UNIT I
INTRODUCTION
Business is a vast and interesting subject. If one goes deeper into it, he faces more absorbing and uphill tasks. It encounters with the use of latest scientific and technical know-how, challenges and difficulties it faces from production to the smooth supply of the products to the target audience, problems confronting in raising money and by which method to raise money and the most challenging job of bringing employee together and to spur their motivation level up to a point so that they strive pleasantly to achieve the organizational goals.
A business also encounters the most amazing and challenging job of grappling with so many laws and regulations lay down by the government. The consumers, employees and various other interests groups also influence the business.
In keeping with its above mentioned factors it is always difficult to limit the discussion on the subject like scope of business.
But with the below factors an endeavor has been made to discuss the nature and scope of business:
1. Vastness:
Earlier there used to be the business in form of sole proprietorship or in partnership forms and that too was within the boundaries of a particular district or state. Then slowly and gradually the bigger form of business organization evolved in the form of Joint Stock Company. Because the earlier forms could not cope up with the ever growing demand of the society and were unable to meet the challenges of mass production.
The formation of bigger size companies have gradually started replacing manual labour in manufacturing process and with the advent of automatic machines, production in bulk has become possible. The production philosophy has been replaced by the marketing philosophy where the production is being done by knowing the need of the consumers first and then demand is created.
Traditional channels of distribution have been replaced by the new distribution channels, super bazaars, discount houses, trade fairs, different promotional scheme and reshaped world of advertising has become the order of the day in business to meet the present-day challenges. The bigger production level fetches economies of scale and ultimately the benefits pass on to the final buyers.
The trend toward growing business into bigger size is quite evident. The companies like IOC, ONGC, SAIL, etc., have shown their presence in the Fortune 500 lists. This scenario has given a kind of dynamism to the business.
2. Globalization:
There used to be a time when business operations were limited up to a particular area. Now the trade barriers are crumbling day by day because the word is shrinking rapidly. Networks of transportation, communication, music, and economics have tied the people of the world together as never before. Political boundaries are no barriers to the business.
The fast moving phenomenon of globalization is becoming imperative due to the certain technological explosion, intensity of market competition, and changing lifestyles of the people which has led to the demand for new products. This scenario has occurred due to the multi fold exposure of the people to the ever-growing field of information technology which has opened up new vistas for the business.
This has added up a new dimension that people have stranded learning to be a global manager to meet the challenge of the diversity of the culture to sustain a strong position in the international market.
3. Challenges to the Service Providers:
There was a time when only production and exchange of goods used to come under the scope of business. Service was being considered as the alien part of businesses. But now it is entirely a separate industry which is growing at a very fast pace. These are rapidly growing and increasingly important part of today’s global economy.
Because services are customer-driven, pleasing the customer is more important than ever because service-quality strategist’s emphasis that it is no longer enough simply to satisfy the customer. The strategic service challenge today is to anticipate and exceed the customer’s expectations which were a rare phenomenon in yester years’ businesses.
Because customers are more intimately involved in the service-delivery process than in the manufacturing process, the business needs to go directly to the customer for service-quality criteria. So, the horizons of business have expanded immensely.
4. An Interdisciplinary Field:
A principle cause of the expansion of the business is due to the information explosion which has been contributed by the various disciplines. Scholars from various fields including psychology, sociology, cultural anthropology, mathematics, philosophy, statistics, political science, economics, logistics, computer science and various fields of engineering have, at one time or another, been interested in business field and its various management theories.
In addition, administrators in business, government, church, health care and education all have drawn from and contributed to the study of business which have given immense knowledge of the field to the practitioners. With each new perspective, new questions and assumptions, new research techniques, different technical jargon, and new conceptual frameworks have come up. This has altogether revolutionized the field of businesses.
5. Information Overload:
Since the time immoral, entire civilization have come and gone. In one form or another, business management was practiced in each. Sadly, during those thousands of years of experience, one modern element was missing- a systematically recorded body of knowledge. In early cultures management was something one learned by word of mouth and on trial and error basis not to record about in textbooks, theorized about or experience with in written form.
Thanks to the modern print and electronic media, the collective genius of thousands of management theorists and practitioners has been compressed into a veritable mountain of textbooks, journals, research monographs, audio and video tapes and computer disks, etc. Use of Internet has also made it more explosive in nature. Never before have present business had so much relevant information at their fingertips, often as close as the nearest library.
6. Diversification:
Today’s business is also characterized by diversification. Earlier people used to stick to the one or two business only. The product portfolio of today’s business is expanding like anything. One can understand the concept of diversification by having an overview of Tata’s business in India which ranges from salt to steel. Diversification means introducing different lines of products which are not related to each other.
Proliferation is another name of the game today. It represents introducing different brands in the same product line. For example, FMCG’s giant HLL (Hindustan Lever Ltd.) in India has so many soaps in one time but with different brand names. Nowadays, these measures are used by the companies in the form of certain weapons to face severe competition to sustain in the market as we have never seen before this sort of scenario.
The merger and acquisition waves are also sweeping the world. To prevail in the market, we are able to witness some of the biggest mergers in the world which is another feature of today’s business. With the repeal of the some of the provisions relating to Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act), many companies in our country stretched too far in the name of diversification.
