Business & Society-Defined

Business and society

Introduction

A business, is an organization involved in the trade of goods, services, or both to consumers may also known as an enterprise or a firm. Businesses are prevalent in capitalist economies, where most of them are privately owned and provide goods and services to customers for profit. Businesses may also be not-for-profit or state-owned. A business owned by multiple individuals may be referred to as a company, although that term also has a more precise meaning.

The etymology of business stems from the state of being busy, and implies commercially viable and profitable work. The term business has at least three usages, depending on the scope in which it is used. A business can mean a particular organization, while a more generalized usage refers to a particular market sector, i.e. the music business. Compound forms such as agribusiness represent subsets of the words the broadest meaning, which encompasses all activity by all suppliers of goods and services.

Business interacts with wider society which they are part of, without society, business would

be non-existent .It is society that creates and sustains business and the relationship between the

Two, therefore, is fundamental not only for managers, but also for student for business .It is a give -and- take relationship. Business takes into consideration in society such things as laws and regulations, norms and values, rates and prices, skills and techniques, raw materials and labor.

Society on the other hand take from business such things like products (goods and services), employment , environmental conditions, and economic welfare .What each party gives to or takes from the Other may be advantageous or disadvantageous. Business is affected by society in the kind of goods and services they are expected to produce or supply and businesses affect the society by their activities or operations. It is a two way process in some of the ways in which businesses affect society are negative and usually governments limit these activities by law. For example some business activities damage the environment. There are ethical constraints set by the wider expectation s of society for example it is legal to sack workers for some actions ignoring a written warning , inciting other workers for a strike etc , but society may think the sacking is unreasonable and the business may feel pressured to not do it.

Society at large has increasingly strong views about what activities by business are acceptable and unacceptable. This produces pressure for businesses to change their behavior especially if sales and profits are threatened.

Summary of definition

The term business can be summarized in the below definitions.

1. An occupation, trade or profession

2. Any of the various operations or details of trade or industry

3. A commercial enterprise or establishment, a firm, a factory, or store

4. The amount or volume of trade

5. As proper interest or concern, responsibility or duty

Society

Society can be referred to us a group of people involved with each other through persistent relations, or a large social grouping sharing the same geographical or social territory, typically subject to the same political authority and dominant cultural expectations. Human societies are characterized by patterns of relationships social relations between individuals who share a distinctive culture and institutions; a given society may be described as the sum total of such relationships among its constituent members. In the social sciences, a larger society often evinces stratification and/or dominance patterns in subgroups.

A society is collaborative and can enable its members to benefit on both individual and social (common) benefits can thus be distinguished, can also consist of like-minded people governed by their own norms and values within a dominant, larger society. More broadly, a society may be illustrated as an economic, social, or industrial infrastructure, made up of a varied collection of individuals. Members of a society may be from different ethnic groups. A society can be a particular ethnic group, such as the Bantus, a nation state, such as Kenya, or a broader cultural group, such as a Western society. The word society may also refer to an organized voluntary association of people for religious, benevolent, cultural, scientific, political, patriotic, or other p

Profit

This is the difference between sales revenue and income receipts received after selling goods and services and the cost of expenditure incurred in producing and selling those goods and services. In order for a business to continuously make profit, a business firm must satisfy its varied stakeholders including customers, employees, owners, government and the general public and society. The rationale for existence of business, Profit is a major reason for starting a business and to make profit a business must earn revenue which exceeds costs .This is achieved through effective and efficient production and marketing of goods and services which satisfy human needs and wants.

The concept of Utility

Utility can be defined as the ability or capacity of a good or service to satisfy a human need , it refers to a) Value in use b) Value in exchange

Value in use- Means human beings is willing to use a good such as air but they are not willing to pay a price for it because it’s readily available.

Values in exchange- Means those human beings are not only willing to use the good but also to exchange it with something else that they value. The essence of business is the exchange process where both the business firm and the customer are simultaneously willing to give out and receive something of value.

Entrepreneurship

The process of combining land, labor and capital in order to produce goods and services is called

Entrepreneurship. An entrepreneur is a person who establishes and runs a business in the hope of making profit. Some African entrepreneur s in Kenya tend to emerge from the informal sector e.g. tailoring, furniture making etc.

