What is a stakeholder?
A stakeholder refers to an individual or group which has a legal interest in an organization or company. The Stanford Research Institute argues that the role of stakeholders is absolutely important in the operation of an organization or company. It will not work without their support. Stakeholders may influence or be affected by the operation of a business, and they can exist not only inside the company but also outside. Stakeholders can divide into two categories: internal and external stakeholders.
Types of Stakeholders, their roles, and objectives
Understanding Corporate Social Responsibility
As all fields of society develop, rapid changes in the business environment force companies to pay attention to social responsibility problems. For a long time, the definition of corporate social responsibility has constantly changed and expanded. Archie B. Carroll, a professor at the university of Georgia, suggested four types of corporate social responsibility: economic, ethical, legal, and discretionary responsibility (Archie B. Carroll 1991).
| Economic Responsibility | Ethical Responsibility | Legal Responsibility | Discretionary Responsibility |
| It is the most basic responsibility among corporate social responsibilities, and companies must produce products and services as the basic social unit. In other words, it is the corporate economic responsibility to understand consumers’ perspectives and to meet their needs and demands for profits. As a result, the profits earned by a company divide into the form of wages by its employees, and the employees are engaged in social activities. Corporate economic growth affects society as a whole. | Although it is not regulated by law, it refers to the impact or activity of a company on society. One of the things that are most related to ethical responsibility is the environment. Companies must always be aware of how the business that they pursue affects the environment because it is one of the basic human duties rather than the corporate obligations. For this reason, companies should approach any project eco-friendly. | A company must engage in economic activities within the structure of legal requirements. In other words, all companies are responsible for operating in the scope set by the state and country. There are laws such as labor law, tax law, and environmental law to curb corporate atrocities, and companies can operate freely on the premise that they comply with these laws. | It refers to voluntary activities such as social donation as a responsibility depending on the judgement or opts of a company. Helping organizations in different areas of society is one of the most common corporate discretionary responsibilities. For example, there is a scholarship project that provides free education to the poor by establishing educational facilities. In addition, there is natural disaster refugee support, which can help people or other countries affected by the disaster. |
Types of Business
What is different between Public and Private organizations?
| Private sector organizations | Public sector organizations |
| The private sector refers to an organization operated by an individual or for-profit business. It refers to a field that does not belong to the operation and ownership of the state. In the public sector, job diversity is more limited as each public institution usually has a specific purpose, while the private organizations have various job opportunities. Therefore, individuals can choose a job according to their major and interests. In addition, while public institutions can only use designated budgets, private organizations invest in generating profits, and sales performance is considered very important. Accordingly, private organizations inevitably have pressure on sales, and salary fluctuations are more flexible depending on individual work performance than public institutions. Despite differences in salaries depending on work performance, public sector institutions have the advantage of job security. However, the employees of private organizations tend to pay more attention to maintaining their employment. There are various types of jobs since the private sector is relatively less restrictive in job choices. Types of private sector organizations A Sole Proprietorship is a company invested and managed by a person and is not corporation. The advantage is that decision-making related to establishment and management proceeds easily and quickly. Still the disadvantages are the limitations of individual capital and single control and the risk of failure alone. A Partnership is a form of business in which two or more people operate together and share ownership. They fulfill their decisions, responsibilities, etc., according to the conditions of the existing contract. Small and medium-sized enterprises refer to companies with fewer employees and assets than large companies. Each country has a different scope of SME decisions. Since SMEs are classified according to the stage of economic development, the standards may vary depending on the financial situation. Large enterprises refer to corporations with huge assets and employees and record large sales, and rather than simply representing quantitative size, they have a special influence on society. Multinational corporations conduct research, development, production, sales, and services in various countries. Since they are global enterprises, they affect the global economy, and representative multinational corporations include Coca-Cola and Apple. Trade Unions- Employees working in the same occupation or company become the subjects. The trade union aim is to improve or maintain their working conditions and improve their social status. | The public sector refers to an institution operated and owned by the government, and these institutions generally provide public services to citizens without pursuing private profits. It usually provides free of charge, and if it is an institution generates profits, the profits are used for its facility management and maintenance. Employees of public institutions usually have more job stability than employees working for private sector organizations because public institutions are relatively unaffected or less affected by market changes. In addition, while the primary task given to public sector institutions is the general role, private organizations can be greatly different in terms of work performance evaluation their main purpose is maximizing profits. Another characteristic of public sector institutions is that non-employees can also experience work by providing the individuals with opportunities to serve. And rather than focusing on generating profits, public sector institutions focus on improving the quality of other’s life. In addition, executives and employees of public institutions have good welfare benefits such as health insurance and severance pay. Besides, since public institutions carry out projects that meet the purpose of each institution’s establishment, job diversity is lower than that of private organizations. Types of public sector institutions The Government is an institution that provides laws and social systems to ensure that the economy operates smoothly, supports fair competition in the market, offers public products and services, and keeps the economy balanced. Public Purpose Enterprises are established by the government for the public. In other words, it is a public enterprise established by the state to play the role of a general government. Some countries are recognized as non-profit or charity corporations, even if the private sector established them, not the government. For instance, a library is one of the public purpose enterprises. Public Authorities are companies of countries established by the legislature to improve the public interest, and their role is almost similar to that of public purpose corporations. However, they have greater authority and can operate autonomously from the country according to their authority. State-Owned Enterprises are corporations established by the government to take part in commercial activities, and they are a form of the national capital. Their purpose varies depending on the meaning of establishment. Usually, the purpose is the same depending on the purpose of the national policy. It is responsible for projects that are impossible or difficult to operate with private capital. For example, projects with strong public interest, such as public transportation, mail, and communication. |
The Economic Implications of Operating Business
What is The Economic system?
