BUSINESS ENVIRONMENT ANALYSING THE ENVIRONMENT Classifying the Environment

BUSINESS ENVIRONMENT

ANALYSING THE ENVIRONMENT

Classifying the Environment

A common way of showing the environment in which an organisation

operates is by means of a series of concentric circles, with the

organisation in the centre and various 'levels' of environment

radiating out from it

At the centre there’s the organisation and factors which we can

be described as being 'internal'. These would include resources,

employees, the nature of the product(s), the structure and

culture of the organisation, its technological base, etc. In

essence, these factors can be controlled and determined by the

organisation.

Immediately surrounding the organisation is the 'specific

external' environment –i.e. those factors which are external to

the organisation, but relate directly to it. The factors here

might include the nature of the industry, competitors, customers

and suppliers. It could be said that these are factors in the

immediate market within which the organisation operates. As

such, the organisation cannot directly control them, but may

attempt to 'manage' them to its advantage. As a result,

objectives relating to the management of the specific market

environment will often appear in the organisation's aims and

objectives.

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In the outer ring is the 'general external' environment which

will affect all organisations. Factors here include the

political environment, the economy generally, society at large,

etc. These factors are largely out of the control or management

of the organisation. Rather, the organisation has to act in

response to them. It is, therefore, important to recognise

exactly what these factors are, how they may change and how they

impact on the organisation.

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Nature of Environments

It is clear that environmental factors –internal, market and

external –may have a significant impact on the organisation.

Environmental analysis is concerned with identifying how the

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various factors interact with an organisation. There are two key

characteristics of the environment which need to be considered.

(a)Its dynamics–in other words, how rapidly the environment is

changing. Where changes are predictable or relatively slow, the

environment is said to be stable, whilst uncertainty or rapid

change would suggest that the environment is unstable or dynamic.

(b)Its complexity–which arises from three factors:

The amount of knowledge necessary for the business to operate. -

For example, all businesses would have to know about the

regulatory environment relating to the employment of people,

whereas only a business in chemical manufacturing would require

specialist knowledge relating to the control, storage and safety

matters of the chemicals it manufactures.

The way in which environmental factors interrelate. - For

example, a holiday company will be affected by the price of

aviation fuel, which itself will be affected by exchange rates,

which are affected by interest rates.

The variety of influences faced by an organisation. - The

greater the number of influences, the more complex the

environment.

All organisations exist within their environment. The normal way

of looking at that

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environment is to conduct what is called a PEST analysis. The

initials stand for:

- Political

- Economic

- Social

- Technological

More recently, this analysis has been extended to take into

account two further features of the environment:

- Ecological

- Legal

Thus, it may help to remember the whole range of factors as

PESTEL.

Economic Environment

Interest Rates

The rate of interest can be defined as both the cost of borrowing

money and the reward for saving it. When individuals forego

current spending and opt to save their money, the rate of

interest represents the opportunity cost or compensation for

postponing current expenditure.

From the perspective of the business, the rate of interest

represents an addition to total costs from borrowing to finance

investment projects. When a business considers whether or not to5

invest on a certain project, it needs to take into account

whether or not the potential returns from the project exceeds the

cost of the project including the cost of borrowing.

When interest rates change, in response to changes in the macro

economy, businesses are affected both from changes to their own

costs of borrowing and the impact the change has upon the

expenditure of the consumer. For instance, a rise in the rate of

interest will not only increase the cost of borrowing to the

firm, but also reduce the disposable incomes of consumers, which

has a consequence for its sales. If interest rates rise,

consumers are less likely to borrow money and so are likely to

reduce their demand for most products. Likewise, those consumers

who do not need to borrow might choose to take advantage of the

increased rewards from saving and in turn, reduce their demand

for certain goods and services of a business

Similarly, if there is a recession and the problem is

unemployment rather than inflation, then a reduction in interest

rates could be used to stimulate demand and this may affect

business in a positive manner. Indeed, if the economy is not

growing fast enough, then falling interest rates should create an

incentive for firms to borrow to invest and encourage consumers

to borrow funds to finance consumption (assuming consumer

confidence was sufficiently high). This would enable firms to

run down stocks, increase profits and thus enable them to recruit

more staff to aid further expansion and growth.

