The Business Environment represents a signifi cant contribution to the fi eld, providing an in-depth appreciation of the way in which organizations cope with external infl uences. This text will undoubtedly assist students in understanding the challenges faced in achieving strategic and operational objectives. The chapters’ layout is engaging, the diversity of topics is appropriate and the use of contemporary case studies is commendable. Dr Steven McCabe, Director of Research Degrees, Birmingham City Business School The Business This is an extremely well written, comprehensive review and explanation of today’s business environment. It has a good breadth of topics, whilst the chapter questions, glossaries and reference sections contained at the end of each chapter are apt and useful. Examples are relevant and interesting, whilst the references have gravitas, T both in terms of being up to date and in their signifi cance to the subjects. Charles Caplen, Senior Lecturer in h Economics and Business, Faculty of Business, Sport and Enterprise, Southampton Solent University e Environment B The Business Environment by Phil Kelly and Andrew Ashwin provides Key Features: u a fl exible and comprehensive s learning experience for modern (cid:129) A concept formation approach encourages students to grasp PESTLE-driven courses by using a key concepts through building an understanding of their use in in two-tier approach. The book offers different contexts via supporting tasks and activities e an accessible introduction to the business environment model from (cid:129) Learning objectives and innovative mind maps reinforce the s Phil Kelly and Andrew Ashwin an international perspective, taking core themes of the chapter methodically and visually s into account curriculum and blended (cid:129) Business in Action and Business in Debate boxed features learning developments. For those contextualize the topics and encourage critical thinking through E new to business and business real-life examples economics, it introduces the key n concepts, theories and examples, (cid:129) Revision questions and discussion questions test the v whilst maintaining the depth and rigour reader’s understanding of the key content and their ability to i needed for both undergraduate and r analyze, synthesize and evaluate; to present a balanced o postgraduate level study. argument and arrive at supported judgements n (cid:129) Case studies and supporting questions place the content into m a context which requires some developed understanding of the Authors issues facing real businesses operating within different e environments Phil Kelly is Senior Lecturer at the n Liverpool Business School where he t lectures in International Management. Phil has written several books on business and management. K Digital Resources e Andrew Ashwin is an experienced l l teacher of Economics and Business, The accompanying online platform offers a host of practical y former Chair of Examiners for national student resources, mapped specifi cally to each chapter, providing a qualifi cations and a Chartered high quality depth and coverage. The Engagement Tracker also n Educational Assessor. allows lecturers to monitor students’ preparation and engagement. d A Password protected instructor’s resources provide a range of s useful teaching resources, including a comprehensive testbank, h PowerPoint slides and an Instructor’s Manual. w i n For your lifelong learning solutions, visit www.cengage.co.uk Purchase your next print book, e-book or e-chapter at www.cengagebrain.com The Business Environment Phil Kelly and Andrew Ashwin Australia(cid:129)Brazil(cid:129) Japan(cid:129) Korea(cid:129) Mexico(cid:129) Singapore(cid:129) Spain(cid:129) UnitedKingdom(cid:129) UnitedStates TheBusinessEnvironment, ª2013,CengageLearningEMEA 1stEdition PhilKellyandAndrewAshwin ALLRIGHTSRESERVED.Nopartofthisworkcoveredbythecopyright hereinmaybereproduced,transmitted,storedorusedinanyformorby PublishingDirector:LindenHarris anymeansgraphic,electronic,ormechanical,includingbutnotlimitedto photocopying,recording,scanning,digitizing,taping,Webdistribution, Publisher:AndrewAshwin informationnetworks,orinformationstorageandretrievalsystems, DevelopmentEditor:CharlotteGreen exceptaspermittedunderSection107or108ofthe1976UnitedStates ProductionEditor:AlisonCooke CopyrightAct,orapplicablecopyrightlawofanotherjurisdiction,without ProductionController:EyvettDavis thepriorwrittenpermissionofthepublisher. 