The firm

The firm is the mechanism that converts inputs or factors of production into outputs .The conversion mechanisms are sub-divided into management control systems and functions of the firm.

a) Management control system

The term management has been defined in different ways by different authors and practitioners .To some it means getting things done through other people while to others it is a process of planning, organizing, staffing, directing and controlling activities of the firm so as to achieve predetermined objectives.

The function of planning and controlling involve deciding in advance what should be done, when it should be done , how it should be done and who should do it as well as evaluating the results .also the function of organizing and staffing once properly designed ensure that the organization has the right people all the time.

 The function of directing involves communicating through issuing instructions and receiving feedback, leading and motivating subordinates so that the relevant organizational can be achieved efficiently.

b) Functions of the firm

To convert factors of production into out puts / business organizations engage in production/

Operations, accounting and finance, data processing, transportation and warehousing.

Basic forms of ownership 

Forms of business ownership vary by jurisdiction, but several common forms exist:

Sole proprietorship:

 A sole proprietorship is owned by one person and operates for profit. The owner may operate the business alone or employ other people. A sole proprietor has unlimited liability for all obligations incurred by the business, whether from operating costs or judgments against the business.

All assets of the business belong to a sole proprietor, including, for example, computer infrastructure, any inventory, manufacturing equipment and/or retail fixtures, as well as any real property owned by the business.

Partnership:

A partnership is a business owned by two or more people. In most forms of partnerships, each partner has unlimited liability for the debts incurred by the business. The three most prevalent types of for-profit partnerships are general partnerships, limited partnerships, and limited liability partnerships.

Corporation:

 The owners of a corporation have limited liability and the business has a separate legal personality from its owners. Corporations can be either government-owned or owned by individuals. They can organize either for profit or as not-for-profit organizations. A non-government for-profit corporation is owned by its shareholders, who elect a board of directors to direct the corporation and hire its managerial staff. A privately owned, for-profit corporation can be either privately held by a small group of individuals, or publicly held, with publicly traded shares listed on a stock exchange.

Cooperative:

Often referred to as a co-op, a cooperative is a limited liability business that can organize for-profit or not-for-profit. A cooperative differs from a corporation in that it has members, not shareholders, and they share decision-making authority. Cooperatives are typically classified as either consumer cooperatives or worker cooperatives. Cooperatives are fundamental to the ideology of economic democracy.

Classifications

• Agriculture and mining businesses produce raw material, such as plants or minerals.
• Financial businesses include banks and other companies that generate profits through investment and management of capital.
• Information businesses generate profits primarily from the sale of intellectual property and include movie studios, publishers and internet and software companies.
• Manufacturers produce products, from raw materials or from component parts, then sell their products at a profit. Companies that make tangible goods such as cars, clothing or pipes are considered manufacturers.
• Real estate businesses sell, rent, and develop properties including land, residential homes, and other buildings.
• Retailers and distributors act as middlemen and get goods produced by manufacturers to the intended consumers, and make their profits by marking up their price. Most stores and catalog companies are distributors or retailers.
• Service businesses offer intangible goods or services and typically charge for labor or other services provided to government, consumers, or other businesses. Interior decorators, consulting firms and even entertainers are service businesses.
• Transportation businesses deliver goods and individuals to their destinations for a fee.
• Utilities produce public services such as electricity or sewage treatment, usually under a government charter.

Business Management

The efficient and effective operation of a business, and study of this subject, is called management. The major branches of management are financial management, marketing management, human resource management, strategic management, production management, operations management, service management and information technology management

Owners may administer their businesses themselves, or employ of managers to do this for them. Whether value: its financial resources, capital or tangible resources, and human resources. These resources are administered in at least five functional areas: legal contracting, manufacturing or service production, marketing, accounting, financing, and human resources.

Restructuring state enterprises

In recent decades, various states/nations modeled some of their assets and business enterprises as part of efficiency, cost reduction, profit making and society/social changes. l In 2003, for example, the People's Republic of China modeled 80% of its state-owned enterprises on a company-type management system. Many state institutions and enterprises in China and Russia have transformed into joint-stock companies, with part of their shares being listed on public stock markets due to change of their socialism and communalism.