The system in which goods, capital, and services are produced, distributed, and consumed is called the economic system. It is one of the most fundamental human activities that have existed from primitive society to modern society.
Types of Economic Systems according to Resource Allocation and Utilization
| The Socialist Economic System | The social-economic system refers to a financial system in which all economic activities are carried out according to the plans and orders of the central government. All means of production are state-owned, resource allocation and utilization are also made by the central government. It is also called a command economy or a planned economy. In other words, this economic system operates under the planning and control of the state. By focusing this financial system on the government, it was believed that economic instability could reduce, uniform investment policies could implement, and equal distribution could lead to social stability. However, as time passed, the shortcomings of this system were revealed. Contrary to expectations, the economy rather regressed, and the theoretically suggested equal distribution also failed. In addition, the government’s collection and distribution method reduced citizens’ motivation, resulting in a decrease in productivity. One of the reasons for the failure of this system is that modern society has become too complicated for the government’s plan to be applied uniformly. A typical example of the loss of this planned economy is the collapse of the Soviet Union in 1991. Few countries have a planned economy system now. |
| The Traditional Economic System | The traditional economic system is a financial system that solves through traditional customs or tradition. In other words, it follows the rules, customs, and religions that come down to society. Usually, the economic system before the modern era is called the traditional financial system. In this system, production is determined, and resources are allocated according to status, gender, and age, tailored to social traditions or customs. This system has the advantage of ensuring social continuity and stability without significant changes in economic activities because members of a society accept traditions or customs without much opposition. However, as economic activities cannot be free to suit individual tastes and past customs are implemented as learned, there is a drawback that development is too slow due to the limitation of new challenges and attempts. The traditional economic system has no framework that fits perfectly and shows various types according to the traditions and customs of the state and society. |
| The Capitalist Economic System | A system in which capital is owned and managed by individuals is called the capitalist system. It is also referred to as a market economic system. This system has the characteristics that employees and employers can freely make contracts according to their agreements, and unlike the planned economy in which capital ownership is from the government, it allows individual property. In addition, if the planned economic system solves the limitations of the traditional economic system by direct government command and control, the capitalist economic system is a system in which individual rational judgment determines economic activity. This system guarantees individuals’ freedom of job choice and freedom of corporate activities, respecting personal choices and decisions and encouraging free activities. Moreover, free competition freely expresses creativity and becomes a source of constant innovation and development. On the other hand, there are disadvantages in that the gap between the rich and the poor arises due to different assets and income. It is difficult to narrow the gap between developed and underdeveloped countries in this system. Nevertheless, many countries around the world are pursuing capitalist systems now. |
| The Mixed Economic System | Under the capitalist economic system, the government’s involvement in economic activities to overcome economic instability is called a mixed economy. During the economic depression of the 1930s, when the harmful effects of free economic activity were revealed, the term mixed economy arose when the government actively intervened in economic activities to solve the economic recession. In addition, when the government leads economic development plans as a way for a developing country to grow its economy in a short period, or the introduction of some elements of the market economy system based on the planned economy system is also called the mixed economy. The advantage of this system is that it is possible to balance the imbalance of the market and redistribute wealth properly under the leadership of the government. However, the government’s misjudgment intervention may have the disadvantage of deepening market imbalances. |
The Impact of Fiscal and Monetary Policies on Business Activities
