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Business Activity
Unit 4: National wealth and the impact of business activity
+Learning outcomes
Develop knowledge of the impact that business activity may have on the environment, including pollution and global warming.
Understand the impact that business development may have on national wealth and the depletion of natural resources and sustainable development.
+Caring for the environment
We all care about the environment and most business are conscious about preserving and protecting our environment.
Can you think of any examples where the environment has been damaged through the impact of business activity?
+Caring for the environmentTo make production friendly it could:
Add costs to the
business
Present a positive image that could
boost its reputation and lead to further
sales
Result in new business
opportunities as consumers search
for environmentally friendly products
Lead to the development of new
environmentally friendly production
techniques thus reduce wastage and
cut costs
+Caring for the environment
Environmental issues have become a global issue for individuals, businesses and governments and needs addressing.
For businesses, this is both a threat and opportunity as you have seen on the previous slide. There is a danger that current production methods, products and distribution will have a negative impact on people outside the business. People may take legal action against the business which can be costly unless they change how they operate.
+Caring for the environment
Businesses may wish to adopt more ethical policies to prevent them gaining a poor reputation with their customers.
+Business in context
See worksheet
+Ethical issues and examples
You’ll find lots of examples of business ethical decisions and dilemmas in areas such as:
+SuppliersA business cannot claim to be an ethical firm if it ignores unethical practices by its suppliers such as:
Use of child labour and forced labour
Production in sweatshops
Violation of the basic rights of workers
Ignoring health, safety and environmental standards
An ethical business has to be concerned with the behaviour of all businesses that operate in the supply chain:
Suppliers
Contractors
Distributors
Sales agents
+Primark
Read the article about Primark and their suppliers.
+Pressure for businesses to act ethically
Businesses and industries increasingly find themselves facing external pressure to improve their ethical track record. An interesting feature of the rise of consumer activism online has been increased scrutiny of business activities.
Pressure groups are a good example of this. Pressure groups are external stakeholders they
Tend to focus on activities & ethical practice of multinationals or industries with ethical issues
Combine direct and indirect action can damage the target business or industry
+Example of a campaign
+Direct consumer action
Direct consumer action is another way in which business ethics can be challenged. Consumers may take action against:
Businesses they consider to be unethical in some ways (e.g. animal furs)
Business acting irresponsibly
Businesses that use business practices they find unacceptable
Consumer action can also be positive – supporting businesses with a strong ethical stance & record. A good example of this is Fairtrade.
+Is ethical behaviour good or bad for business?You might think the above question is an easy one for businesses to answer? Surely acting ethically makes good business sense? As with all issues in business studies, there are two sides to every argument:
The advantages of ethical behaviour
The disadvantages of ethical behaviour
Higher revenues – demand from positive consumer support
Higher costs – e.g. sourcing from Fairtrade suppliers rather than lowest price
Improved brand and business awareness
Higher overheads – e.g. training & communication of ethical policy
Better employee motivation and recruitment
A danger of building up false expectations – promises they cant keep
New sources of finance – e.g. from ethical investors
+Externalities: the social costs and benefits of business activityBusiness activity incurs social costs and benefits that have an impact outside businesses themselves. These are called external costs, or externalities. Typical external costs of business activities include:Destruction of
the countryside
such as chemicals,
waste, buildings and
new roads
Disturbance of people living
close to the new motorway
Destruction of wildlife and its
habitatPollution from smoke, traffic, chemicals and
noise
Increase in global
warming –cutting
trees and burning
coal
Social factors such
as unemployment and loss
of amenities when a factory closes
+Externalities: the social costs and benefits of business activityExternal benefits include:
Increased employment from the expansion on business e.g. new
factories
Economic regeneration of an area if new
businesses move in
Increased training of a local
workforce, making the
workforce more adaptable
Improved amenities and
living standards
such as new schools and
roads
+Business in context
See worksheet
+Activity 4.1
Make a list of the external benefits and costs of producing and using coal. Do you think that the benefits outweigh the costs, or not? Justify your answer.
