Business and the environment in which it operates

Businesses have to satisfy people needs and wants. Needs are the basic requirements for human survival.

Humans also have other desires. These are called wants.

Three types of business organisations:1. Private enterprise.These are owned by individuals or a group of individuals. They are private sector businesses. Objective is

to make profit

2. Non-Profit making organisations.These are charities, pressure groups, clubs and societies. They are for ‘good causes’ or to facilitate

people with common interests. These are run like businesses. They:• Need to raise money

• Try to minimise costs• Market themselves• Employ staff

3.Public enterprise.These are goods and services provided by central or local government. These are Public sector

organisations.

They do not usually make a profit, they aim to give good quality services.

Business

stakeholders

customers

Government

Financiers

Local community

Suppliers

Managers

Employees

Owners (Shareholders)

To give employees something to work towards

Keep owners motivated and keep a grip on business.

Help decide what steps are necessary to reach a

greater aim.

Easier to assess businesses performance if objectives

are met.

Mission statementsSome businesses write a mission statement when setting objectives. This describes the purpose of a business. They help business focus, provide plan for future and make clear to all stakeholders what the business is trying to achieve.

Public sector objectivesThe objectives of public sector organisations are different to that of the private sector. They do not usually aim to create a profit. They focus on providing a better quality service and minimising costs.

Entrepreneur’sAre:

All business objectives are closely related to each other. E.g. Growth will automatically bring more profit and improving the image and reputation of a business may increase the market share.

Unincorporated and incorporated

Where there's no legal difference from the business and the owner.

Usually small and owned by one person, or small group of people.

HAS a legal difference between business and owner. Business can sue, be sued, taken over or liquidated. Often LIMITIED COMPANIES.

A sole trader is the simplest form of business organisation.One owner, any amount of employees.

Setting up is easy because there are no legal requirements. However they have unlimited liability. This means, if a business fails, the owner may have to pay more money than was originally invested. This is because the owner will have to pay off business debts with his own personal wealth.

1. All profit is kept by the owner

2. Independent- owner has complete control

3. Simple to set up4. Flexibility- can adopt

to change quickly.5. Can offer personal

service because they are small

6. May qualify for government help

1. Unlimited liability2. May struggle to raise

funds3. Independence may be

a burden4. Long hours, hard work5. Too small to exploit

economies of scale6. No continuity

business dies with owner

Between 2 to 20 people

No legal formalities They do, however, need to

draw up a deed of partnership

Deed of partnership

How much capital each partner will contribute

Procedure for ending partnerships

Rules for taking on new partners

Easy to set up. No legal formalities

Partners can specialise in there areas of expertise

Burden of running a business is shared

More capital can be raised with more ownersFinancial information is

not published

Partners have unlimited liability

Profit has to be shared

Partners may disagree and fall out

Any partners decision is legally binding on allPartnerships still tend to

be small

What are these?

Features of

What does the franchisor offer the franchisee?

1. Licence to trade under brand name

2. Start up package (help, advice and essential equipment)

3. Training

4. Materials, equipment and support services.

5. Marketing support

6. Exclusive geographical area.

Features of

In return for these services, the franchisee has to pay certain

fees

•Start up fee- Lump sum

•On going fee based on sales

•Contribution to marketing costs

•Franchisor may make some profit on merchandise supplied to

franchisee.

Advantages to the franchisee•Less risk – a tried and tested idea is used•Back up support is given•Set up costs are predictable•National marketing may be organised

Disadvantages to the franchisee•Profit is shared with franchisor•Strict contracts have to be signed•Lack of independence – strict operating rules apply•Can be an expensive way to start a business

Disadvantages to the franchisor•Potential profit is shared with franchisee•Poor franchisee’s may damage brands reputation•Franchisee’s may get merchandise from elsewhere•Cost of support for franchisees may be high

Advantages to the franchisor•Fast method of growth•Cheaper method of growth•Franchisees take some of the risks•Franchisees more motivated than employees

It is possible to have a Limited partnership.

This is where some partners provide capital but take no part in running the

business.