| Fiscal policy | Fiscal policy is a government policy that allows tax and expenditure policies to affect the economy based on aggregate demand. It aims to keep economic stability and inflation safe and grow during the recession. The government adjusts and promotes fiscal policy according to the situation. The expansionary fiscal policy is a policy that assists economic activities by implementing procedures to expand government fiscal expenditures or reduce taxes when the economy is stagnant. Implementing this policy has the effect of revitalizing the economy by increasing household income and increasing aggregate demand. However, when this policy is needed, the government borrows money from the central bank, increasing in interest rates on loans, which puts a burden on individual consumption or corporate investment. Excessive government expansionary fiscal policy can cause the economy to stagnate because it may affect the decline in personal consumption and corporate investment, and this adverse effect is called ‘the crowding-out effect.’ The Contractionary Fiscal Policy is a policy that the government reduces spending and increases income from taxes. Usually, when inflation is concerned, the government contributes to economic stabilization by collecting many taxes and reducing spending. Contractors – The government needs to collaborate with contractors to improve the quality of facilities and services operated by the government, such as welfare and education institutions. Contractors working with the government are bound to be affected by fiscal policy. Taxation- When the expansionary fiscal policy is implemented, taxes can reduce, increasing corporate profits. On the other hand, in the case of contractionary fiscal policy, taxes to be paid increase, and companies are directly affected by the reduction of social spending. Contractionary budgetary policy shrinks the economy due to reduced spending and demand, so companies must operate flexibly by budgetary policy. |
| Monetary policy | The government and the central bank implement the monetary policy to maintain economic growth or stability when implementing policies related to the nation’s money supply and monetary value and interest rates. In other words, it is a policy that appropriately adjusts the economic level by increasing or decreasing the amount of money distributed on the market. Monetary policy is also usually defined as expansionary and contractionary policies like fiscal policy. Expansionary monetary policy is a policy to lower interest rates and unemployment rates by increasing the supply of money distributed in the market. Contractionary monetary policy- If a lot of money release on the market, the economy will revitalize. On the other hand, the scarcity of capital will decrease, and prices will rise, resulting in inflation. In this situation, the central bank reduces the amount of money on the market to stabilize the economy and maintain sustainable economic growth. This policy is called a tightening monetary policy. The Bank of Korea said, “empirically confirmed that monetary policy affects the corporate investment decisions” (Financial News in Korea, March 29th, 2018). A researcher from the Bank of Korea estimated the intersection of liquidity asset ratios and interest rate fluctuations to determine whether the impact of asset price channels on corporate investment decisions changes according to monetary policy. As a result of the analysis, this path was estimated to work if the corporate investment rate was significantly affected by the liquidity asset ratio. |
Impact of Competition on Business
Since all companies have competitors, their goals, directions, and decisions are influenced by their competitors. For example, two companies that make products of the same item try to improve the quality and quantity of the products and lower the price by comparing each other’s products.
Competition between companies helps customers to acquire better products at lower prices because businesses need to try to make better products at reasonable prices. In other words, companies must constantly improve their products and provide innovative ideas to win the competition. It is the advantage of customers due to this competition. In addition, companies focus on increasing their profits and strengthening their competitiveness by establishing low-cost manufacturing processes. Then, the increased earnings from the low-cost manufacturing process have a good impact on consumers, and eventually, consumers benefit from competition between companies. As companies compete with each other, they earn more and more profits, and as they grow, they need more employees to maintain and develop the company. For this reason, they provide more jobs to society.
If so, does competition between companies always have positive effects? There are also side effects of excessive competition. Companies may face great difficulties if they are too greedy to win the competition. Extreme price cuts or excessive investment in their facilities without considering the current situation or conditions of the company can cause great loss.
Thus, business owners must be aware of the various types of competition among companies because there are many types of competition between businesses, such as monopoly and oligopoly competition, etc. Each competition has its features and restrictions, and these affect the business. For this reason, business operations will be smooth only if business owners understand other structures of competition.