Business process management (BPM) is a holistic management approach. Focused on aligning all aspects of an organization with the wants and needs of clients. It promotes business effectiveness and efficiency while striving for innovation, flexibility, and integration with technology. BPM attempts to improve processes continuously. It can therefore be described as a process optimization process. It is argued that BPM enables organizations to be more efficient, more effective and more capable of change than a functionally focused, traditional hierarchical management approach.

The major factors determining business set up

The size and scope of the business firm

And its structure, management, and ownership, broadly analyzed in the theory of the firm. Generally a smaller business is more flexible, while larger businesses, or those with wider ownership or more formal structures, will usually tend to be organized as corporations or less often partnerships. In addition, a business that wishes to raise money on a stock market or to be owned by a wide range of people will often be required to adopt a specific legal form to do so.

1)   The sector and country.

 Private profit-making businesses are different from government-owned bodies. In some countries, certain businesses are legally obliged to be organized in certain ways.

2)      Limited Liability Companies (LLC), limited liability partnerships, and other specific types of business organization protect their owners or shareholders from business failure by doing business under a separate legal entity with certain legal protections. In contrast, unincorporated businesses or persons working on their own are usually not so protected.   

3)      Tax advantages. Different structures are treated differently in tax law, and may have advantages for this reason.

4)         Disclosure and compliance requirements. Different business structures may be required to make less or more information public or report it to relevant authorities, and may be bound to comply with different rules and regulations.

5)         Legal jurisdictions many businesses are operated through a separate entity such as a corporation or a partnership either formed with or without limited liability. Most legal jurisdictions allow people to organize such an entity by filing certain charter documents with the relevant Secretary of State or equivalent and complying with certain other ongoing obligations. The relationships and legal rights of shareholders, limited partners, or members are governed partly by the charter documents and partly by the law of the jurisdiction where the entity is organized.

6)   Financial -Availability

7)   Influence- From interaction

8)   Fashion/copying –From those around you, what you see  and environment

9)   Inheritance- Family

Factors to consider in kind of business to operate include:

1.General partners in a partnership other than a limited liability partnership, plus anyone who personally owns and operates a business without creating a separate legal entity, are personally liable for the debts and obligations of the business.

2.Generally, corporations are required to pay tax just like real people. In some tax systems, this can give rise to so-called double taxation, because first the corporation pays tax on the profit, and then when the corporation distributes its profits to its owners, individuals have to include dividends in their income when they complete their personal tax returns, at which point a second layer of income tax is imposed.

3.In most countries, there are laws which treat small corporations differently than large ones. They may be exempt from certain legal filing requirements or labor laws, have simplified procedures in specialized areas, and have simplified, advantageous, or slightly different tax treatment.

4.Going public through a process known as an initial public offering (IPO) means that part of the business will be owned by members of the public. This requires organization as a distinct entity, and compliance with a tighter set of laws and procedures. Most public entities are corporations that have sold shares, but increasingly there are also public LLCs that sell units (sometimes also called shares), and other more exotic entities as well, such as, for example, real estate investment trusts in the USA, and unit trusts in the UK. A general partnership cannot go public.

The role of business in society

1)      Employ people Provide people with:  Income for living expenses, Source of satisfaction and achievement and Sense of identity and pride

2)      Technological change and innovation  Competition delivery products which are better: Cheaper or more convenient technology is key to, lower costs, Improve quality and Quick delivery of goods/ services

3)      Choice  Offered to consumers when business sector is health and diverse Where you work, eat, shop, and what you buy .Allow people to specialize in what they do and interest pursued

4)      Entrepreneurship Many aspire to run own business, Offers a sense of independence and control Can achieve dramatic success and build substantial wealth

5)      Social role A place where people meet, interact more than anywhere else outside of family Take people overseas or into situations they otherwise would not experience

6)      Basis of a nation’s economy A strong economy is built on performance of business; Business success affects the entire society and Increases wealth and economic activity

7)      Culture erosion Influence and erosion of local culture in adoption to foreign like dressing eating habits.

8)      Diversification of  business and multi goods and services to and from society thus large market

9)    Environmental pollution many business have impact to society directly or indirectly like packaging bags-Chwara

Business Environment

The combination of internal and external factors that influence a company's operating situation. The business environment can include factors such as: clients and suppliers; its competition and owners; improvements in technology; laws and government activities; and market, social and economic trends. The success of every business depends on adapting itself to the environment within which it functions.