Such a partner will have limited liability and will only risk the money initially

invested.

This type of partner is called a sleeping partner

However, there must be at least one person with unlimited liability

In 2000, the law changed so that limited liability partnerships could be formed.

This is where all partners have limited liability. However, they have to file annual

accounts with the registrar of companies.

They need to send some important documents.

1. The memorandum of association

2. The articles of association

Memorandum of Association

•Name of company•Name and address of companies registered office.•Objectives•How much capital to be raised and how many shares to be issued.

1. Rights of shareholders

2. Procedure for appointing directors

3. Length of time before re-election

4. Timing and frequency of company meetings

5. Arrangements for auditing company accounts

If these documents are acceptable, they will get a certificate of incorporation.

Most private limited companies tend to be small or medium sized. Features of a private limited company:1. Their business name ends in Limited or Ltd. 2. Shares can only be transferred ‘privately’ (from one person to another). All shareholders must agree on the transfer

and they cannot be advertised for sale. Cannot be traded on the stock market.3. Often family business. Owned by family or close friends.4. The shareholders run the business. They are also the directors.

Control is not lost to outsiders

Business continues even if a shareholder dies.

Shareholders have limited liability

Can raise more capital

Has more status-e.g. than a sole

trader

Takes time to transfer shares to new owner

Cannot raise huge amounts like plcs.

Financial information has to be published

Profits have to be shared between

members

Costs money and takes time to set

up

Public limited companies (plcs) tend to be larger than private limited companies. Their shares can be bought and sold on the public stock exchange. Any person or organisation can buy shares in plcs. ‘Going public’ can be expensive because:•The company needs lawyers to ensure that the prospectus is ‘legally’ correct. •The prospectus has to be printed and circulated.•A bank may have to be paid to process share applications.•The company must insure against the possibility of some shares remaining unsold. Therefore, a fee is paid to an underwriter who must buy all unsold shares. •Their are administration and advertising expenses.•The plc must have minimum of £50,000 share capital.

May have a very high profile in the

media

Shareholders have limited liability

Large amounts of capital can be raised

May be able to dominate the

market

Plcs can exploit economies of

scaleShares can be bought and sold very easily

Managers may take control rather than

owners

Outsiders can take control by buying shares

Setting up costs can be very expensive

May be more remote from

customers

more information has

to be made public

More regularity controls due to company acts

The prospectus advertises the company to potential investors. It

also invites them to buy before a flotation-

The process of a company ‘going public’.

Where two or more companies share the cost, responsibility, and profits from a business venture. What are the advantages of joint ventures?1. They allow companies to enjoy some of the advantages of mergers, such as high turnover,

without having to lose their identity.2. Each business can specialise in aspects of the venture to suit its expertise3. Takeovers are expensive. Takeover's often incur high heavy legal administrative costs. 4. Mergers and takeovers are often unfriendly. 5. Competition may be eliminated. Disadvantages:1. There may be control struggles.2. Disagreements about the management of the joint venture may occur3. Profit is split. Reduces profit potential

The growing integration of the world’s economies

What are the key features of globalisation?

•Products are traded freely across international borders.

•In some areas, such as the EU, people are free to live and work in any country they

choose.

•High level of interdependence between nations

•Capital can flow freely between different nations. Meaning, people can keep their money

in banks in different countries. People can buy shares in foreign countries.

Multinationals play a very large and growing role in the world economy. They contribute

about 10 percent of the world GDP and about two thirds to global exports.

Worlds five largest multinationals:1. ExxonMobil2. Wal-Mart Stores3. Royal Dutch Shell4. British Petroleum5. Toyota

Modern globalisation probably began in the 1980s and has grown rapidly. There are several reasons for this trend.•Development in technology has helped globalisation gather pace. People can quickly send emails to other parts of the world and secure deals. They can have meeting over the internet. These days, people do not have to meet face-to-face to carry out business.•International transport networks have improved in recent years. People can quickly fly to countries for meetings and goods can be transported cheaply. •There has been a huge a mount of deregulation. Countries have become more willing towards international trade. Trade barriers have been dropped and many economies have stopped protecting domestic businesses. •Many firms want to sell abroad, perhaps because domestic firms have become saturated.

