move

CURRENT ISSUES



Personal computer/ software

• Routine tasks can be carried out easily • EPOS (electronic point of sale) can gather large

amounts of information about customers that can be used to target them, eg Tesco Clubcard

Computer Aided Design

• Allows firms to design products accurately, then change them quickly and cheaply

• Can react to clients’ changing needs • Testing can be done cheaply • Can prevent the need for expensive reworking later on • Cuts lead times between design and production so can

keep up with competitors • Reduces need for specialists, cutting down costs

However, there are disadvantages of using technology: • easy for competitors to see firm’s prices/services online • constantly changing technology means staff training, increasing costs • employees constantly checking for emails can waste time and cut efficiency • viruses can cause systems to crash, leading to downtime so areas of

business cannot function. Internet banking For business, internet banking provides a great opportunity to improve company efficiency while reducing costs. Statements can be viewed online, giving companies a precise indication of their financial position at any moment in time. Funds can be transferred and bills paid.

CURRENT ISSUES



Data Protection Act 1998 With the increasing use of data held online, businesses must ensure they are adhering to the Data Protection Act 1998. This Act builds on the Data Protection Act 1984. The 1998 Act sets a standard for data protection throughout the European Union countries and covers some manual records. The main purpose of this Act is to balance the rights of those that lawfully hold our data for processing purposes and our own rights.

Key point of law In practice

Obtain data fairly and lawfully • People must be told what use will be made of the information they supply about themselves

Use data for registered and lawful purposes only

• Organisations that hold personal data for use must register with the Data Protection Registrar

Use and disclose data only for the registered purpose

• Ensure that employees know what the data can be used for – list uses clearly and succinctly

Data must be adequate, relevant and not excessive for its purpose

• When designing forms to enable collection of data, ensure key questions only are asked

Data must be accurate and, where necessary, kept up to date

• Ensure that there are procedures in place to check, update or destroy inaccurate information

Data must be held for no longer than is necessary

• Depending on the nature of the business being undertaken, procedures should encompass the destruction of data as soon as it has been used for the purpose, for example credit card details should be destroyed once orders are despatched if customers have paid for goods over the phone

Data users must take appropriate security measures to prevent unauthorised access, disclosure, alteration or destruction of personal data and accidental loss or destruction

• Look at the nature of the information held – there may be justification for allowing information of a confidential or sensitive nature to be: – available only to certain members of

staff – password protected if held

electronically – held in locked cabinets if paper based

CURRENT ISSUES



Conclusion Advances in new technology, many of which have positive implications for business, happen by the day. Discussed above are some recent changes in technology, but since this is such a fast-moving area, learners should keep up to date with new developments. Business implications implied by the technology discussed above include the following: • The internet effectively means that companies can sell their products or

services globally 24 hours a day, 365 days a year, allowing businesses and consumers to interact regardless of time difference between countries.

• The use of data, such as consumer buying patterns, provides companies

with the ability to target customers for additional products or services. • Pressure on companies to invest in new technology to remain competitive. • E-commerce, especially B2B, provides companies with the opportunity to

revise business practices for competitive advantage, attacking the supply chain, for lower costs.

• The use of B2C changes the behaviour of consumers, making shopping

less of a social affair. • A variety of access methods to the internet makes product purchasing more

accessible, eg use of a mobile phone to order from the supermarket while commuting on the train to work.

• As SMART technology is adopted cost-effectively and widely, this opens

the door to additional value-added services. A utility company such as Scottish Power could programme your dishwasher to come on during cheaper cost off-peak times or the manufacturer of the dishwasher could be remotely informed of a problem and arrange for an engineer to come when he’s next in the area to fix it.

• Video conferencing can allow businesses to operate more easily on a

global basis, in addition to becoming a low-cost alternative to the time and cost involved in travelling to meetings.

• Internet banking can improve company efficiency and reduce costs. • Social networking sites, such as Twitter and Facebook, allow adverts and

news stories to go viral in hours, which is great free publicity if the story is positive (a disaster for businesses if it’s not!).