Impact of regulation on the economy
Regulatory activities are a very important part of the economy. Since market failure may occur due to weak free competition, the government plays a role in regulating corporate activities to correct this market condition. When companies agree on prices and quantities to avoid competition and generate profits, it is called collusion. Collusion has the same adverse effect as monopolizing the market even if several companies make products, so the government governs it by law to help the market smooth. In addition, the government regulates the action, which breaks the fairness of transactions by abusing large corporations’ status when dealing with SMEs, to maintain fair competition. And the government also regulates acts that infringe on consumer rights. Moreover, companies must also comply with government regulations on the environment in the production and consumption. The government regulates companies to establish purification facilities to prevent air and water pollution, and for pollution that inevitably occurs, the company has to bear the cost.
Several people have argued that regulations on the economy restrain their companies and economic growth a lot. Such people have insisted on self-regulation, which means that they will create rules and engage in economic activities without being regulated by the government in terms of the economy. However, in some cases in the past, it has been proven that government regulations are more appropriate than self-regulation. One of the representative examples is the BP Deepwater Horizon oil spill in 2010. The committee, which investigated the case, concluded that loose surveillance of oil drilling was the main cause of the incident. Although companies have to bear considerable costs to comply with government regulations, these regulations can generate greater economic benefits. Government regulations should be made in a way that preserves the environment, maintains financial balance, and guarantees maximum profits for companies (Isaac Shapiro 2011).
The price of a product is determined by the relationship between the supply and demand of the product. If demand is higher than supply, prices rise, and if supply is higher, prices fall. Market price refers to a price determined by the relationship between supply and demand, unlike the current price of products. It means that the market price and the price of the goods are not always the same. Market prices that fluctuate every day generally tend to approach the current price of products.
The impact of supply and demand on the market
Demand curve: When prices fall, demand increases, and when prices rise, demand decreases, so prices and demand are inversely proportional.
Supply curve: When prices fall, supply decreases, and when prices rise, supply increases, so the supply curve is proportional.
Excess supply: When supply is higher than demand, sales competition among suppliers will occur, resulting in decreased product prices.
Excess demand: Demand is higher than supply, resulting in competition among consumers for purchases and increased product prices.
Equilibrium price and quantity: The price at the point where the supply and demand match after raising the price of goods due to excess demand and falling due to excess supply is called the equilibrium price, and the quantity at that point is called the equilibrium quantity.
In this way, supply and demand have a great impact on determining market prices. However, some factors affect supply and demand in addition to the price. Factors that change demand include changes in people’s preferred products, changes in individual income or property status, and changes in prices of similar other products. In addition, Factors that change supply include changes in production technology, price changes in materials, and expected future demand for this product to control supply. Thus, companies need to understand and adjust the market trends based on the price, demand, and supply of products. These factors that determine the amount and price of goods produced are called market forces. All companies and government agencies are also affected by market power. Organizations that fail to effectively respond to many factors such as demand, supply, and price cannot survive competition in the market. In other words, all organizations should respond to all market forces such as quality, customer satisfaction, profit, and productivity. Organizations must be flexible and agile to cope with market forces that fluctuate with market changes, predict the effectiveness of their responses, and remain competitive amid changes. Failure to respond quickly to rapidly changing technologies that affect the market cannot survive fierce market competition. Market Forces will pressure organizations, but such pressure creates the birth of great and innovative products such as Apple’s iPhone. For organizations to succeed in the market, they must find ways to manage and respond to market forces effectively. If organizations do this well, they will continue to participate in the market activities, but if not, they will lose it (Kevin Herring, 2016).
Potter’s Five Power is a model that helps identify the strengths and weaknesses of companies in the market and identifies the five elements that make up all industries. Michael Potter, a professor of business administration at Harvard, organized five forces acting on all markets to understand the corporate industrial structure and analyze corporate strategies. Potter’s five powers consist of competition within the industry, the possibility of new entrants, the power of suppliers, the power of consumers, and the threat of substitutes.
Competition within the industry- The first power represents the number of competitors and the power to weaken the company’s profitability due to competitors. When producing equivalent products, the more competitors there are, the weaker the company’s power because suppliers and consumers try to buy the company’s goods that provide better trading conditions. On the other hand, in the case of goods with fewer competitors, the company can price higher or has more power to lead the transaction.
The possibility of new entry- Companies are affected by new companies entering the market. The less time and cost competitors need to enter the market and the more likely they are to become effective competitors, the weaker their market share. Ideal companies are already engaged in industries with high entry barriers. Since the entry barrier is high, they can set the goods at a high price and present good transaction conditions.
The power of suppliers indicates how easily suppliers can increase corporate production costs. This force is affected by suppliers of major products, product uniqueness, etc. The smaller the number of suppliers in the market, the higher the market dependence on suppliers. If so, suppliers have greater rights and can pursue greater profits in transactions.
