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Business Environment, Ownership, and Institutional Frameworks

37 important questions on Business Environment, Ownership, and Institutional Frameworks

What are the 5 areas of the environment?

- The economy
- The role of the state
- Technology
- Labour
- Culture and institutions

What is a 'PEST analysis'?

An analysis that comprises a review of four types of environmental influence.

What are the 4/6 types of environmental influence?

- Political environment
- Economic environment
- Socio-cultural environment
- Technological environment
( - Legal environment)
( - Ethical environment)

What is the 'political environment' (P in PESTLE)?

The nature of the political system and how that influences business. This also includes local political groups, shareholders, etc.

What is the 'economic environment' (E in PESTLE)?

Includes issues of economic structure. Influence of banks for example, or levels of unemployment.

What is the 'socio-cultural environment' (S in PESTLE)?

The influences resulting from the changing composition of the population. E.g. an increase in the proportion of older people or the skills composition of the labour force.

What is the 'technological environment' (T in PESTLE)?

The influence of new or changing technology on strategies, work practices and on jobs. E.g. the impact of communications technology.

What is the 'legal environment' (L in PESTLE)?

The influence that legal regulations have on businesses. E.g. taxation, contract law dealing.

What is the 'ethical environment' (2nd E in PESTLE)?

The influence of ethical issues on businesses. E.g. waste disposal and child labour.

What is the LoNGPEST variation?

A variation of the PEST framework that takes the latter and puts it in the three contexts: Local, National and Global.

What are the critiques on the PEST framework?

- It places influences in compartments, even though they mostly interact with each other and can not be fully understood on their own
- It only focuses on the influence of the environment on organizations, but not vice-versa
- It is a static model that focuses on present factors only, not on future issues

What is sole trader ownership?

There is one proprietor, who employs his own staff, have unlimited personal liability, have full debt responsibility and take all the profit.

What is a partnership ownership?

When there are various owners, also called partners. Often found in law and accounting firms. They have unlimited personal liability too. It is possible for partnerships to become companies with limited liability, meaning that the liability of one partner does not extend to the others.

What is a limited company ownership?

2 types:
- Public limited company (plc): Has shares that are available to the general public to buy, and is quoted on the stock market.
- Private company (limited, ltd): Shares are owned by the owners and not openly available

What are the 4 types of ownership?

- Sole trader
- Partnership
- Limited companies
- Cooperatives

What is a cooperative?

An autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.

What did Berle and Means discover?

The managerial revolution: that management control was the dominant form of control, and not the owners. This was particularly a feature of the wealthiest and more powerful firms and that it was a growing trend. This was most likely the cause for the agency problem.

Why was Berle and Means discovery so shocking?

It challenged one of the basic premises of the US law system, namely that those who own property have the legal right to use it for their own benefit.

What was Berle and Means' view of managerial control?

They thought it was a potential force for good, as it could result in more effective decision making both for the profitability of the firm and for the general good of society. It would be better though, if the entire process was guided more by scientific analysis rather than narrow self-interest of the owner-manager.

How can the agency problem be tackled?

Expensive mechanisms such as monitoring to police the managers, legal preventive measures, incentives, making managers owners through share bonuses, etc.

Why doest the agency problem occur less frequently in family-owned businesses?

The separation of ownership and management often hasn't occurred in family-owned businesses. Family members hold both the chief amount of shares and occupy the senior positions of the company.

What 3 conclusions can we draw from the ownership and control debate?

- Berle and Means' work is as important today as it was in 1930, if you look at the '08 '09 banking crisis for example.
- The involvement of financial institutions and other stock owning companies considerably lessen the managerial power and cause a pattern of interlocking directorships with a large amount of influence.
- The freedom of both managers and shareholder varies depending on the regulatory framework under which they operate.

What are 5 actors Whitley identifies in his business systems model?