Economies of Scale

Technical and financial

superiorityMarketing

Multinationals can exploit economies of scale. They enjoy lower costs because of their size. Multinationals also have access to cheap global resources.

Some firms have become multinationals by relying on effective marketing. They use heavy adverting and innovative marketing to protect their brands from fierce competition. Their brands are recognised all over the world

Most multinationals have developed into large businesses over a period of time. They have experience and knowledge. Can afford to invest heavily on research and development. Can afford the most talented people. They have the resources to take risks.

Increase in income and employment

Increase in tax revenue

Increase in exports

Transfer of technology

Improvement in the quality of

human capital

Enterprise development

Environmental damage

Exploitation of less developed Countries

Repatriation of profits Lack of

accountability

•Encourage developing nations to rely on producing primary products*•Pay low wages. Employ child labour. Bad working conditions•Taxes and money to host nation is minimal.•Only a little is put back into the country

Where a multinational returns profit from an

overseas venture to the country where it is based.

* Producing primary goods is risky because the prices for them can rise sharply, which causes variations in income. Relying on one industry also makes developing countries vulnerable

GrowthMany businesses start small and gradually become bigger. They may want to change their legal status as they

grow. This is because they need to raise more capital

The need for financeFinance is the main reason why owners change their legal status. Quite often, the only way to get more money

is to change the type of organisation.

ControlSome owners like their independence. This is why many remain as sole traders.

Limited LiabilityOwners can protect their own personal financial position if the business is a limited company.

•Type of business organisation.E.g. Plumbing or decorating tend to be provided by sole traders, while professional services such as accountancy and legal advice are usually partnerships.•The way in which the business plans to use its profits.E.g. If a business wants to grow and reinvest in the business using the profits, they may choose to stay private limited companies (Don’t have to pay any dividends to shareholders).•Stakeholders may influence the choice of business organisation.E.g. Employees may argue that the company operates more effectively without external owners.

It is likely that different types of organisations will have different objectives.

Some examples are given below:

•Small sole traders may be happy to make a modest amount of profit- just

enough to fund a comfortable lifestyle. Profit satisficing

•Family business are often reluctant to go public. They don’t want to lose control

to outsiders.

•Most multinationals want to grow. They want to get bigger and bigger, and

dominate global markets.

1. The cost of premises or land: many businesses need large areas of land. Therefore, they look to

minimise land property costs. For example, they may set up in areas where:

1. Premises are cheap. Usually located away from expensive residential areas.

2. Business rates ( a tax paid by businesses to local authorities) are low.

3. Land has been earmarked for business development such as Brownfield sites or Greenfield

sites.

2. Transport: some manufacturers locate close to effective transport networks.

3. Cost and availability of labour: Wage rates may vary in different regions. Also, if a firm needs a

particular type of skilled labour, a certain location may be more suitable than others.

4. Proximity to the market: Some businesses locate close to their customers.

5. Government constraints and opportunities: Governments may try to influence location decisions.

They do this for the following reasons:

1. To avoid congestion

2. To locate where unemployment is high

3. To attract foreign businesses into the country

Some governments use regional policy to help develop ‘run down’ areas. Regional policy provides

opportunities for businesses. Different incentives: Quick planning permission, investment grants, tax

breaks, rent free factory space... And much more.

Location decisions will be affected by changing business environments. Locations may be influenced by some of the things below:•More home-based businesses: Many people can operate their jobs from their homes.•The internet: Many people sell over the internet. You can also do other things e.g. Online tutoring.•Legislation: government legislations are changing all the time. There is a growing concern about the environment, this may affect the location. •Changes in factor costs: Businesses will be attracted to areas where resources are cheap.•New markets: Multinationals may want to locate in a particular country because it wants to sell goods into a new market.