How interest rates work

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Since 1997, UK interest rates have been set by the Monetary

Policy Committee (MPC) of the Bank of England. This committee is

charged with the responsibility of setting interest rates so that

the rate of inflation achieves the government target of 2%. The

objective of the move by the Labour Government of the time was to

make the control of inflation independent of political issues and

interference.

By changing interest rates it is hoped that the rate of economic

growth can be ‘controlled’. When the demand for goods and

services grows too quickly, the economy runs the risk of reaching

full capacity. When this happens, businesses will find it

difficult to recruit staff with the appropriate skills needed to

expand. Therefore, those individuals with these skills will bid

wages up, thereby increasing the costs of production to a firm.

As a result inflation in the economy will increase, thereby,

forcing the monetary authorities to seek ways to reduce consumer

expenditure.

One such option available is to increase interest rates. This

will make it more costly for both consumers and businesses to

borrow. Consumers will spend less, businesses will invest less

and so consumption and demand in the economy will fall.

How businesses respond to changes in interest rates

Rising interest rates affect the business both directly and

indirectly. The direct consequences stem from the increase in the

cost of borrowing. If they have already undertaken borrowing to

finance expansion, then they will see their cash flow negatively

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affected both through increased outflows (from increased interest

charges) and reduced inflows (through reduced sales).

The result of these two effects is likely to be an increase in

the build up of stocks of unsold goods. This might mean that the

business ends up having to reduce the selling price of its goods

to stimulate sales. The consequence of this is likely to be a

reduction in profits from what had been expected and may well

lead to increased redundancies. This creates something of a

vicious circle, as this may lead to further reductions in the

demand for the goods and services of a business.

Similarly, if there is a recession and the problem is

unemployment rather than inflation, then a reduction in interest

rates could be used to stimulate demand and this may affect

business in a positive manner. Indeed, if the economy is not

growing fast enough, then falling interest rates should create an

incentive for firms to borrow to invest and encourage consumers

to borrow funds to finance consumption (assuming consumer

confidence was sufficiently high). This would enable firms to

run down stocks, increase profits and thus enable them to recruit

more staff to aid further expansion and growth.

Exchange Rates

The exchange rate is the price of one country’s currency

expressed in terms of another.

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The principal rate which is of interest to most countries is the

one relating to the main currency in use in international trade,

the US dollar. For this reason we will concentrate on the US

dollar/British pound relationship.

For example, if the exchange rate is $1.20 £1, then £1 can be

exchanged for $1.20. Thus, £100 $120. This means that a UK

consumer needing to purchase a good for $120 would need to spend

£100 to get the dollars required to buy the good. Conversely, an

American consumer would need $120 in order to buy a good in the

UK priced at £100.

While exchange rates remain the same, business which trade

internationally can be certain about the future. It is when

exchange rates change that it has an effect on business:

So, if the rate changes to $1.10, then £100 becomes worth only

$110. We call this a fall in the exchange rate. It means that

aUK consumer needing to purchase a good for $120 would now need

to spend £111 to get the dollars required to buy the good.

Conversely, the American consumer would now only need $110 in

order to buy the good priced at £100 in the UK. The effect has

been to make imports (the foreign goods) more expensive and this

limiting demand for them, but exports are now cheaper in the USA

than they were previously and this is good news for exporters.

Alternatively, if the exchange rate rises –say, to $1.20 $1.30

–then £100 is now worth $130. Now, the UK consumer needing to

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purchase a good for $120 only needs to spend £92 to get the

dollars required to buy the good, whereas the American consumer

needs $130 to buy the goods priced at £100 in the UK. The effect

is the opposite of a fall in exchange rates –imports are cheaper

which encourages demand for them, but exports are more expensive

in the other country, making it more difficult for exporters.