CURRENT ISSUES



This list of new technology and its benefits is not exhaustive, but gives some examples of how businesses in the UK can take advantage of changes in technology. Government influence Government involvement in UK organisations is an example of the political and economic environment and how it affects the day-to-day operation of companies. For example, changes in social attitudes to the long-term unemployed have encouraged political parties to campaign on the need to get the unemployed back to work. The government affects many areas of business activity, from small and medium-sized businesses to large multinationals. In addition, its role includes: • providing free education for under 16s • providing a ‘free’ national health service (NHS) paid for by (employers’ and

employees’) national insurance contributions • providing social services to assist those in need of financial support, paid

for by national taxation and insurance levels • providing a police force to ensure safety • providing a well-maintained transport infrastructure • providing an infrastructure to protect the defence of the country through the

Ministry of Defence.

CURRENT ISSUES



How a company is affected by government Governments can influence and affect companies in many ways:

Why do governments become involved with business? There are many reasons why the government intervenes: • to control the level of economic activity – only by creating wealth on a

continuous, rolling basis can the country: – extend the transport infrastructure, for example new road building to

further strengthen the economy – facilitate financial investment by companies to replace worn-out plant

and premises – improve education, health and security provision – achieve its social, political and economic objectives

• to decrease unemployment – while unemployed, people are not

contributing to the country, indeed they are likely to be receivers of the government’s money in terms of unemployment benefit or income support

• to ensure that minority groups are not exploited by organisations – the

Equality Act 2010 to regulate private monopolies – without organisations such as Ofcom to represent telecommunications users or Ofgem to represent electricity users we might pay more than we should and have less choice of supplier than we should

CURRENT ISSUES



• to provide services that business is unable to provide, such as law and order, and defence of the country – it can be argued that these types of services cannot be provided on a privately funded basis and therefore the government must be responsible for them

• to provide education, health services and training to ensure a healthy and

educated workforce is available for companies to employ. Examples of government intervention • Consumer protection: In order that suppliers of goods or services are

responsible for what they provide, legislation has been passed to protect the consumer. Protection covers initial advertising of the product, its description, the quality of the item and its purchase on credit.

– Consumer protection legislation:

§ the Trades Descriptions Act protects the consumer by covering advertising and product/service description

§ the Sale of Goods Act covers quality § the Consumer Safety Act covers safety § the Weights and Measures Act covers quantity § the Prices Act covers display of prices § the Consumer Credit Act covers credit provision.

– Companies need to ensure that they are aware of all this legislation, for

example if a customer buys a toy for child that turns out to be dangerous the company would be liable under the Consumer Safety Act, which could have significant repercussions for the company concerned.

– In addition, pressure groups and independent bodies such as the

Consumers Association and Citizens Advice Bureaux work to support the consumer.

• Competition policy: To prevent price-fixing or anti-competitive practices,

the government has passed various pieces of legislation to ensure that trading is carried out in the public’s interest.

– The Competition and Markets Authority (2014) attempt to ensure that

trading activity is not unfair to the consumer, for example price or quota fixing, or creation of a monopoly that would be to the long-term detriment of the consumer.

• Regional policy: The government uses regional policies such as extra

funding (grants), tax relief and subsidies in development areas or enterprise zones to try to improve unemployment levels.

CURRENT ISSUES



– The objective is to attract new company investment in areas of high unemployment, for example areas of the Clyde which traditionally relied on the shipbuilding industry or the Borders, which relied on the textile industry. Grants are also available from the EU, particularly for projects which aim to improve the infrastructure of the region.

CASE STUDY 2



Case study 2 Environmentally friendly packaging Heinz and Coco-Cola have announced a strategic partnership which will enable Heinz to produce its ketchup bottles using Coca-Cola's PlantBottle packaging. At a press conference this morning, the Coca-Cola Company and H.J. Heinz Company announced a strategic partnership that enables Heinz to produce its ketchup bottles using Coca-Cola's PlantBottle packaging. This shift in packaging will be the biggest change to Heinz's iconic ketchup bottles since the company first introduced plastic in 1983. Heinz plans to convert to PlantBottle globally, beginning with the 20-ounce variety of Heinz Ketchup, which will be rolled out to US consumers this summer. The packaging will be identified by a special logo and on-pack messages. As you may recall, Coca-Cola first launched the PlantBottle in 2009. The technology has been described as ’breakthrough’ and ‘revolutionary’ because the PlantBottle: • looks, feels and functions just like traditional PET plastic, • is fully recyclable, and yet • is made from up to 30 percent renewable, sustainably-sourced plant-based