Is one essential component of the global environmental analysis. Environmental monitoring, environmental forecasting and environmental assessment complete the global environmental analysis. The global environment refers to the macro environment which comprises industries, markets, companies, clients and competitors. Consequently, there exist corresponding analyses on the micro-level. Suppliers, customers and competitors representing the micro environment of a company are analyzed within the industry analysis.

Environmental scanning can be defined as ‘the study and interpretation of the political, economic, social and technological events and trends which influence a business, an industry or even a total market’. The factors which need to be considered for environmental scanning are events, trends, issues and expectations of the different interest groups. Issues are often forerunners of trend breaks. A trend break could be a value shift in society, a technological innovation that might be permanent or a paradigm change. Issues are less deep-seated and can be a temporary short-lived reaction to a social phenomenon. A trend can be defined as an environmental phenomenon that has adopted a structural character-Macro environment

There are a number of common approaches how the external factors, which are mentioned in the definition of Kroon and which describe the macro environment, can be identified and examined. These factors indirectly affect the organization but cannot be controlled by it. One approach could be the PEST analysis. PEST stands for political, economic, social and technological. Two more factors, the environmental and legal factor, are defined within the PESTEL analysis

PESTEL analysis

The six environmental factors of the PESTEL analysis are the following:

1.      Political factors - It comprises political stability and the policies of the government. Ideological inclination of political parties, personal interest on politicians, influence of party forums etc. create political environment. For example, Bangalore established itself as the most important IT center of India mainly because of political support.

• Taxation Policy
• Trade regulations
• Governmental stability
• Unemployment Policy, etc.

2.      Economic factors-Economic environment consists of economic factors that influence the business in a country. These factors include gross national product, corporate profits, inflation rate, employment, balance of payments, interest rates consumer income etc.

• Inflation rate
• Growth in spending power
• Rate of people in a pensionable age
• Recession or Boom
• Customer liquidations

3.      Socio-cultural - It describes the characteristics of the society in which the organization exists. Literacy rate, customs, values, beliefs, lifestyle, demographic features and mobility of population are part o the social environment. It is important for managers to notice the direction in which the society is moving and formulate progressive policies according to the changing social scenario.

• Values, beliefs
• language
• religion
• education
• literacy
• time orientation

4.      Technological factors

• Internet
• E-commerce
• Social Media
• Electronic Media
• Research and Development
• Rate of technological change

5.      Environmental factors- It includes the level of technology available in a country. It also indicates the pace of research and development and progress made in introducing modern technology in production. Technology provides capital intensive but cost effective alternative to traditional labor intensive methods. In a competitive business environment technology is the key to development.

• Competitive advantage
• Waste disposal
• Energy consumption
• Pollution monitoring, etc.

6.      Legal factors - This consists of legislation that is passed by the parliament and state legislatures. Examples of such legislation specifically aimed at business operations include the Trade mark Act 1969, Essential Commodities Act 1955, Standards of Weights and Measures Act 1969 and Consumer Protection Act 196.

• Employment law
• Health and safety
• Product safety
• Advertising regulations
• Product labeling
• Labor laws etc.

Meso-environment

The meso-level is settled between the macro- and the micro-level. This field deals with the design of the specific environment of the enterprises. It is of decisive importance that the layout of the physical infrastructure transport, communication and power distribution systems and of the sector policies, especially of the education, research and technology policy, are oriented towards competitiveness. In addition the design of the trade policy and systems of rules for example environmental norms and a technical safety standard, which contributes to the development of national advantages of competition, is relevant.

 Like on the micro-level, on the meso-level new patterns of organization and steering must be developed. The state shall give impulses and mediate between enterprises, associations, science and intermediate institutions. The design of locations becomes like that a continuous process on the basis of the efforts of enterprises, science and state as well as of the determined cooperation of private and public agents

Meaning of Business Environment

There is a close and continuous interaction between the business and its environment. This interaction helps in strengthening the business firm and using its resources more effectively.
As stated above, the business environment is multifaceted, complex, and dynamic in nature and has a far-reaching impact on the survival and growth of the business. To be more specific, proper understanding of the social, political, legal and economic environment helps the business in the following ways:

(a) Determining Opportunities and Threats: The interaction between the business and its environment would identify opportunities for and threats to the business. It helps the business enterprises for meeting the challenges successfully.
(b) Giving Direction for Growth: The interaction with the environment leads to opening up new frontiers of growth for the business firms. It enables the business to identify the areas for growth and expansion of their activities.