Greenfield site-Areas of land, usually on the outskirts of cities and towns, where businesses develop for the first timeBrownfield sites-Areas of land which were once used for urban development

Multinationals have business operations all over the world. When locating a new operation, multinationals will take into many of the factors discussed. However, their are a few additional factors to consider:•Avoiding trade barriers: One way of avoiding trade barriers is to locate within the country.•Financial incentives: Businesses may be attracted to a particular country if financial incentives are offered. •Cost of labour: Multinationals often locate where labour is cheaper, e.g. China•Proximity to the market or suppliers: Transport costs can be much greater over longer distances.•Political stability: Some countries that that have political instability or poor human rights is often avoided. This is because they want to avoid consumers from boycotting and shareholders disapproval.•Language Barriers

In many countries, the government has an important influence on business activity. Below is a summary of the main ways this occurs:

How does the

government influence

business activity?

Consumer legislation

Health & safety and

employment legislation

protectionism

Economic and regional

policy

Environmental

legislationCompetition policy

It is the job of the government to manage the economy. As a result, most governments have economic objectives. The main ones are outline below.

An increase in national incomeThe government will want to keep inflation low. Unemployment is a waste of resources.

A business can’t rely on imported goods. They also need to pay their way. So exports should at least match imports.

this will reduce the number of social problems.

Boom and recession: Over time economies will grow. However, the pattern of growth is uneven. This uneven pattern is illustrated in the trade or business cycle . It shows the two main phases. Boom and recession. This uneven pattern of growth means that governments have to intervene in the economy.

Control the impact of businesses: government's may need to protect using legislations.•Employees may need protection to enforce their working environment is safe and not exploited. •Consumers need protection from exploitation.•The environment needs protecting.

Government influences on business activityGovernment involvement can affect businesses in different ways. It may restrict business activity or provide opportunities. E.g.•Subsidies may be given ( for employment or echo friendly products)•rent free units may be offered•New legislations may force companies to do things differently•Free government advice may be given. This may change decision making

Fiscal policyThis involves changing the level of taxation and government spending to adjust the level of demand in the economy. E.g. They can lower taxes to increase employment.

Government expenditureGovernment spending levels will influence businesses. Generally, higher levels in of spending will be welcomed by businesses. E.g. To build a new motorway, the construction company will benefit.

TaxationExamples of the ways taxes may influence businesses:•If income tax is lowered, there would be more spending in the economy. Business may increase production or raise prices.•Businesses may respond to higher corporation tax by reducing investment or cutting dividends.•An increase in VAT may raise prices so demand would fall.

Monetary policyThis involves the government adjusting the money supply to control demand in the economy. This often means that interest rates are changed. Changes in the interest rate can influence businesses. Generally, higher interest rates are bad for businesses for the following reasons:•Costs rise when interest charges increase. This will reduce profit•The purchase of capital goods funded by borrowing is discouraged because it is more expensive.•Peoples mortgage payments rise so they have less to spend.•Demand for goods bought with borrowed money will fall because it is dearer.Changes in the interest rate will have a bigger impact on those businesses which have a lots of debt. These changes will also affect those who produce goods bought with borrowed money, e.g. Cars, houses...

Regional policyRegional policy is designed to reduce regional problems such as unemployment, congestion and income inequality. Regional policy influences business location.

Consumer protection

Anti competitive practices or restrictive trade practices:•Increasing prices•Restricting consumer choice•Raising barriers to entry•Market sharing:This might occur if their is a collusion. When a market is shared between the dominant firms, choice is restricted and prices are raised.

Some countries have a lot of consumer legislation. It covers a variety of consumer issues and aims to protect consumers from restrictive trade practices and anti-competitive practices.

Consumer issues covered by legislation

The information given about products

Trading an age restrictions

The safety of products

Prices

Customer payment methods

Consumer rightsThe way products are

promotedThe quality of products

International trade benefits the world. It creates opportunities for business growth, increases competition and provides consumers with more choice. However, there are some specific reasons why countries trade with each other. 1. To obtain goods that cannot be produced domestically2. To obtain goods that are cheaper overseas3. To improve customer choice4. To sell off surplus commodities

More consumer choice

Less risk if there are growing markets in another part of the world

Growth of domestic businesses

Increased competition

Allows advantages of specialisation to be extended. Benefits global economy

Lower costs and improve efficiency when producing for domestic and international consumers.

