BOM MODULE 4

BUSINESS AND
GOVERNMENT

KAMAL KIRAN BHANJA

ROLL NO – 19IMBA006
IMBA 1ST YEAR
Location of Business
The location of a business is the place where it is situated. There are a number of factors that need
to be considered in choosing a location for a business. One of the earliest decisions any
entrepreneur has to make is where to locate his or her business. In order to do this, he or she has
to make a careful assessment of costs. The ideal location would be one where costs are
minimised. The entrepreneur would need to look at the benefits which each area had to offer as
well as any government help which might be available.

Factors affecting location

Market
The nearness of the market and the cost of delivering the goods are likely to be important factors.

Raw materials
If the raw materials are bulky and expensive to transport it will clearly be in the entrepreneur's
interest to locate near to them.

Transport costs:
The two major influences are the pull of the market and the pull of the raw materials and these are
determined by whether or not the industry is bulk-increasing or bulk-decreasing.

Land
Land costs vary considerably nationally and some firms, e.g. wholesalers, might need a large
square-footage. They might, therefore, be influenced by the cheaper rents and property prices
found in some areas.

Labour
The availability of labour might well attract firms to an area, particularly if that labour force has
the skills they require.

Safety
Some industries have to locate their premises well away from high density population levels and
their choice of location is limited.
Waste disposal
Certain industries produce considerable waste and the costs associated with the disposal of this
might affect their location.

Government
Government provides special assistance to areas of high unemployment. This takes place within
the UK, and is also a feature of wider European Union regional policy.

A convenient location
A number of businesses have set up close to Heathrow Airport because of its location. For
example, companies engaging in importing and exporting find this a convenient location. In
addition there is a range of hotels, and taxi firms who benefit from the international flow of
passengers. Additionally security and aircraft maintenance firms have located there.

Optimum Firm:
 
Optimum firm is that firm which fully utilizes its scale of operation and produces
optimum output with the minimum cost per unit production.
 
In the short-run, a firm would build the scale of plant and operate it at a point where
the average cost is at its minimum. This is regarded as the optimum level of
production for the firm concerned, if the demand for the product increases from
this least cost output; it cannot change the amount of land, buildings, machinery and
other input in short period of time. It has to move along the same scale or type of
plant. The average total cost, therefore, begins to rise due to the diseconomies of the
scale.
 
In the long run, all inputs are variable. The firm can build larger plant sizes or revert
to smaller plants to deal with the changed demand for the product. If the size of plant
increases to cope with the increased demand, the average cost per unit begins to fall
due to the economies of scale such as increased specialization of labor, better and
greater specialization of management, efficient utilization of productive equipment,
etc., etc. So long as the resources are successfully utilized, the average cost of
production continues declining.
 
Eventually a stage comes when the firm is not able to use the least cost combination
of inputs. The building of a still larger plant cause the average cost of production to
go up. The point at which the per unit cost is the lowest is the optimum level of
production for the firm. The firm of the most efficient size.
Social Responsibilities of Business

1. Responsibility to Shareholders:
In the context of good corporate governance, a corporate enterprise must recognise
the rights of shareholders and protect their interests. It should respect shareholders’
right to information and respect their right to submit proposals to vote and to ask
questions at the annual general body meeting.
The corporate enterprise should observe the best code of conduct in its dealings with
the shareholders. However, the corporate Board and management try to increase
profits or shareholders’ value but in pursuing this objective, they should protect the
interests of employees, consumers and other stakeholders.

2. Responsibility to Employees:
The success of a business enterprise depends to a large extent on the morale of its
employees. Employees make valuable contribution to the activities of a business
organisation. The corporate enterprise should have good and fair employment
practices and industrial relations to enhance its productivity. It must recognise the
rights of workers or employees to freedom of association and free collective
bargaining. Besides, it should not discriminate between various employees.

The most important responsibility of a corporate enterprise towards employees is the

payment of fair wages to them and provide healthy and good working conditions. The
business enterprises should recognise the need for providing essential labour welfare
activities to their employees, especially they should take care of women workers.
Besides, the enterprises should make arrangements for proper training and
education of the workers to enhance their skills.

3. Responsibility to Consumers:
Some economists think that consumer is a king who directs the business enterprises
to produce goods and services to satisfy his wants. However, in the modern times this
may not be strictly true but the companies must acknowledge their responsibilities to
protect their interests in undertaking their productive activities.

Invoking the notion of social contract, the management expert Peter Drucker
observes, “The customer is the foundation of a business and keeps it in existence. He
alone gives employment. To meet the wants and needs of a consumer, the society
entrusts wealth-producing resources to the business enterprise”. In view of above,
the business enterprises should recognise the rights of consumers and understand
their needs and wants and produce goods or services accordingly.

