A business does not operate in a vacuum. It has to act and react to what happens outside the factory and office walls. These factors that happen outside the business are known as external factors or influences. These will affect the main internal functions of the business and possibly the objectives of the business and its strategies.
Social change is when the people in the community adjust their attitudes to way they live. Businesses will need to adjust their products to meet these changes, e.g. taking sugar out of children’s drinks, because parents feel their children are having too much sugar in their diets.
The business also needs to be aware of their social responsibilities. These are the way they act towards the different parts of society that they come into contact with.
Legislation covers a number of the areas of responsibility that a business has with its customers, employees and other businesses.
It is also important to consider the effects a business can have on the local community. These are known as the social benefits and social costs.
A social benefit is where a business action leads to benefits above and beyond the direct benefits to the business and/or customer. For example, the building of an attractive new factory provides employment opportunities to the local community.
A social cost is where the action has the reverse effect – there are costs imposed on the rest of society, for instance pollution.
These extra benefits and costs are distinguished from the private benefits and costs directly attributable to the business. These extra cost and benefits are known as externalities – external costs and benefits.
Governments encourage social benefits through the use of subsidies and grants (e.g. regional assistance for undeveloped areas). They also discourage social costs with fines, taxes and legislation.
Pressure groups will also discourage social costs.
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