Exchange rate variations are based upon a number of factors, all

of which are beyond the control of the individual business. In

the long term, the exchange rate of a country is largely

determined by the international flows of trade, whilst in the

short term, the rate of exchange can be affected by changes in

interest rates between different countries, which encourage money

to be moved to the country with the higher interest rate (where

it will earn a greater return).

Such movements of money often take place speculatively in

anticipation of a change in interest rates. Short term

fluctuations in exchange rates may also reflect political

uncertainty, with falling exchange rates experienced by countries

in which investors have little confidence.

Exchange rate changes are crucial to any business that trades

internationally as the smallest change can lead to significant

changes to its finances, and it has no control over the processes

which may lead to such fluctuations. If it (the exchange rate)

falls, then it can aid exporters as they will enjoy increased

international competitiveness. However, if the exchange rate

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rises, then this competitiveness falls and profit margins are

reduced. In this scenario a business faces both reduced export

sales and the possibility of reduced domestic sales in its home

markets, as consumers might seek cheaper priced imports.

Businesses that trade with international rivals are increasingly

under pressure to become more efficient and to minimise waste.

This might be evidenced by attempts to use labour saving

technology to reduce wages and so costs of production. If

successfully achieved, then a business can shelter from some of

the effects of an appreciating (rising) currency. Moreover, an

exporting business would benefit from a falling exchange rate, as

it could either accept a higher profit margin by leaving prices

unchanged or hope to increase its market share in that country by

cutting prices, whilst leaving the profit margin unchanged.

Conversely, if a business is an exporter at a time when the

exchange is appreciating, then it is faced with lower sales

unless it reduces its prices in an attempt to offset the

perceived price rises when priced in foreign currency.

Some businesses have responded to the problem of fluctuating

exchange rates by setting up subsidiary companies abroad. By

using these businesses for manufacturing or distribution they can

avoid the uncertainty on cash flows that the exchange rate can

create. This process is part of what has been referred to as

globalisation.

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There is a debate as to whether or not a country should support

its domestic businesses by fixing the exchange rate, thereby,

providing an element of certainty for international traders.

However, opponents of this view suggest that this does not aid

international competition and can result in inflation, as

consumers are effectively forced into buying domestic produce

because artificially low exchange rates can make imports more

expensive than otherwise would be the case if the exchange was

set by supply and demand rather than at a rate to suit a

government.

Inflation

Inflation can be defined as a rise in the general price level of

an economy over a period of time and is expressed as a

percentage. It represents a loss in the purchasing power of

money.

Inflation is usually associated with excessive growth in demand

within an economy. Two types of inflationary effect can be seen:

Cost push inflation–caused by businesses needing to pay higher

prices for factors of production which are increasingly scarce.

When this bidding up of the prices of scarce resources builds

momentum, the economy starts to reach full capacity and begins to

overheat, as the competition to purchase the remaining supplies

gets stronger. The result is that firms are often forced to

increase their prices, thereby, creating inflation.

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Demand pull inflation–caused where there is excess demand for the

available goods and services in the economy and firms are unable

to satisfy the current level of demand. As a result, they

increase prices to ration off this excess.

A further problem arises when workers seek higher wages to

maintain their purchasing power in the face of rising prices

generally in the economy. This process is referred to as a wage-

price inflationary spiral.

Inflation creates instability in an economy and monetary

authorities often respond to it by increasing interest rates. The

problem of inflation to a business is that it creates uncertainty

and makes it more difficult to make predictions about costs,

revenues and therefore, profits. If prices are continually

changing due to inflation, then it also makes it more difficult

for a business to maintain an accurate picture of its rival’s

performance.

Unemployment

Unemployment occurs when someone seeking work is unable to find

any. Of itself, this is not necessarily a problem (although it

clearly can be the persons seeking employment). It is the level

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of unemployment, as a percentage of the total labour force, which

can be damaging if it reaches towards 10% and beyond –either

nationally or regionally.