Visible trade involves the trade in physical goods. The difference between total visible exports and imports is called the visible balance or balance of trade.

Invisible trade involves trade in services. I.e. Money from tourists is invisible exports.

Overspecialisatio

nA country may

become too dependant

on a narrow range of

goods. If demand or

prices fall for these

products, nations will

suffer a loss of trade

and income.

UnemploymentSimilar to

overspecialisation.

When a country is out

of a certain industry,

unemployment will

rise.

Environmental

damageSince free trade helps

the global economy to

grow, it may lead to an

increase in

environmental

damage.

A country will keep records of all transactions relating to international trade. This record is called the balance of trade. It is divided into two parts.•The current account shows the value of all imports and exports over a period of time . It includes all visible and invisible trade. It includes any type of income (interest, profit, dividends or assets owned overseas(exports))•The capital account records flows of money into and out of a country resulting from transactions related to savings, investment and speculation, for example.

1. Increase in external debt. The nation will owe money to other nations2. A rise In unemployment. Domestically produced goods will lose demand.3. Downward pressure on exchange rate (price of imports will rise and inflation will

rise)4. It may reflect structural weakness. This means that domestic firms may struggle

because they are not competitiveness – maybe from a lack of investment.

•Rising exports will generate employment and economic growth•Can build up foreign currency reserves or lend money overseas.•Domestic shortages if too much is sold abroad•A rising exchange rate which will raise price of exports resulting in a fall in demand in the future.•If a country has a high surplus it means that other countries have deficits. This could lead to international instability.

One of the governments macroeconomic objectives is to ensure that over a period of time the value of exports is roughly the same as imports. The government has to monitor the balance of payments and make sure any deficits do not grow too large.

Despite the benefits of international trade, some governments may think

it necessary to protect their domestic producers from overseas

competition. Governments use a number of trade barriers to restrict

trade:

•Tariffs: Taxes on imports

•Quotas: A physical limit on the amount allowed into a country

•Subsidies: This is another approach to protectionism. It gives financial support such as grants or tax breaks, to exporters or domestic producer

that face fierce competition from imports.

•Administrative barriers: They can restrict imports by insisting they meet

strict regulations and specifications.

•Depreciating exchange rate: It may be possible for the government to

reduce imports and increase exports by allowing the exchange rate to

fall. This is called devaluation (the depreciation or fall in the value of currency). This will make exports cheaper and imports dearer.

1. Protecting jobs. Unemployment is undesirable and the government may be blamed if unemployment rises due to cheap imports.

2. Protecting infant industries. These are new industries that are yet to get established. Many say that they should be protected from strong overseas competition until they can grow, become established and exploit economies of scale. However, this may not be successful because the government has a poor record when it comes to identifying these firms that have potential.

3. Preventing dumping. This is when an exporter sells goods into a market below cost. They will get themselves established, possibly become a monopoly and then be free to raise prices as high as they like. The actual price of the good is usually the price they sell in the exporters home country.

4. Raising revenue. Tariffs (taxes) on imports will raise revenue for the government.5. Preventing the entry of harmful or undesirable goods.6. Improving the current balance. Try to reduce imports and increase exports.

1. Loss of free trade benefits. Consumers will end up paying more for products and choice will be limited. If domestic producers aren’t exposed to competition, they may lack the incentive to innovate and create good quality products.

2. Retaliation. One big problem with international trade is that it may lead to a trade war. Where one country erects barriers and the country affected does exactly the same in retaliation.

3. Other policies may be more effective. It could be argued that using trade barriers is not the best policy to use. They could, for example, use supply side policies to help domestic firms.

Key termsDumping-Where an overseas firm sells large quantities of a good below cost in the domestic market.Infant industries-New industries yet to establish themselves

Most countries in the world do not use the same currency. When countries use different currencies, transactions between people and firms in different countries are affected. So the exchange rate is the price of one currency in terms of another.