(c) Continuous Learning: Environmental analysis makes the task of managers easier in dealing with business challenges. The managers are motivated to continuously update their knowledge, understanding and skills to meet the predicted changes in realm of business.
(d) Image Building: Environmental understanding helps the business organizations in improving their image by showing their sensitivity to the environment within which they are working. For example, in view of the shortage of power, many companies have set up Captive Power Plants (CPP) in their factories to meet their own requirement of power.

(e) Meeting Competition: It helps the firms to analysis the competitors’ strategies and formulate their own strategies accordingly.
(f) Identifying Firm’s Strength and Weakness: Business environment helps to identify the individual strengths and weaknesses in view of the technological and global developments.

Features of business environment

Also referred as Dimensions of Business Environment or what constitutes the general environment of a business?

 (a) Business environment is the sum totals of all factors external to the business firm and that greatly influence their functioning.
(b) It covers factors and forces like customers, competitors, suppliers, government, and the social, cultural, political, technological and legal conditions.
(c) The business environment is dynamic in nature that means, it keeps on changing.
(d) The changes in business environment are unpredictable. It is very difficult to predict the exact nature of future happenings and the changes in economic and social environment.
(e) Business Environment differs from place to place, region to region and country to country. Political conditions in India differ from those in Pakistan. Taste and values cherished by people in India and China vary considerably.

(f) Totality of external forces: Business environment is the sum total of all things external to business firms and, as such, is aggregative in nature.

(g) Specific and general forces: Business environment includes both specific and general forces. Specific forces (such as investors, customers, competitors and suppliers) affect individual enterprises directly and immediately in their day-to-day working. General forces (such as social, political, legal and technological conditions) have impact on all business enterprises and thus may affect an individual firm only indirectly.

(h) Dynamic nature: Business environment is dynamic in that it keeps on changing whether in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market.

(i) Uncertainty: Business environment is largely uncertain as it is very difficult to predict future happenings, especially when environment changes are taking place too frequently as in the case of information technology or fashion industries.

(j) Relativity: Business environment is a relative concept since it differs from country to country and even region to region. Political conditions in the USA, for instance, differ from those in China or Pakistan. Similarly, demand for sarees may be fairly high in India whereas it may be almost non-existent in France.

Importance of Business Environment

There is a close and continuous interaction between the business and its environment. This interaction helps in strengthening the business firm and using its resources more effectively.
As stated above, the business environment is multifaceted, complex, and dynamic in nature and has a far-reaching impact on the survival and growth of the business.

(a) Determining Opportunities and Threats: The interaction between the business and its environment would identify opportunities for and threats to the business. It helps the business enterprises for meeting the challenges successfully.
(b) Giving Direction for Growth: The interaction with the environment leads to opening up new frontiers of growth for the business firms. It enables the business to identify the areas for growth and expansion of their activities.

(c) Continuous Learning: Environmental analysis makes the task of managers easier in dealing with business challenges. The managers are motivated to continuously update their knowledge, understanding and skills to meet the predicted changes in realm of business.
(d) Image Building: Environmental understanding helps the business organizations in improving their image by showing their sensitivity to the environment within which they are working. For example, in view of the shortage of power, many companies have set up Captive Power Plants (CPP) in their factories to meet their own requirement of power.

(e) Meeting Competition: It helps the firms to analysis the competitors’ strategies and formulates their own strategies accordingly.

(f) Identifying Firm’s Strength and Weakness: Business environment helps to identify the individual strengths and weaknesses in view of the technological and global developments.

(g) Firm to identify opportunities and getting the first mover advantage: Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them to competitors.

(h) firm to identify threats and early warning signals: If an Indian firm finds that a foreign multinational is entering the Indian market it should gives a warning signal and Indian firms can meet the threat by adopting by improving the quality of the product, reducing cost of the production, engaging in aggressive advertising, and so on.