A high level of unemployment represents under-utilisation of one

of the key factors of production (labour) in an economy. It also

has a cost in terms of support for unemployed persons and the

loss of taxation on earnings of those people if they were

employed. There can also be a significant social cost from

having large numbers of people with effectively nothing to do,

particularly if they are concentrated in particular areas and/or

among particular age groups.

It is accepted that there will always be a certain level of

unemployment in any economy. There are three main reasons for

this.

(a)Structural

This type of unemployment is present when the economy changes in

a fundamental way. As an economy evolves, and particularly as

the growth of the tertiary sector has taken place, there has been

a shift away from the manufacturing sector to the service sector.

This results in many workers losing their jobs. Although there

may be growth in the new occupational areas, those jobs are often

in different locations and demand different skills.

Changes in technology are also a cause of structural

unemployment, when businesses replace labour with machines, and

also when employers look for a different range of skills.

(b)Cyclical

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This type of unemployment is when businesses make staff redundant

at times of recession when the demand for goods and services

falls and there is less need for staff.

(c)Frictional

This particular type of unemployment occurs when individuals are

‘in between’ jobs. In effect, these are people who have left one

job and are in the process of applying for another. Governments

try to reduce frictional unemployment by improving the quality of

information about job vacancies.

If unemployment rises, businesses are affected in the following

ways:

- it can make it more difficult for businesses to maintain

their planned level of sales and can thus negatively affect

both their cash flow and profits. This is because if

consumers have lost their jobs they are likely to have a

reduction in their disposable income and cut back on their

expenditure.

- it can make it easier for firms to deal with excessive wage

demands and may well be able to renegotiate both wages and

costs for raw materials as the economic climate worsens.

If unemployment falls, businesses are affected in the following

ways:

- it can mean that firms will benefit through increased sales

and profits. Increased consumer disposable income feeds

increased expenditure in the shops and therefore benefits

businesses. However, if this growth is excessive and too

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fast then it could lead to wage-price inflationary spirals

which in turn could create inflation and the need for

interest rate increases, which would cause firms the

problems already discussed.

The Business Cycle

It is a feature of market economies that they seem to go through

reasonably regular cycles of what has been called "boom and

bust". In fact, there are four phases to the cycle –recession,

recovery, boom and downturn.

This sequence is referred to as the business cycle and is

characterised by a series of changes in demand for goods and

services within the economy which affects most businesses within

it. It creates uncertainty for businesses (which affects

planning) and instability in the economy. Governments therefore

use economic policy to try and smooth out the cycle and minimise

the differences in Gross Domestic Product (total output) between

the boom and bust phases

(a)Recession

During a period of recession an economy is characterised by the

following features:

Businesses witness a fall in demand for their goods and

services

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Reductions in output

Firms start to shed labour

Fewer job vacancies are available

Businesses cut back investment

Reductions in profits which may eventually lead to losses

Increases in the number of business failures.

As expenditure in the economy slows down, businesses witness a

fall in demand for their goods and services and, therefore, begin

to run down existing stocks rather than continue to produce

additional output. In time, firms will begin to make staff

redundant and given that there are fewer vacancies available, job

insecurity increases. There will be a reduction in the

profitability of firms, who may well cut back on investment as

they concentrate upon survival rather than expansion during this

phase. However, as has been seen during the global slowdown in

2009-10, many businesses worldwide have been unable to achieve

this and have gone out of business.

(b) Recovery

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Following government policies designed to stimulate a recovery

(cutting interest rates, etc.), businesses slowly witness an

increase in the demand for their products. However, recovery is

slow because firms are apprehensive as to whether or not this

recovery will be temporary or permanent. As a result, they are

cautious about engaging in further investment and this lack of

confidence often means that unemployment remains high as they are

reluctant to recruit new staff.

(c)Boom

Once businesses start to see increased levels of demand, business

confidence rises and provides the stimulus for firms to embark

upon business investment. Sales are increasing as is the

profitability of the firms. Stocks that had built up are

gradually being run down, businesses require new recruits and

unemployment starts to fall.