material. The plant-based material is produced through an innovative process that converts natural sugars found in plants into a key component for PET plastic. ‘We believe it has the capability to revolutionize food packaging the world-over,’ Muhtar Kent, Chairman and CEO of The Coca-Cola Company, said. ‘With PlantBottle, we aim to reduce and eventually completely replace the use of non-renewable fossil fuels in plastic packaging.’ Currently, PlantBottle is made using sugarcane ethanol from Brazil, which, as Coca-Cola points out, is the only source widely recognized by thought-leaders globally for its unique environmental and social performance. Kent said that most sugarcane in Brazil is grown on degraded pastures located over 2,000 km from the Amazon, reducing its impact on biodiversity. In addition, Coca-Cola sources from farms which use ‘effective cultivation processes,’ he added,

CASE STUDY 2



explaining that the sugarcane is predominantly rain-fed and mechanically harvested. Both Coca-Cola and Heinz see sustainable packaging as a key component of their sustainability commitments. Heinz wants to reduce greenhouse gas emissions, solid waste, water consumption and energy usage at least 20 percent by 2015. In addition, Heinz have established the following goals to be achieved by 2015: • increasing use of renewable energy resources by 15% • reducing packaging material by 15% • reducing transportation fossil fuel consumption by 10% • increasing employee engagement This year, Coca-Cola plans to double its use of PlantBottle; that means the company will use more than 5 billion PlantBottles in 2011. Heinz says it will introduce 120 million PlantBottle packages this year.

Adapted from http://www.theguardian.com/sustainable-business/gsb-network-collaboration

You should note that although the following questions are based on the case study above, you will need to make use of knowledge and understanding you have gained whilst studying the course.

Marks 1 Coca-Cola and Heinz made an ethical choice to change their packaging.

Discuss the effects on businesses of pursuing an ethical approach in their operations. 8

2 Using examples from the case study, discuss the importance of Heinz’s

policy of corporate social responsibility. 6 3 Coca-Cola were able to develop PlantBottle as a result of technological

breakthroughs. Examine how the use of different types of information technology can increase the competitiveness of other firms in the global market. 6

Total 20

SUGGESTED SOLUTIONS



Suggested solutions Case study 1: Burger King 1 Describe other possible methods of growth for Burger King.

• Vertical integration – organisations at a different stage in the same

industry combine. • Horizontal integration – organisations at the same stage of production

combine. • Backward vertical integration – when a business takes over a

supplier. • Forward vertical integration – when a business takes over a

customer. • Conglomerate/diversification – organisations in completely different

industries combine. • De-integration/demerger – organisations cut back and concentrate on

only their core activities. • Divestment – sell off assets or subsidiary companies to raise finance

for growth. • Organic growth – organisations increase the number of products sold

or the number of outlets. • Merger – when two businesses agree to join with each other.

6 2 Burger King is a worldwide organisation. Discuss the effects of

globalisation on UK organisations.

• Positive effects – Larger market – allows for increased sales, economies of scale. – Access to cheaper raw materials; closer to source of raw

materials, cutting down transport costs; exploitation of local resources, eg lower labour costs.

– Transfer pricing can reduce tax bills. – Increased internet shopping – websites necessary. – Can serve a missing market, eg Starbucks targeted Britain. – Can learn new techniques (production and management) from

other countries. – Can allow expansion where monopoly legislation in home country

prevents it. – Allows organisation to control production from start to finish, eg oil

industry.

SUGGESTED SOLUTIONS



– Low-cost transportation allows organisations to ship products all over the world.

– Increased demand for Western products in newly industrialised countries, eg China, as a result of global media.

– Large organisations may be able to influence government policy in their favour.