The impact of a depreciation in the exchange rate on imports and exportsChanges in the exchange rate can have an impact on demand for exports and imports. E.g. If the exchange rate fell from £1 = $1.50 to £1 = $1.20....•Impact on exports: The one pound is much more cheaper to buy. Therefore demand for UK exports rise because they are now much cheaper than they were. •Impact on imports: Now people can get less dollars for each pound, so demand for imports fall as they are more dearer.

The impact of an appreciation in the exchange rate on imports and exportsA rise in the exchange rate will have the opposite affect. So if £1 = $1.50 rises to £1 = $2•Impact on exports: People will pay more fore each pound. So UK exports will fall as they will be more dearer.•Impact on imports: Imports will rise as they will be cheaper.

Falls

Rises

Falls Rises Rises Falls

RisesFallsFallsRises

D for importsExchange rate D for exportsP of exports P of imports

Like all prices, the price of currency is determined by market forces and if those forces change the price is also likely to change. Currencies are bought and sold like commodities on foreign exchange markets. Prices are determined by forces of supply and demand. E.g. If there is a rising demand for sterling, the price of the pound is likely to rise. It is likely to be the equilibrium price.

Factors affecting the demand for a currency1. The demand for exports. Firms that sell goods and services to foreigners expect to be paid in

their won currency. Therefore, the foreign country will have to obtain e.g. Pounds, and will most likely get it from a bank. Therefore, demand for UK exports also result in a demand for pounds. This will shift the demand curve to the right and increase the exchange rate.

2. Inward foreign direct investment. If a foreign business was to build a factory in the UK, it will need pounds to pay for materials, labour and other resources required for construction. Therefore, an increase in inward FDI will increase demand for exports.

3. Interest rates. If the interest rate in the UK is high, foreign savers may want to keep their money in a UK bank. But first they will have to buy pounds with their domestic currency. Therefore, an increase in the interest rate will result in an increase in the demand for pounds.

Sometimes changing exchange rates will benefit businesses, sometimes they will not. But they do cause uncertainty to everyone which is a negative. It makes predicting demand and costs of imports harder. Another problem is that it costs money to switch from one currency to another. There is usually a commission charge of around 2% . This is another cost to importers.Key terms:Free trade-Trade between nations that is completely without government restrictions.Protectionism-An approach used by governments to protect domestic producers.Trade barriers-Measures designed to restrict trade.Foreign exchange market-The markets where foreign currencies can be bought and sold.

Factors affecting the supply for a currency1. The demand for imports. Imported goods and services will have to be bought with foreign

currency. The flow of pounds into the foreign exchange market provided by importers increases supply. Supply curve will shift to the right, decreasing the exchange rate.

2. Outward foreign direct investment. When British multinationals develop business interests abroad.

3. Interest rates in other countries. When UK savers place there money in foreign banks.

Key facts: Speculators•Speculators are firms, individuals or financial institutions that buy and sell currencies in the hope of making a capital gain (profit).•Foreign exchange markets attract speculators.•Speculators can affect both supply and demand for a currency.•They buy a particular currency and hope to sell it fro a higher price later.•For example, if speculators think the price of the pound will rise later in the future, they will buy pounds. This will increase the demand for pounds and therefore help to drive up the exchange rate.•If they believe the price of the pound will fall, they sell pounds in exchange for another currency. This will increase the supply of pounds in foreign exchange markets and lower the exchange rate.

Over a period of time, a country has to pay its way when trading with others. A government should therefore aim to balance the current account. One approach to reducing the current account deficit is devaluation. This is where the value of a currency is allowed to fall or depreciate. The price of exports should therefore fall and demand for them will rise. This way, the current account should be reduced.

How can a government devalue a currency?It can influence the exchange rate by changing the interest rate in the economy. (There is a link between the exchange rate and the interest rate). However, there are problems with this policy:•The government may not have complete control over the exchange rate. •Reducing interest rates to devalue a currency may conflict with other policies.•Devaluation will only work if the demand for imports and exports are responsive to price changes.

If goods are elastic, devaluation will work. But when countries import mostly food, and other primary goods, demand will still be high and the higher price tag wont really result in less being bought. Therefore, the current account wont decrease. This mostly works on non-essentials such as tourism or consumer durables.