However, the problem occurs for businesses when the level of

growth in the whole economy is too high and the economy starts to

overheat –the excess demand for goods and services forces prices

up. As a result, workers begin to see a fall in the real value

of their wages (the spending power of their wages is less than

before) and the risk of inflation and a wage-price inflationary

spiral surfaces once again. This ‘bottleneck’ of supply often

affects businesses as the monetary authorities often resort to

increasing interest rates once again.

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(d)Downturn

As business costs rise during the boom phase, it eventually acts

as a disincentive to further investment and growth. Once

interest rates have risen to slow down the rate of economic

growth, consumers once again reduce their expenditure as the cost

of borrowing rises. Moreover, they may well still wish to

consume, but higher mortgage interest payments and credit card

bills mean that they have less disposable income to spend in the

shops.

Firms are less able to carry out investment, to help grow their

business, as the cost of borrowing has increased which reduces

profitability and makes investment a more risky venture. So,

once again, businesses will start to make staff redundant and run

down stocks in an attempt to protect profitability.

Whilst not all firms are affected equally (for example a

supermarket is less susceptible to a downturn than a car

manufacturer, due to food being much more of a necessity than a

new car), it is safe to say that all firms suffer from the

effects of an economic downturn.

Market Volatility

Modern Western economies are essentially free market economies.

This means that, subject to certain government imposed

restrictions, there is open competition between businesses in the

production and supply of goods and services, and consumers have a

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free choice between products. However, competition makes markets

extremely volatile. Both consumers and businesses react very

noticeably to changes in the other environmental features and

this can have substantial impact on both the market in general

and in particular sectors, and on the individual firms operating

within it.

The amount of competition in a particular market and the

behaviour adopted by competitors can also have significant

effects. For example, a firm may adopt a price cutting policy.

This will demand a response from all similar firms in the

industry, otherwise they may lose market share.

Legal Environment

Government Legislation

Businesses operate within the confines of the rules set out by

the governments of the countries within which they operate. This

legislation can, on occasions, have a profound effect on how the

business functions. Indeed, failure to work within the law can

affect a firm’s reputation and incur financial penalties. In the

UK businesses are subject to legislation from the UK government

and from Europe.

By and large, the legislation affecting business has been passed

to regulate the way in which organisations carry out their

operations with the aim of protecting consumers, employees and

other stakeholders from exploitation and harm.

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(a)Employment legislation

Businesses must also ensure that they work within rules

concerning the employment of labour. Legislation first began to

be passed in the 19th century to limit the exploitation of the

workforce –for example, in respect of the employment of children.

There is now a mass of such legislation covering virtually all

aspects of the employment relationship, including the following

areas:

Contract of employment –all employees must have a written

contract which specifies the conditions under which they are

employed, including such issues as hours worked and pay

Minimum wage –a feature in many countries and introduced in the

UK in 1998

Anti-discrimination or equality –to ensure the fair and equal

treatment of all employees and prevent discrimination against

workers on the basis of, among other things, their sex, ethnic

origin or any disability

Unfair dismissal –to protect workers against losing their job

without good reason

Trade unions –giving workers the right to join (and not to

join) a trade union and the right of unions to be recognised as

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representatives of a workforce (although not necessarily for

employers to negotiate with them) and to take industrial action,

including strikes, in certain circumstances and after certain

steps have been complied with

(b)Health and safety legislation

Health and safety legislation is the regulation of the day to day

working practices of businesses to prevent dangerous practices

from taking place. It does not necessarily aim to promote good

health as such, but instead to deter firms from employing

dangerous practices.

