LEARNING OBJECTIVES
What you will be able to do
- analyse economic and government-policy effects
- explain legal, environmental and ethical constraints
- evaluate globalisation and multinational businesses
- interpret exchange-rate changes and international opportunities
AT A GLANCE
INTRODUCTION · THE BIG IDEA
Evaluate how government, the economy, society, technology and global markets affect business decisions.
Businesses operate within conditions they cannot fully control. Economic change, laws, social expectations, technology and international events alter demand, cost, risk and objectives.
An external influence rarely affects every business in the same way. A currency fall may help an exporter while raising an importer's costs.
SECTION 01
Economic change and government policy
Economic growth usually increases income and demand but can create labour shortages and inflation. Recession reduces many sales and increases unemployment. Inflation raises costs and uncertainty; interest-rate rises increase borrowing cost and may reduce consumer spending.
Governments use taxes, spending, interest-rate influence and regulations. Higher income tax may reduce disposable income; higher business tax reduces retained profit; infrastructure and training spending can lower business cost and improve productivity.
SECTION 02
Law, consumers and employees
Employment law can cover contracts, discrimination, pay, dismissal and workplace safety. Consumer law can require safe, correctly described, good-quality products and truthful promotion. Competition rules may limit anti-competitive behaviour.
Compliance can raise training, equipment and administration cost, but it may improve trust, safety, motivation and fair competition. The effect depends on the firm's current standards and ability to pass on costs.
| Area | Business action | Possible benefit |
|---|---|---|
| Health and safety | training and protective equipment | fewer injuries and absences |
| Consumer protection | testing and accurate information | trust and repeat purchases |
| Minimum wage | raise lowest pay | motivation but higher labour cost |
SECTION 03
Environment, ethics and stakeholders
Production and consumption can create pollution, congestion, resource depletion and climate effects. Governments may use laws, taxes, permits or incentives, while firms may redesign products, reduce waste or use cleaner processes.
Ethical decisions concern what stakeholders judge right or fair, beyond minimum legal compliance. Strong standards may cost more but improve reputation, recruitment and loyalty. Greenwashing—unsupported environmental claims—can damage trust.
SECTION 04
Globalisation, multinationals and exchange rates
Globalisation increases cross-border trade, investment and competition. Firms may gain larger markets, cheaper inputs and economies of scale but face cultural differences, transport risk and powerful competitors.
Multinational companies operate in more than one country. Host countries may gain jobs, tax, training and infrastructure, but may face profit repatriation, environmental damage or pressure on local firms. Evaluation depends on regulation and the quality of jobs and investment.
If a home currency depreciates, exports become cheaper to foreign buyers and imports become more expensive in home currency, other things equal. Demand response, imported inputs and existing contracts affect the final outcome.
Import cost after depreciation
- An imported machine costs US$20 000.
- Initially US$1 = 4.00 home-currency units, so cost = 80 000.
- After depreciation US$1 = 4.30 units, so cost = 86 000.
Answer: The importer pays 6000 more home-currency units.
QUICK CHAPTER SUMMARY
The ideas to carry forward
- External changes affect demand, cost, finance and risk.
- Law can impose cost and create trust or protection.
- Environmental and ethical decisions require stakeholder and time-horizon analysis.
- Globalisation and exchange rates create different winners and losers.
QUICK REVISION CHECKLIST
Can you do each of these without your notes?
- analyse economic and government-policy effects
- explain legal, environmental and ethical constraints
- evaluate globalisation and multinational businesses
- interpret exchange-rate changes and international opportunities