The power of consumers– Consumers’ ability to negotiate prices is one of the ‘five powers.’ This power is influenced by the number of consumers or customers the company has, its contribution to sales, and the cost of finding a new consumer or market. Even if the number of customers is small, if they have purchasing power, they have a significant impact on pricing.
The threat of substitutes-the substitutes of other competitors to replace a company’s goods or services pose a great threat to the company. On the other hand, companies that produce goods and services without substitutes have the power to raise prices or offer favorable conditions. On the other hand, in the case of replacements, consumers can choose a product, so the company’s power weakens.
Various Cultural Elements Influencing Business
Culture refers to the history and tradition of a region or country and the characteristics of that region created by the characteristics of its people. As industries develop in the global era, the culture of their country or region is industrialized and commercialized to the world. The cultural background of the area has a great influence on the attitudes and values of people engaged in economic activities. Culture is recognized as an economic activity that produces high value beyond just leisure activities. Each country is fostering the cultural industry as a high value-added industry. On the other hand, it is common for the value of goods or services to be recognized differently from country to country. Pork belly is one good example.
Pork Belly Industry in South Korea
According to the Korea Livestock Association, the statistics show that Korean adults eat pork belly every four days on average. It dates back to the 1970s when Korean pork began to be exported a lot to Japan, and the pork belly was the remaining part of the meat exported, and since then, pork belly has become the most common part of pork for Koreans. As pork belly became a representative food for Koreans, it became representative meat of Korean barbecue. Compared to other countries, the price of pork belly in Korea is extremely high. Usually, in European and South American countries, they don’t prefer pork belly because they don’t eat fat when eating meat. Thus, countries such as Germany, Chile, and Spain export almost all pork belly to Korea.
Countries that export pork belly to Korea (2008). Source: Korea Swine Association. 2010.
As can be seen from the example above, the value and rarity of resources or goods differ from country to country due to the tradition and historical background of each country. Although pork belly is less valuable in Europe and South America, where people usually do not eat it, it is so popular in South Korea that its prices are soaring every year. Accordingly, companies need a strategic approach targeting various cultural factors to succeed.
The Impact of International Market on UK business
Global factors affecting British companies include the development of international trade, the increase of British multicultural companies, the national economy, and other factors. These factors influencing UK business can be effectively analyzed through a technique called PESTEL analysis. PESTEL analysis includes factors that affect companies politically, economically, socially, technology, ecologically, and legally.
| Political Factors The level of world political stability, freedom of the press, global trade control plans, threats of international terrorism, tariffs with other countries, global patent and property disputes, and bureaucracy are political factors affecting companies. |
| Economic Factors The global economic crisis, stock market fluctuations, capital held by emerging powers, the influence of the World Trade Organization and the World Bank, etc., are factors that affect companies. |
| Social Factors Social factors influencing companies include changing the value of families perceived in society, increasing immigrants and migrants, and the interests and benefits of minorities in society. |
| Technological Factors Technology factors affecting companies include global infrastructure level, worldwide technology innovation, and continuous development of communication technology. |
| Ecological (Environment) Factors Environmental factors include the impact of global warming, the level of increase in air pollution, and the level of eco-friendly knowledge of entrepreneurs. |
| Legal Factors Legal factors include global data protection laws and regulations, the level of international laws, and global changes in corporate employment, welfare and workers’ safety laws. |
The Influence of EU Policies on UK Business
The European Union is a political and economic coalition organization of European countries established by the Treaty of Maastricht on November 1, 1993. The UK was also a European Union country, but it withdrew through a public vote. The European Union is the world’s largest market and is free to carry out economic activities among European Union member states. Companies in European Union countries are free to operate in transactions between member states, but companies in other countries are still limited to European countries’ regulations and policies. The European Union’s competitive policy supports free activities and encourages companies to provide the best products and services at reasonable prices. In addition, it prevents any company from being sacrificed by competition between companies. It provides an environment in which emerging companies or small and medium-sized companies can grow. Trade policies between member countries have many advantages, but they are conservative when negotiating with companies from other countries. Moreover, since the European Union uses a single currency called the euro, it has certainty about the cost of using the same money when exporting or importing. Competition between companies in European Union countries and companies in the UK with these advantages may be fierce. British companies have higher costs of complying with EU regulations when dealing with European Union countries (External Environment: The European Union (GCSE)).
References
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