- Providers and users of capital, e.g. banks and firms
- Customers and suppliers
- Competitors
- Firms in other sectors, i.e. those not in direct competition
- Employees

What is the Anglo-Saxon capitalism system?

A liberal market political economy found in the USA and the UK. It is founded on a belief in the free market and a belief in individualism and the sanctity of private property.

What are the 3 variants of the social market model that Amable identifies?

- Social democratic: Sweden, Denmark, Finland
- Continental European: Germany, Switzerland, Norway, France
- Mediterranean: Italy, Spain, Portugal, Greece

What are the spheres of activity that are crucial to the success of an organization according to Hall and Soskice?

- Industrial relations relating to issues of productivity and wages
- Vocational training and education, which included recruiting and motivating people to use their skills
- Corporate governance, included relations with shareholders and access to finance
- Relationships with other firms, such as suppliers, buyers and joint venture partners
- Relationships with employees

What are the differences between liberal and coordinated market economies?

- C: stable stock market, L: volatile stock market
- C: Stable, less flexible labour market, L: Greater labour mobility and flexibility
- C: Employee involvement and commitment, L: Top-down decisions and a more contractual relationship between firm and employees
- C: Cooperation between competing firms and greater integration with supply chains, L: Competitive capitalism
- C: Patient capitalism - Long term approach to investment, L: Short-term approach to investment
- C: In case of trouble: focus on relationship with banks, employees and suppliers, L: focus on market and competition

What are the 5 core responsibilities of the state in a modern society according to the World Bank?

- Establishing a legal framework
- Developing economic policies
- Building basic services and infrastructure
- Protecting the vulnerable
- Protecting the environment

What are the 2 political philosophies that underpin the modern business world?

- Centralized state control (USSR, China)
- Liberal pluralism (USA, Europe)

What function does the state serve in a liberal pluralist society?

It is seen as a neutral umpire, that maintains order so that business can flourish.

When is intervention deemed necessary in a liberal pluralist society?

- To protect the workings of the free market against forces that might otherwise disrupt it (excessive monopoly power, insider trading)
- To provide and/or control goods and services to individuals (e.g. defence, education), where provision by other means would be impossible or inappropriate
- To take longer-term view of economic, social and environmental change than individual businesses are capable of doing

What is the state's relationship with business like under systems of state control?

The sate has total ownership of business and controls production via targets, and controls both supply and demand and wages and prices. Could be found in: USSR, China. Can still be found in: North Korea, Cuba.

What is the state's relationship with business like under Anglo-Saxon systems?

Although the system is based on the notion that there should be no state intervention, it is still active through regulations and laws that shape the business environment.

What is the state's relationship with business like under the social market system?

The state plays a key role in protecting the social welfare of its inhabitants. This happens for example through corporatism.

What is the state's relationship with business like under the Asian model?

The state is directive, but not in terms of social welfare (that is the responsibility of the individuals). The state is pro-business and assists in business growth.

What are the difficulties with state intervention?

- The impact of government intervention is difficult to measure, as other variables can also play part in changes
- Governments change and so do their policies and intervention
- The business community may oppose intervention attempts. Especially those who want a laissez-faire approach
- Many multinationals tend to have a greater allegiance to their own goals than to that of a single nation state

What are the types of state intervention?

- Collective provision (of goods that would be to dangerous, expensive, ineffective in private control. E.g. defence, housing, healthcare)
- The state as employer (--> control labour market, e.g. holding down wages to cut public spending)
- The state as consumer (e.g. can influence direction of innovation)
- Legal regulation (Patents, employee protection, cartel restrictions, etc.)
- Demand management (subsidies and taxation to stimulate or cut spending for example)
- Training (skill composition influencing)
- Protection (against unfair competition from overseas through import tariffs and quota restrictions)
- Marketing (boost own business through embassies and diplomatic connections)
- Advisory services (advice to business people)

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The question on the page originate from the summary of the following study material:

Introduction to Business: Processes and Context | 9781473754461 | Wiilliam M Stewart, et al

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