In the UK, the most important piece of legislation is the Health

and Safety at Work Act 1974 (updated in 1996). This created

minimum acceptable standards for businesses in their ‘duty of

care’ towards their employees and their handling of certain types

of materials. Among the legal responsibilities of employers are

the following:

to providea safe working environment

to provide, at zero cost, appropriate health and safety

equipment for all employees who need it

if there are more than five workers, to have a written safety

policy and for that policy to be put on display

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to appoint safety representatives (nominated by trade unions if

there are any) who are entitled to inspect the workplace to

ensure that it constitutes a safe working environment.

Additional legislation is imposed upon UK businesses from being

part of the European Union –for example, the Working Time

Directive of 2003 gave workers the right to work no more than 48

hours per week, as well as ensuring a minimum number of days

holiday each year, paid breaks, and rest of at least 11 hours in

any 24 hours' work.

Not surprisingly, the main way in which businesses are affected

by this type of legislation is that it imposes additional costs

upon them. By exercising their duty of care towards employees,

firms must spend additional money which can affect its

profitability.

On the other hand, it can be used by a firm as a positive and

provide a demonstration of its commitment to its employees. This

in turn can lead to a more motivated and productive workforce.

There is the possibility that if the increased productivity is

greater than the increase in production costs then the firm will

actually become more profitable.

The Criminal and Civil Law

The Criminal Law

Criminal law applies in respect of acts in violation of specific

Acts of Parliament in which penalties for such offences are laid

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down. Obviously, such acts include murder, theft, assault, etc.,

but they also include offences committed under the various

Companies Acts and other legislation applying to business

organisations such as that governing the sale of goods, trading

standards, health and safety, etc.

Invariably, the penalties on conviction for such offences are

fines. These can vary from very small sums to enormous amounts

for acts which have resulted in deaths –for example, in cases

brought under health and safety legislation. (In 2011, Network

Rail was fined £3 million for safety failings in respect of a

rail crash at Potters Bar station in the UK where seven people

died.) The fines are usually levied on the company concerned.

There have, though, been cases where individuals within companies

have been held personally responsible for the offences, where it

has been proved that those individuals acted without the

authority of the company or in violation of company policy. In

addition, some senior managers and directors of companies have

been convicted and imprisoned for fraud or conspiracy offences as

a result of their business dealings.

Civil Law

The civil law is concerned with the settlement of disputes

between individuals and/or organisations, and if proved, results

in one party receiving damages from the other for the wrong

suffered. Damages are a financial payment, with the amount

determined by the courts, designed to compensate for the effect

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of the wrong, and these can range from quite small sums to

extremely large amounts where the consequences of the action are

highly significant.

The range of issues covered by civil law, as they affect business

organisations, relate mostly to disputes over contracts and to

negligence. Negligence arises where a person or organisation

fails in a situation where he/she/it has a duty of care to

another person and that other person suffers harm as a result.

It is in this area where the extremely large sums of damages are

to be found, principally in respect of medical negligence

resulting in death or physical/mental impairment.

Political Change and its Impact on Business

The government has a great influence on business activity. In the

first place it dictates the

legal framework within which the business must operate and

imposes regulations that must be adhered to. These can cover

health and safety issues, consumer protection, advertising

standards, employment conditions and environmental factors. This

can have an impact on the business; for example new laws

regarding the labelling and packaging of goods for the added

protection of the consumer will usually result in increased

costs.

However, some changes in regulations might provide new market

opportunities. For example a law tightening fire regulations

might lead to an increased demand for fire appliances, protective

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clothing and appliance testing. A new tax on using land-fill

sites for disposing of rubbish has resulted in a growth in the

recycling business.

Governments also influence business through the tax system.

Indirect taxes make goods more expensive for the consumer while

subsidies reduce the market price and increase demand. Other

influences include items such as planning permission, financial

incentives regarding location or the promotion of exports. This

may influence where a firm locates or who it targets its products

at.

The government is the largest spender in the economy. In the UK

it accounts for over 40% of all spending. Obviously the

government can influence business by its decisions on what to

spend, where to spend and with which firms.