Key terms:Devaluation-The depreciation or fall in the value of a currency.

Changes in societyBusinesses have to adapt to many changes that happen in society. Some examples of

changes:

1. Consumer awareness: consumers have higher expectations than aver before. They

have got access to a lot of product information and are more aware of their rights.

Therefore, businesses have become much more customer focused.

2. Changing demand patterns: changes in society brings about changes in demand for

products. People now expect goods to be delivered to their doors.

3. Increased numbers of women at work: this has increased the supply of labour and

the number of business start-ups.

4. More part-time workers: This has helped improve the flexibility in business

organisations.

5. Urbanisation: More and more people have left rural areas and come to work in

main cities. This has provided businesses with more labour and created additional

markets where goods and services can be supplied.

Business ethicsBusinesses often have to make ethical decisions. Its about morality – ‘doing the

right thing’. For example, should a business:

•Make use of recycled materials even though profits will fall?

•Test its products on animals?

•Buy goods from suppliers that employ child labour?

•Use a bribe to secure an overseas contract in a country where bribery is part of the

culture?

Often, if businesses adopt unethical practices they will make more profit. However,

more and more businesses want to be ‘good corporate citizens’. One way of doing

this is to follow an ethical code of practice. The code helps businesses to meet ethical

standards.

Some environmental issues that businesses are often blamed for:1. Global warming: Some of the greenhouse gases which contribute to global warming come

from factories. Also, economic development means that more and more people will have cars and travel by air. These emissions also contribute to global warming.

2. Habitat destruction: Some business development destroys wildlife habitats and spoils the natural environment. Many animal species have gone extinct and are under threat.

3. Resource depletion: in addition to the loss of forests, many other resources are at risk. E.g. :1. Oil, coal, gas and minerals are non-renewable. 2. Fish stocks are falling. This threatening millions of people who depend on fishing for

their livelihoods.3. Fertile soil, which is needed to grow food, is being lost. This is due to deforestation, poor

farming practices, over grazing, urban sprawl and land pollution. 4. Sustainable development: many governments are talking about sustainable development.

This means that people should satisfy their needs without reducing the living standards of future generations. So businesses should try to reduce the use of resources.

The success of a business can be judged in many ways. The main approaches oar outline below:

ProfitMost private sector businesses aim to make a profit. However a number of factors have to be taken into account...1. Profits made by a monopoly are not as impressive as profits made from a firm that faces lots of

competition2. The amount of profit made by a business will often depend on the size of business. So another

way of comparing can be to calculate the return of capital employed (comparing the profit to the amount of money invested in the business). Or by calculating profit margin

3. Profit should be compared with that made by a business in the same industry. 4. Profit can only be used to measure success if the objective of the business is to maximise profits.

SizeThere are several different ways of measuring size:1. Turnover2. The number of employees3. Market share4. The amount of capital employed5. EU definitions of size

Product qualityProduct quality may be reflected by:1. Awards and prizes won by business2. Media reports3. Customer surveys4. Sales levels when new product launched5. Certification by international quality standards

Social responsibility and Consumer satisfactionMore and more businesses are trying to meet the needs of a wider range of stakeholders. Many carry out a social audit to judge the social impact and ethical behaviour of business. Many businesses are now becoming more customer focused and make efforts to get feedback from their customers. They monitor customer complaints very carefully. A subject of complaint is taken very seriously and action is taken to make improvements

The importance of targets when judging successMany owners set objectives when running their business. This makes it easier to judge success.

Judging success in the public sectorIt is important to recognise that objectives in the public sector are different from those of the private sector. Generally, they're linked to reducing costs and providing better quality services.

Business failureIt is not uncommon for business to fail. Why might a business collapse?•The people running business may not have necessary skills•Run out of cash•A sharp fall in sales.When a large business is about to fail, it may go into administration. This is when an independent group of specialists are appointed to run the business. Or it may go into liquidation (business closed down and all assets sold off. Any cash raised will be distributed between creditors).