what businesses do - part (2)
The second part of Richard Bowett's introduction to what it is that businesses actually do!
External Factors
Businesses are surrounded by all sorts of external factors which influence what businesses do and how they do them. Some of the main ones are:-
1. The Government does many important things which affect how businesses operate.
1.1. Laws which control what can and cannot be done. One of the basic and most important matters is the enforcement of contracts. It would be very difficult to do any business if you could never be sure people would do what they had promised. A contract is a legally binding promise to do something (eg supply goods) so you can be sure it will be done.
1.2. Build and maintain infrastructure such as roads, railways, water and sewerage supplies, and so on.
1.3. Taxing the earnings of businesses and employees.
2. The economic climate also makes a key difference. This means, broadly, are things going well with plenty of demand for buying, or have things slowed up with people being very careful about what they buy?
3. World events can also make a huge difference, such as the tragic events of 11th September which caused many people to be very worried about the future.
The Role of Money
Business without money is very inefficient. You can use barter, but then you have the problem of ‘the double co-incidence of wants’ which means you have to find someone who not only has what you want but also wants what you’ve got. This can take ages and then there’s the problem of how much of A is worth how much of B.
The advantage of money is that is acts as a ‘medium of exchange’ ie it lets people buy and sell without the problems mentioned above. It also allows people to save ie not consume everything now. And money allows for deferred payment ie payment at a later date.
Trends in Business Activity
Nothing stays still in business for very long. The world is always changing, and businesses are always changing to adapt to changes in the world outside.
These changes often take the form of gradual patterns of change which are known as ‘trends’. Identifying trends, and considering whether or not they will continue into the future, is a very important part of the job of management in planning for the future and making decisions for the present.
One of the key trends in UK business (and similar economies) is ‘de-industrialisation’ which means the traditional manufacturing businesses and their jobs are in slow decline, and are being replaced by new businesses and new jobs primarily in services. There are a number of reasons for this:-
1. Changes in consumer demand. As people get richer they spend relatively less on goods and relatively more on services such as foreign holidays.
2. Changes in the competitiveness of UK manufacturing. Many manufacturing jobs are low-tech and low-skill which means they can be done as easily but more cheaply in other countries such as E Europe.
3. Increased competition from overseas businesses. The UK economy has become more ‘open’ which means imports and exports become more widespread. This is especially noticeable with other EU businesses.
4. A lack of investment in manufacturing. This is a bit of a vicious circle. Without investment in new production technology, it is increasingly difficult for a business to remain competitive. But if the business isn’t competitive, it’s not an attractive place to invest in. And so on.
5. Trade Union restrictive practices. This was an enormous problem but since the changes in Trade Union law in the 1980s it has become much less of a problem. Nonetheless, the decline in UK manufacturing has continued.
6. Unhelpful government policies. Manufacturing businesses frequently complain that government doesn’t take their problems seriously enough. For example, they claim that the government has allowed the £ to become too high for them to export competitively. They also complain that the tax system doesn't encourage investment enough.
Missed Part One? Click here for Part One
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