(i) Coping with rapid changes: All sizes and all types of enterprises are facing increasingly dynamic environment. In order to effectively cope with these significant changes, managers must understand and examine the environment and develop suitable courses of action.

(j) Improving performance: the enterprises that continuously monitor their environment and adopt suitable business practices are the ones which not only improve their present performance but also continue to succeed in the market for a longer period.

Economic Environment in India

In order to solve economic problems of our country, the government took several steps including control by the State of certain industries, central planning and reduced importance of the private sector. The main objectives of India’s development plans were:

1.Initiate rapid economic growth to raise the standard of living, reduce unemployment and poverty; 2.Become self-reliant and set up a strong industrial base with emphasis on heavy and basic industries; 3.Reduce inequalities of income and wealth; 4.Adopt a socialist pattern of development — based on equality and prevent exploitation of man by man.

As a part of economic reforms, the Government of India announced a new industrial policy in July 1991.

The broad features of this policy were as follows:

1.      The Government reduced the number of industries under compulsory licensing to six.

2.      Disinvestment was carried out in case of many public sector industrial enterprises.

3.      Policy towards foreign capital was liberalized. The share of foreign equity participation was increased and in many activities 100 per cent Foreign Direct Investment (FDI) was

4.       permitted.

5.      Automatic permission was now granted for technology agreements with foreign companies.

6.      Foreign Investment Promotion Board (FIPB) was set up to promote and channelize foreign investment in India.

Liberalization:

·         The economic reforms that were introduced were aimed at liberalizing the Indian business and industry from all unnecessary controls and restrictions.

·         They indicate the end of the license-permit-quota raj.

·          Liberalization of the Indian industry has taken place with respect to:

1.      Abolishing licensing requirement in most of the industries except a short list,

2.      Freedom in deciding the scale of business activities i.e., no restrictions on expansion or contraction of business activities,

3.      Removal of restrictions on the movement of goods and services,

4.      Freedom in fixing the prices of goods services,

5.      Reduction in tax rates and lifting of unnecessary controls over the economy,

6.      Simplifying procedures for imports and experts, and

7.      Making it easier to attract foreign capital and technology to India.

Privatization:

·         The new set of economic reforms aimed at giving greater role to the private sector in the nation building process and a reduced role to the public sector.

·         To achieve this, the government redefined the role of the public sector in the New Industrial Policy of 1991

·         The purpose of the sale, according to the government, was mainly to improve financial discipline and facilitate modernization.

·          It was also observe that private capital and managerial capabilities could be effectively utilized to improve the performance of the PSUs.

·         The government has also made attempts to improve the efficiency of PSUs by giving them autonomy in taking managerial decisions.

Globalization:

·         Globalizations are the outcome of the policies of liberalization and privatization.

·         Globalization is generally understood to mean integration of the economy of the country with the world economy, it is a complex phenomenon.

·         It is an outcome of the set of various policies that are aimed at transforming the world towards greater interdependence and integration.

·         It involves creation of networks and activities transcending economic, social and geographical boundaries.

·         Globalization involves an increased level of interaction and interdependence among the various nations of the global economy.

·         Physical geographical gap or political boundaries no longer remain barriers for a business enterprise to serve a customer in a distant geographical market.

Impact of Government Policy Changes on Business and Industry

1.      Increasing competition: As a result of changes in the rules of industrial licensing and entry of foreign firms, competition for Indian firms has increased especially in service industries like telecommunications, airlines, banking, insurance, etc. which were earlier in the public sector.

2.      More demanding customers: Customers today have become more demanding because they are well-informed. Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services.

3.      Rapidly changing technological environment: Increased competition forces the firms to develop new ways to survive and grow in the market. New technologies make it possible to improve machines, process, products and services. The rapidly changing technological environment creates tough challenges before smaller firms.

4.      Necessity for change: In a regulated environment of pre-1991 era, the firms could have relatively stable policies and practices. After 1991, the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations.

5.      Threat from MNC Massive entry of multi nationals in Indian marker constitutes new challenge. The Indian subsidiaries of multi-nationals gained strategic advantage. Many of these companies could get limited support in technology from their foreign partners due to restrictions in ownerships. Once these restrictions have been limited to reasonable levels, there is increased technology transfer from the foreign partners