– Allows standardisation of products. • Negative effects

– Cultural difficulties may lead to conflicts and misunderstandings. – Organisations which are not decentralised may find it difficult to

react to changes in the local market. – Preferences are not universal so standardised products may not

be feasible – Increased travel for senior managers of organisations – time away

from the office. – Increased competition. – May have employees working in politically unstable countries and

therefore at risk. 6

3 Discuss the benefits to both a multinational and a host country when the

multinational establishes operations in that country.

• Benefits for multinationals – They are very large and powerful so can exert influence on

governments to gain preferential tax concessions, subsidies and grants.

– Grants are often available to multinationals to attract them to a country, thus reducing costs.

– They can access a wider pool of labour and a wider range of skills. – Wage rates may be lower in host countries, providing a source of

cheap labour for multinationals. – They are close to resources, thus reducing transportation costs. – They can gain access to the markets where they are located. – They may be able to use transfer pricing, increasing profits.

• Benefits to host countries

– Multinationals bring increased employment to the host country, but these are often low-skilled jobs and jobs in the host country are often the first to go during hard times.

– Multinationals may introduce new production and management techniques, although they may employ expatriate managers, which is less likely to lead to transfer of management skills.

SUGGESTED SOLUTIONS



– Jobs may be provided through the growth of ancillary businesses, such as banks or service organisations, to support the multinationals.

– The host country may gain an increase in national income/balance of payment benefits from investment by multinationals.

– Multinationals may provide training and education for employees, thus creating a higher skilled workforce.

– Multinationals may pay for improved infrastructure. – Multinationals may provide healthcare for employees, which may

relieve pressure on the country’s health service. – The host country may benefit through an increase in tax revenue,

but multinationals may use transfer pricing to lower their tax bill. 8

Case study 2: Heinz 1 Coca-Cola and Heinz made an ethical choice to change their packaging.

Discuss the effects on businesses of pursuing an ethical approach in their operations. Positive effects • Ethical organisations may attract a better quality of job applicants. • Greater productivity from employing a more skilled workforce than

less ethical firms. • Commitment of existing employees may be enhanced, increasing

motivation and productivity. • Some measures result in lower costs. • Firms avoid government penalties. • Customers are attracted to ethically aware businesses. • May be able to establish itself as a niche market. • Catalyst to other innovations. • Good marketing tool. • Premium price structure can be adopted.

Negative effects • Being ethical may mean that firms have to spend more on

environmentally friendly equipment, ethical sources of supply etc. • May need to spend more on better wages and conditions for their

employees, which would increase costs and reduce profitability. • Companies which publicise their ethical stance are subject to greater

publicity scrutiny than others; a small amount of adverse publicity can severely damage the reputation of a company.

10

SUGGESTED SOLUTIONS



2 Using examples from the case study, discuss the importance of Heinz’s policy of corporate social responsibility.

• Lets customers know that it cares about the environment by

attempting to change in a number of areas. • Likely to win praise and awards from environmental groups. • Good publicity as a result of the work they are doing. • Having a multilateral approach means the overall strategy is more

likely to be successful. • Positive public relations from industry experts.

4 3 Coca-Cola were able to develop PlantBottle as a result of technological

breakthroughs. Examine how the use of different types of information technology can increase the competitiveness of other firms in the global market.

• Video conferencing

– Reduces costs through not having to travel for meetings etc. – Can improve communication with branch managers globally. – Allows quicker reaction to changes in the local market. – Can aid/speed up decision making.

• Internet

– Ordering online allows firms to reduce lead times and storage costs.

– Allows firms to see what the competition is doing. – Can sell to wider market and can sell 24/7. – Immediate communication with customer. – Can source cheaper suppliers from all over the world. – Allows employees to work from home, reducing costs. – B2B allows firms to track orders. – Online banking allows firms to manage cash flow more effectively.

• Intranet

– Allows sharing of software and hardware, reducing costs. – Internal email allows instant communication and collaboration

between employees in different locations. – Allows instant communication, which means firm can react to

changes in local markets more quickly.

• Mobile phones – Can contact employees even when out of the office. – Employees can check emails on the move.

SUGGESTED SOLUTIONS



• Personal computer/software – Routine tasks can be carried out easily. – EPOS can gather large amounts of information about customers,

which can be used to target them. 6

effects on host country - golspie high school business...

Documents