Business and its environment

• Privatisation


  When an organisation is transferred from a public to the private sector
• Advantages of privatisation


  • Private businesses will be more efficient
  • Privatisation allows the business to access new sources of finance
  • The sale of state-owned businesses provides an inflow of finance for the government that it can use to meet other objectives
• Disadvantages of privatisation


  • Once the business is transferred to the private sector, the government loses the ability to control how it operates and what objectives it pursues
  • Privatised businesses may focus more on short-term rewards rather than projects that provide long-term benefits
• Nationalisation


  When a business is transferred from private ownership to state control
• Advantages of nationalisation


  • The business can set social objectives, for example higher employment levels or lower prices for consumers, rather than profit
  • The business can base decisions, for example investment decisions, on what is right rather than for profit
• Disadvantages of nationalisation


  • The lack of the profit motive may lead to inefficiency and a lack of innovation
  • The business may lack investment from the government and not be able to raise finance from the private sector
• Privatisation allows the business to access new sources of finance
• The sale of state-owned businesses provides an inflow of finance for the government that it can use to meet other objectives
• Once the business is transferred to the private sector, the government loses the ability to control how it operates and what objectives it pursues
• Privatised businesses may focus more on short-term rewards rather than projects that provide long-term benefits
• The lack of the profit motive in nationalised businesses may lead to inefficiency and a lack of innovation
• Nationalised businesses may lack investment from the government and not be able to raise finance from the private sector
• Governments pass laws to control the business environment


  1. So that workers have healthy and safe conditions (due to employment laws)

  2. Competition is fair (due to competition laws)

  3. Consumers are given accurate information and are protected from faulty or dangerous products (due to consumer laws)
• Areas covered by Employment Law


  • Protection of the health and safety of employees
  • Minimum wage levels
  • Contracts of employment
  • Unfair dismissal and redundancy arrangements
  • Prevention of discrimination against certain groups of people based on their characteristics, such as disability, age, race, ethnicity, religion, gender and sexual orientation
  • Parenting rights and workplace harassment/bullying
  • Membership of trade unions
• Employment laws


  Can increase a business's costs by creating the need for record keeping and employees to monitor adherence to the laws
• Employment laws


  Lead to more committed and secure employees and lower costs as there will be fewer accidents, legal fees and court cases
• Competition law aims to bring about as much competition as possible so that businesses are encouraged to provide choice to consumers
• Competition laws to promote competition


  • Preventing cartels
  • Investigating monopolies to ensure they are not acting against consumer interests
  • Investigating proposed mergers and takeovers to ensure they will not result in unfair monopoly power
  • Preventing unfair practices
• Unfair practices that competition law deals with


  • Price fixing and price agreements
  • Information-sharing agreements
  • Producers refusing to sell to retailers unless minimum prices are set
  • Sole supplier arrangements (where suppliers only supply if no competitors are allowed)
  • Predatory pricing
• Laws that promote competition affect consumers by providing them with more choice
• Other laws that affect businesses


  • Planning requirements when setting up a factory, office or shop
  • Restrictions on pollution that require equipment to clean up smoke or chemicals
  • Noise limits on industrial premises and limits to lorry movements, or business operations may be restricted to daytime hours
  • Specific laws that apply to particular products, such as explosive substances, drugs and chemicals that require particular sale storage solutions
• International agreements and laws that affect businesses


  • World Trade Organization
  • Pacific Trade Agreements
  • United Nations Convention on the Law of the Sea
  • Internationally agreed accounting standards
• Effects of international agreements on businesses


  • Having to adapt products to meet particular standards of safety
  • Reducing pollution or waste
  • Setting out accounts to include corporate social responsibility factors
• Changes in political and legal factors


  Impact on business and business decisions
• Areas affected by changes in political and legal factors


  • Demand
  • Costs
  • Labour supply
  • Location
• New political agreements can open new markets; new laws can ban or legalise a product
• New laws can increase costs (for example higher minimum wages) or reduce costs (for example a political decision to stop taxing imports so much)
• Changes to the school leaving age or retirement age will affect the size of the workforce
• A government may provide incentives to attract businesses to a region
• Government intervention to help businesses and encourage enterprise


  • Ensuring the finance system is able to make money available to businesses
  • Ensuring the right number of workers with the right skills is available
  • Ensuring prices do not rise too fast
• Examples of International agreements that affect businesses


  • World Trade Organization or regional trade agreements (for example the Asia-Pacific Trade Agreement)
  • United Nations-based Kyoto Protocol on restricting carbon emissions
  • International Labour Organization standards on employment conditions
  • United Nations Convention on the Law of the Sea
  • Internationally agreed accounting standards
• Effects of such international agreements on businesses


  • Businesses having to design products to meet particular standards of safety
  • Businesses having to reduce pollution or use less energy
  • Businesses having to set out their accounts to include corporate social responsibility factors
• The impact on business and on business decisions of changes in political and legal factors depends on which law is changing and how it is changing, and also depends on the business
• Understanding the context of the law and the business is important when making judgements about the impact of changes in political and legal factors
• Changes in political and legal factors can affect


  • Demand
  • Costs
  • Labour supply
  • Location
• Exchange rates


  • Do not vary quickly or too much
• Government intervention at an individual business level


  To help businesses and encourage enterprise
• Government intervention to help businesses


  1. Providing grants, subsidies and low-cost loans for investment

  2. Improving infrastructure like roads, railways, airports and broadband

  3. Providing consultants and agencies to assist with business problems
• Government intervention to constrain businesses


  • Taxes on products to reduce profits or increase costs
  • Regulations to promote or enforce health and safety and consumer protection
  • Regulations on presenting accurate financial accounts
  • Regulations dealing with market failure or anti-competitive practices
• Market failure


  When market forces fail to produce an outcome that is socially desirable