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Foryourlifelonglearningsolutions,visitwww.cengage.co.uk Purchaseyournextprintbook,e-bookore-chapterat www.cengagebrain.com Printed in China by RR Donnelley 1 2 3 4 5 6 7 8 9 10 – 15 14 13 BRIEF CONTENTS PART ONE Introduction 1 1 Introducing the business environment 3 PART TWO The environments 21 2 The political and legal environment 23 3 The economic environment 51 4 The social and demographic environment 79 5 The technological environment 107 6 The competitive environment 135 7 The sustainable environment 167 PART THREE Firms 199 8 The concept of the firm 201 9 Inside the firm 225 10 The behaviour of firms 257 PART FOUR Markets 275 11 Markets 277 12 The role of government 323 13 International markets & globalization 347 iii TABLE OF CONTENTS Preface ix PART TWO Structure and Format xi The environments 21 Key Features xii Acknowledgements xiii Authors xiv 2 The political and legal environment 23 Walk Through Tour xvi Introduction 24 What is Meant by Politics in the Context of the Political Environment for PART ONE Business? 25 The Role of the Government and the Introduction 1 Importance of the State for Business 25 Political Systems and State Intervention from the 1 Introducing the business Perspective of Business 27 environment 3 Doing Business in the EU (Regional, International, Economic and Political Introduction 4 Integration) 29 The Business Environment 4 Doing Business Globally (Global, What is Business? 5 International, Economic and Political Private Sector and Public Sector Activity 6 Integration) 31 The Economic Problem 7 PoliticalRisksinTermsofThreatsandOpportunities The Three Questions Every Economy has to for Organizations 34 Answer 8 The Relationship between the Political Organizations 9 and Legal Environment: Sources of Law The Transformation Process 9 and Law Making 35 Internal and External Business Passing Legislation in the EU 36 Environments 11 Passing Legislation in the UK 37 Why Study the Business Environment? 13 Legal Intervention in Business Contingency Approaches to Management 14 and Management 39 Summary 15 Summary 44 Revision Questions 16 Revision Questions 44 Discussion Questions 16 Discussion Questions 45 References and Further Reading 16 References and Further Reading 46 Glossary 17 Glossary 46 Chapter Case Study 18 Chapter Case Study 48 iv TABLEOFCONTENTS v 3 The economic environment 51 Technological Change: Creativity and Entrepreneurship 115 Introduction 52 Sources of New Technology: Who Invents and The Nature of the Economic Environment within Who Innovates? 116 which Business Operates 52 The Learning Organization 120 Economic Indicators 53 TheInternalTechnologicalEnvironment:theProductive Business Cycles 54 UseofTechnology,DevelopingStrengths 120 TheGlobalEconomyandInternationalBusiness Employment and the Nature of Work 123 Cycles 56 Strategic Use of Technology: Opportunity and Economic Power and Global Financial Threat 125 Institutions 58 Protecting Technology/Intellectual Property 128 The Role of Government in Influencing Summary 128 Macroeconomic Activity at the Country Level 59 Revision Questions 129 Fiscal Policy 62 Discussion Questions 129 Monetary Policy 68 References and Further Reading 129 Economic Environment Forces Interacting with Glossary 130 Business Behaviour 71 Chapter Case Study 132 Economic Policy in the EU 72 Summary 74 6 The competitive environment 135 Revision Questions 75 Discussion Questions 75 Introduction 136 References and Further Reading 75 Competing for Trade: Key Concepts and Glossary 76 Perspectives 137 Chapter Case Study 77 Factors Influencing the Level of Competition 137 Neoclassical Competition Spectrum 139 4 The social and demographic Perfect Competition 140 environment 79 Imperfect or Monopolistic Competition 141 Introduction 80 Oligopoly 142 The Interplay of Environmental Forces 80 Monopoly 144 Demographic Trends and the Implications for Perspectives on Competition 146 Business 82 Competitiveness (Nations) 146 The EU and the UK – Population Trends, Global Competitiveness Index 148 Changes and Patterns 82 Competitiveness (Firms) 152 How Migration Brings about Changes to Social Competitive Advantage (External Focus) 153 Forces 89 Regulation: Competition Law 155 The ImportanceofDiversity andMulticulturalism 92 National Regulation: UK Competition Law 156 National Culture 93 Regional Regulation and the EU 158 Multiculturalism 95 International Competition Policy and the The Need for Organizations to Alter their Policies, WTO 158 Strategies, Products, Services and Practices 96 Summary 160 Summary 103 Revision Questions 160 Revision Questions 103 Discussion Questions 160 Discussion Questions 104 References and Further Reading 161 References and Further Reading 104 Glossary 161 Glossary 104 Chapter Case Study 163 Chapter Case Study 106 7 The sustainable environment 167 5 The technological environment 107 Introduction 168 Key Concepts and Perspectives 169 Introduction 108 Perspectives 169 What is Technology? 