4. Obligation towards the Environment:

The foremost responsibility of business enterprises is to ensure that they should not
damage the environment and for this purpose they should reduce as much as
possible air and water pollution by their productive activities. They should not dump
their toxic waste products in rivers and streams to avoid their pollution. Pollution of
environment poses a great health hazard for the people and is a cause of several
respiratory and skin diseases.

5. Responsibility to Society in General:

Business enterprises function by public consent with the basic objective of producing
goods and services to meet the needs of the society and provide employment to the
people. The traditional view is that in performing this function businesses maximise
profits or shareholders’ value and doing so they do not behave in any socially
irresponsible way.

In the present world where there are monopolies, oligopolies in product and factor
markets and also there are externalities, especially detrimental externalities such as
environment pollution by the activities of business enterprises maximisation of
private profits does not always lead to the maximisation of social benefit.

Arguments Supporting Social Responsibility

 The justification for existence and growth: The primary goal of business is to make
profits as only profits can help the business sustain and expand. Profits should only be
made as a return of service to the society by producing goods and services.

 The long-term-term interest in the firm: A firm is to gain maximum profits in the long run
if it has it’s the highest goal as service to society. As humans are social beings, when they
notice that a particular corporation is not serving its the best interest socially, they do
not support the organization further.

 Avoidance of government regulations: Government is the highest authority in the

nation. When a government feels that the business is not socially responsible or is
creating problems like pollution, the government limits its freedom.

 Maintenance of Society: Business is one of the important pillars on which society

survives. It is the responsibility of business to take care of society’s needs. Law alone
cant help people with the issues they face. Therefore businesses contribute to the well
being, peace and harmony of society.

 Availability of resources with Business: Business enterprises have huge financial

resources, very efficient managers & contacts and thereby they can ensure that a social
 problem can be solved easily.

 Converting problems into opportunities: Business means risk. And turning risky

situations into profits can also be related to solving social problems.

 Holding Business responsible for Social problems: Business enterprises are responsible

for many problems such as pollution, discriminated employment, corruption, etc. It is
the duty of the business to solve the problems created by them.
Arguments Against Social Responsibility
 Violation of maximization of the profit motive: This statement argues that business
exists only for maximizing profits and businesses fulfil their social responsibility best by
maximizing profits by increasing efficiency and reducing costs. They need not take up
any additional obligations.

 Side effects on Consumers: Customers suffer because of the solving social problems and
taking social care require huge financial investment. As the money within the business is
used in social help, the business increase the cost of their products and services.

 Lack of Social skills: It is often stated that businessmen don’t fully under the social
problems and thus can’t solve them efficiently.

 Personal resistance: People tend to dislike interference from businesses in their

problems.

Reasons for Accepting Social Responsibilities

1. Expands the potential customer target market size

Social contribution and sustainability are features that appeal to a whole new class of
customers for any solution. These features are extremely important in penetrating customer
sets in different cultures around the world, and more discerning customers in every
geography.

2. Incentivizes customers to pay a premium price

Sustainability and social responsibility are ways to extend your exclusivity and added value,
thus lowering risk, improving profitability, and justifying a premium price.

All stakeholders see this as an advantage, encouraging new investors and raising the
valuation of your business.
3. Increases customer advocacy and loyalty in all markets
These days, existing customer advocacy is a key attractor of new customers. In addition,
according to recent statistics, the cost of bringing a new customer to the same level of
profitability as old ones is up to 16 times more.

Loyal customers post great reviews and bring in many new friends.

4. Is seen by customers as a competitive edge

Most Millennials and customers of all ages these days strongly believe that all businesses
must be socially responsible, and make that a top criteria for selecting a solution source.

It's a message that you can use both indirectly and directly in your brand positioning and
marketing.

5. Improves your team motivation and productivity

Sponsoring social initiatives and providing time for employees to support their own
initiatives builds loyalty, pride, and motivation among team members and disparate
organizations within the company.

This makes everyone in the company more engaged, more responsive, and more
productive.

6. Improves employee retention and attracts better candidates

Company success is driven by the quality of the team members they can attract and retain.

If your business is recognized as providing a socially responsible culture for employees, as

well as comparable initiatives outside the business, the best and the brightest will join you.

7. Provides governance flexibility and financial grant opportunities

B-corps are given relief from the sole directive of maximizing shareholder profits, to reduce
investor suits.

With targeted social initiatives, they may also qualify for government grants, alternative
energy rebates, and philanthropic initiatives in support of their efforts.

8. Makes your business more attractive to investors

Investors look for teams with real passion, integrity, and an attractive message.
They see a commitment to social change as great positioning for the long-term, with
sustainable value to customers and owners alike. They look for that balance between
maximizing profit and expanding the market.

A potential offset to all these advantages is that balancing act that is required between
social initiatives and the focus on making more money for survival. It takes a strong and
adept business leader and entrepreneur to make the right tradeoffs.

It's time to take a hard look in the mirror to see if you are ready to take your business to the
next level. The opportunities are endless.