+Dealing with external costs
External costs
Private action
Government action
Pressure groups
Internationalisation
+Internationalisation
Internationalisation, where a supplier accepts responsibility for the external cost and absorbs the cost of putting it right. For example, a construction company building a new road may pay the costs of excavating, removing and restoring an archaeological site in a new location.
+Pressure groups
Pressure groups, such as Greenpeace International which operates throughout Asia, Africa, Europe, the Americas and the Pacific to protect and conserve the environment, can demand that governments and private firms take externalities into account which projects such as a nuclear generating station.
+Private action
Private action by firms or individuals is often intended to improve their own public image, but may go a long way towards paying for social costs. Such action may be, for example, a manufacturer reducing emissions of gasses harmful to the atmosphere. Or even a football club paying for the policing of the neighbourhood around its ground when there is a match.
+Government action
Government action that cover externaltities include:
Taxation and subsidies
Introducing a pricing system, such as parking meters and tolls
Direct controls, such as planning controls and licensing
Providing goods and services through the public sector, either free or subsidised
+Cost-benefit analysis: measuring social costs and benefitsThere is a procedure called cost-benefit analysis that weighs up the social costs and the benefits of their business activities. The basic procedure involves:
1. Identifying all costs and benefits connected to the acitvity including future costs and benefits
2. Putting a financial value on the costs and benefits
3. Comparing the total cost with the total benefit value
If the benefits exceeds the costs then the activity should go ahead.
+Problems with cost-benefit analysis
Some business activities provide benefits for some consumers but costs for others
Difficulty to put a value on some social costs or benefits, such as protecting endangered species
+National wealth, livings standards and economic growth
The wealth of a country lies in its natural resources or other productive assets. How efficiently the country uses its natural resources and other productive assets will determine the standard of living for those in the country.
The efficiency of a country using its natural resources is measured by the amount of goods and services that are produced using them (GNP – gross national product).
An increase in goods and services produced will lead to a higher quality of living.
+Economic growth and sustainability
To be a lasting benefit, growth must be sustainable. But despite major advances in technology and communications that have increased productivity and factors of production, the basic economic problem remain:
People have potentially unlimited wants
The resources available to satisfy them are limited
As the world population is increases, pressure on these scarce resources increase with it.
+How they are connected
Sustainability
Economic growth
National wealth
Impact of business activity
Externalities
Cost-benefit analysis
Dealing with
external costs
External benefits
External costs
+Activity 4.2Economic growth is achieved largely through increasing production of goods and services. Usually, within a country some industries are growing (increasing production) whilst others may be in decline (decreasing production).
1. Identify and research an industry that is increasing its level of production
2. Find out why this is happening. For example:
Demand for the product may be growing either in the home market or abroad.
New technology may be improving production techniques or productivity.
The raw materials from which the product is made may have become more easily or cheaply available.
3. Do you think the increase in production is sustainable? Explain your answer.
+Exemplar exam question
See worksheet
+Key terms
Cost-benefit analysis – a method of comparing the overall costs and benefits, including social costs and benefits, of a business activity or project
Economic growth – a measure of how well a country is doing: it is shown through the GNP of the country
Environmentally friendly – activities that conserve the environment or do not deplete scarce resources
External costs/externalities – the social costs and benefits of business activity borne by the wider community
National wealth- the natural resources and other productive assets
Social costs and benefits – costs and benefits to society as a whole rather than to the business
Sustainability- the likelihood of being able to maintain levels of production
+Summary
1. Some activities of business are harmful to society or the environment.
2. These are social costs external to the business.
3. External costs may be dealt with by internalisation, pressure groups, private action by firms or individuals, or government action.
4. Cost-benefit analysis is a method of comparing the total costs and benefits of a business activity or project, including social costs and benefits.
5. The wealth of a country lies in its natural resources and other productive assets.
6. How efficiently a country uses its natural resources and other productive assets will determine the general standard of living of those living in the country.
7. Economic growth through increasing GNP (gross national product) will increase the wealth and living standards of a country.
8. To be of lasting value, growth must be sustainable.