Social Change

A business must be aware of changes in society. Demographic

changes will affect demand in different sectors. The ageing

population in Europe has led to greater demands for health care

and nursing homes. Similarly an economy with an expanding,

younger population will be experience rising demand for

children's clothes, childcare facilities and schools. As

societies grow wealthier, the population spends a greater

proportion of its money on leisure pursuits such as foreign

holidays, sports and pastimes.

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Changes in public attitudes can also affect a business. The

public are more environmentally aware and are not prepared to buy

products and services that are considered antisocial, such as

aerosols that contain CFCs. Consumer opinion has forced firms to

abandon trade involving endangered species and the production of

goods that leads to the destruction of the rain forests. Failure

to recognize change and to adapt can lead to the decline and

eventual closure of a business. Early recognition of these

changes can provide opportunities. The Body Shop has expanded

globally by marketing its environmentally safe cosmetics.

Technological Change

Technological changes can be the most significant external

factor. New products, new methods of manufacture and new

materials have been developed that have changed the market

completely. Word processors have all but eliminated the demand

for typewriters.

Many products are now made from hardened plastic rather than wood

or steel. The use of the microchip has revolutionized the watch

industry. The car industry makes full use of robotics in order to

eliminate the need for labour and to ensure a higher quality

product.

Changes like these affect a firm's market and each business must

adapt to the opportunities or be left behind by more progressive

competitors. Technological changes affect not only the production

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process but also the range of products that is possible. The

microchip has led to the miniaturization of many products while

the development of plastics has revolutionized the style of

products and their cost. The media and leisure industries have

witnessed vast changes with the advent of miniaturized music

systems, flat screen televisions, High Definition broadcasting

and advanced computer games. The quality of items has also been

affected.

In agriculture, science has developed disease-resistant plants,

improved crop yields and created new hybrid specimens. A change

in technology can have serious positive or negative effects on a

business. On the positive side technological change has led to

the development of new raw materials that can result in easier

manufacturing processes and lower costs. The rapid development of

moulded plastics has allowed electrical and automotive products

to be made not only cheaper but also in more stylish designs.

Technology can also lead to changes in processes. The advent of

computers has led to high-speed, fully automated flow production

systems being developed. This in turn has led to lower unit costs

and lower consumer prices. New technologies have created entirely

new markets such as the mobile phone industry and digital

broadcasting.

On the negative side technology has replaced the need for a lot

of unskilled and semi-skilled labour. Those affected have

suffered long-term unemployment unless they were fortunate enough

to retrain. Advances in science have made some products

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redundant. Even skill requirements have changed, causing workers

to retrain several times in a career

Ecological Environment

Concern about the environment has led to measures to reduce

global warming. As well as

helping to cut the government's deficit, the imposition of VAT on

fuel was required as part of Britain's international obligation

to reduce power station emissions. Differential taxation of

leaded and unleaded petrol, and of diesel, goes along with the

compulsory fitting of catalysts to reduce the harmful effects of

car exhausts. This has affected the mix of fuel used in power

stations, to the detriment of coal, and created a new market for

titanium.

Recycling is a major business. Local authorities provide for

glass, metal and paper collections, and most large supermarkets

also provide collections points. Many firms now collect and

recycle large amounts of materials which were simply scrapped at

one time. European car manufacturers have agreed standards for

car construction which make them

virtually 100% recyclable, including difficult materials like

plastics.

A business can be directly affected by ecological concerns. Thus

McDonald's was severely criticised for using polystyrene

packaging for its fast food – it was packaging burgers for

instant eating in a material with a life of a thousand years. So

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McDonald's joined with an environmental pressure group to find

ways of reducing the ecological impact of its business. As well

as trying systems to recycle used polystyrene, which is possible,

the company used a different packaging material which could not

be recycled but which took up much less space in dumps. It has

gone on to examine all aspects of its operation to reduce the

effects on the environment. The company has benefited from cost

reductions and pleased its customers.

Increasingly, firms are recognising that failure to consider the

ecological effects of their activities can lead to consumer

boycotts, and that an ethical approach to the environment can be

good for business.

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