108 Sustainable Development 170 Technology: Interactions with otherEnvironmental GlobalWarmingandGreenhouseGases(GHG)171 Forces 111 Pollution 171 vi TABLEOFCONTENTS Global Warming and Climate Change 171 Glossary 221 SD Political Initiatives: Regulations and Chapter Case Study 222 Agreements 175 Global Initiatives 175 9 Inside the firm 225 WhatistheEUDoingAboutClimateChangeand SD? 177 Introduction 226 WhatistheUKDoingAboutClimateChangeand Organizational Structures 226 SD? 182 Why Have a Structure? 227 The Sustainable Competitiveness Index Formal Relationships 228 (SCI) 183 Types of Organizational Structure 229 SD, the Environment and Business 186 Changing Approaches to Organizational Environmental Management System (EMS) 188 Structure 233 Summary 190 Costs and Revenues 235 Revision Questions 191 Cost 235 Discussion Questions 191 Revenues 240 References and Further Reading 191 Profit 241 Glossary 192 Break-Even Analysis 244 Chapter Case Study 194 The Use of Break-Even 246 The Short and Long Run 246 Economies ofScale 247 PART THREE Measures of Performance 248 Firms Profits 248 199 Sales Growth 250 ROCE 250 8 The concept of the firm 201 The Stakeholder Model 251 Introduction 202 CSR – An Introduction 251 Private and Public Sector Organizations 203 Summary 253 Public Sector Organizations 203 Revision Questions 253 Private Sector Organizations 203 Discussion Questions 253 Types ofFirms 205 References and Further Reading 254 Sole Traders 205 Glossary 254 Partnerships 207 Chapter Case Study 255 Limited Liability Partnerships 207 Private Limited Companies 208 10 The behaviour of firms 257 Public Limited Companies (PLCs) 209 Business Organization Outside the UK 210 Introduction 258 Co-operatives 211 Organizational Power 258 Charities and Social Enterprises 212 Competitive Advantage 259 Social Enterprises 213 Core Markets and Competencies 263 Community Interest Companies 213 Strategy 265 Joint Ventures 215 Business Growth Strategies 266 Multinational Corporations (MNCs) 215 Market Dominance 266 The Aims and Objectives ofFirms 216 Forecasting Techniques 267 Profit Maximization 217 Outsourcing 268 Maximizing Sales 217 Financing Growth 268 The Economics ofR&D and Technological Maximizing Revenue 218 Survival 218 Innovation 269 Profit Satisficing 218 Summary 270 Social and Ethical Responsibility 218 Revision Questions 271 Summary 220 Discussion Questions 271 Revision Questions 220 References and Further Reading 271 Discussion Questions 221 Glossary 271 References and Further Reading 221 Chapter Case Study 273 TABLEOFCONTENTS vii PART FOUR IncreaseLifeExpectancy,HealthandWelfare 330 Markets Diversity and Equality 330 275 Labourmarket Participation 331 Regional Balance 331 11 Markets 277 Fiscal, Monetary and Supply-Side Policies 332 Supply-Side Policies 334 Introduction 278 Buyers and Sellers – Demand and Supply 280 Regulation and Legislation 336 Competition Policy 338 Sellers 280 Summary 341 Buyers 283 Revision Questions 342 Factors Affecting Demand 284 Shifts in Supply and Demand – a Summary 287 Discussion Questions: 342 References and Further Reading 343 Types of Market 287 Glossary 343 The Market Mechanism 289 Chapter Case Study 344 Market Equilibrium 289 Shifts in Demand 290 Shifts in Supply 293 13 International markets and Elasticity 296 globalization 347 AMore Formal Analysis 299 Calculating Elasticity 300 Introduction 348 Price Elasticity ofDemand 300 Understanding Globalization 348 Price Elasticity ofSupply 301 Trends, Drivers and Enablers 350 Representing Elasticity Diagrammatically 301 Globalization of Markets 352 Price Elasticity ofDemand 304 Global Economy 353 Determinants of Elasticity 306 Globalization and Culture 354 Other Types of Elasticity 308 Global Institutions 356 Changing Consumer Trends 310 Globalization Forces: Shaping National Market Failure 311 Environments 357 Imperfect Knowledge 312 Global Forces Shaping the Political and Legal Differentiation ofProducts 312 Environment 358 Resource Immobility 313 Global Forces Shaping the Economic Market Power 313 Environment 358 Inadequate Provision 313 Global Forces Shaping the Social Measures to Correct Market Failure 315 Environment 358 Summary 317 Global Forces Shaping the Technological Review Questions 317 Environment 359 Discussion Questions 318 Global Forces Shaping the Ecological References and Further Reading 318 Environment 359 Glossary 318 Globalization: a World ofOpportunity 360 Chapter Case Study 320 Internationalization and Global Strategies 360 Multinational Companies 363 Supply chain Management 363 12 The role of government 323 Technology: Global Digital Business 364 Introduction 324 Evaluating Globalization: ‘Winners’ and Economic Objectives 324 ‘Losers’ 365 Promoting Economic Growth 325 Anti-Globalist Perspective 365 Controlling Inflation 325 Globalist Perspective 367 Reducing Unemployment and Maintaining Full Summary 370 Employment 326 Revision Questions 371 Non-Economic Objectives 327 Discussion Questions 371 Reducing Poverty 327 References and Further Reading 372 Reducing Carbon Emissions 327 Glossary 372 Increasing Productivity 328 Chapter Case Study 374 Investing in Science and Technology 330 Index 377 PREFACE ABOUT THIS BOOK The original plans for this book were made in 2009 and since that time the business world has undergonesignificantchanges.Newchallengeshavearisenalongwithsomefamiliaroldonesthat seem to re-occur on a regular, if unpredictable, basis. For students new to Business Environment courses, the challenge facing the authors was to provide an introduction to its different elements andnottoassumeagreatdealofpriorknowledgeaboutanyaspectofthesubjectarea.Coursesin the Business Environment tend to cover a wide range of subject matter which includes features typically found in Business and in Economics degrees. Students must understand not only what business is about but how business activity is affected by the wider environment and how the economicsystemworkswithinwhichbusinessesoperate.ManycoursesinBusinessEnvironment will split teaching along particular lines, dealing with the wider business environment through the PESTLE framework but also requiring students to understand how businesses work and how the economy as a whole works. AIMS OF THE BOOK This book is an ambitious project. It is ambitious because the subject matter, the Business Environment,isextensive.Theauthorsrecognizethatstudentsreadingthisbookwillhaveavaried amountofpriorknowledgewhichtheybringtothesubject.Someofthisknowledgewillhavebeen gained through following business studies or economics courses at school and college, other knowledgewillhavebeengainedthroughinteractionwiththebusinessworldeitherthroughworking or through being a consumer. Whilst some of the knowledge gained will have been formal, much knowledge is informal and likely to be taken for granted. Most students know far more about business and the business environment than they either realize or are given credit for. The difference between the prior knowledge brought to a course and a formal course of study of the subject is that the latter seeks to break down what is a complex subject, involving complex processes and relationships, and try and make it understandable. Thebookwillbreakdownbothbusinessesandtheirenvironmentsintotheirconstituentparts.It will attempt to explain each of these constituent parts but it must always be borne in mind that a business and its environment do not operate as isolated parts like the chapters of a book. There willrarelybetimeswhenonefactoractsuponabusinesswhilstallothersarestable(theprinciple of ceterisparibus); manydifferent factorsactupon anorganization atthe same time. We willlook at these factors as discrete topics (as individual topics in their own right). They will include standard classifications of the factors as political influences, environmental, legal, social, eco- nomic,technological,ecologicalandsoon.Thebusiness,however,canrarelyaffordtotreatthese factors as discrete and must recognize and deal with the way they all interact together. The way in which businesses recognize and deal with these factors will vary from business to businessandsotheoutcomeineachcaseisalsolikelytobedifferent.Therearerarelyany‘right’ ix