7. Foreign Capital and Technology:
There was a time when hardly any country was in the practice of using foreign capital and technology. Because the world is witnessing so many changes and with the implementation of WTO regulations, almost every country has gone international. To pay the international debts, country requires huge amount of foreign capital reservoirs. Most of the countries have been making use of foreign capital and technology to accelerate the pace of their economic growth.
There is hardly any country which is not assisted by foreign capital and technology. Foreign capital and technology play a vital role in the shaping of an economy in a big way. India being a developed economy, the importance of foreign capital and technology needs no emphasis as we have to payback lots of international debts as a new and developing economy.
Broadly a country can access these types of foreign investment, namely, foreign direct investment (FDI) and portfolio investment (FIIs). While FDIs refers to the direct investment in a foreign country whereas the portfolio investors has only a short-term property interest in investing in equities, banks and other securities.
8. Emphasis on Diversity:
Labour forces and consumers are becoming more diverse in terms of national origin, race, religion, gender, and different age categories and personnel preferences around the globe. In today’s business, managers are challenged to manage diversity effectively to tap the full potential of every individual’s unique combination of abilities and traits.
Successful business are the ones which hire the kind of managers who can anticipate and adjust to changing circumstances rather than being passively swept along or caught unprepared. Employers today are hiring managers who can take unfamiliar situations in stride. They are calling for the multilingual and multicultural managers who can manage diversity.
Managing across cultures, emphasis on learning foreign languages are other features of today’s business. Moving from tolerance to appreciation and managing women and their powers are the other different challenges before the business today. This scenario has led the business to different dimensions.
9. Environmentalism:
Environmental issues such as deforestation, global warming, and depletion of the ozone layer, pollution of land, air and water are no longer strictly the issues related to books and conferences. The leading politicians and managers around the world have picked up the environmental banner. The green marketing movement has been gaining momentum around the world.
The businesses are challenged today to develop creative ways to make profits without unduly harming the existing environment. Considering the variety of these sources of change in the environment, global managers are challenged to keep themselves abreast and adjust as necessary. Some companies like Daewoo, Hyundai, Maruti, Tata and Hero Honda in India, with their pollution prevention programmes are leading the way. Indeed, cleaning up the environment promises to generate whole new classes of jobs in the future.
10. Competition:
Gone are the days when business was heavily protected and subsidized, licences, quotas and restrictions were the order of the day. Now competition is the name of modern business. Businessmen always stand on the brink of a fear to eliminate from the market. They stand on their feet to cut down costs, to eliminate deficiencies and incessant improvement in the quality is order of the day.
But by the competition, consumer is obviously benefitted by the diverse openings of different competitors. According to Michael Porter “aggressive home based suppliers and demanding local suppliers competing domestic rivals will keep each other honest in obtaining government support”. Nowadays, competition is not only from rival firms but also from the ever improving technology.
For example, typewriters have been completely wiped out from the market by the computers. Traditional postage telegrams are at the verge of elimination by the increasing use of Internet services. So, today’s business is witnessing the manifolds competition which was not prevalent in the past.
11. The Rise of the Rural Market:
The rapid growth of the rural market for a number of products is another important development. The developed economies in the world enjoyed the fruit of sustained growth over a longer period of time but now their markets have been saturated due to the limited population. In the search of growth the Multinational Corporations (MNCs) has started looking for the newer avenues.
In the beginning they targeted the underdeveloped and developing nations in their urban areas. In India particularly with the liberalization policy of 1991 of the government of India, so many products were flooded in the Indian markets of genuine prices. This scenario could be witnessed up to 1995-96 but then urban markets of India have also started saturating and the different companies started looking for the newer kinds of market and that was rural market.
Earlier rural market due to certain traditional is cultural barriers was not considered by the marketers but now these markets have become the order of the day where around 70 per cent of the population reside in these areas and contributes hefty percentage in the GDP. So, we can say that business have gone to the every nook and corner of the world.
So, from the above discussion, we can conclude that as far as scope of the business is concerned, it is vast and fascinating. It encompasses the use of latest technology and scientific know-how, it has changed its dimension from just producing and exchange of goods as service industry has given a different direction to it. Literature on this subject is ever-growing.
Numerous books, journals, monographs and research articles are being written and fulfillment on each functional area of the business which have never seen before. Special courses are being conducted by the various universities and institutions on business as it has taken a thoroughly professional shape over a period of time. It has crossed its boundaries across the borders so the managers have to learn how to cope up with the diversities of race, casts, languages, religion and sex, etc.
They have to acquaint different cultures and traditions to be successful in the global market. Therefore, we can say that today’s business is entirely different than that of earlier ones and it poses numerous opportunities as well as challenges to the entrepreneurs.
Key Takeaways:
- A business also encounters the most amazing and challenging job of grappling with so many laws and regulations lay down by the government.
- The formation of bigger size companies have gradually started replacing manual labour in manufacturing process and with the advent of automatic machines, production in bulk has become possible.
A business objective may be defined as the purpose or the reason for the existence of the business in the society. If we analyse the objective of a business, it will provide answer to the question, namely, what is it for? The objective provides the direction towards which all business activities will be directed.
Though profit motive constitutes the primary objective of business activities, it should not lead us to conclude that profit is the sole objective of a business. The objectives of the business are to be laid down keeping in view the prevailing social, economic and political environment. Objectives of a business are multi-dimensional in nature.
They can be classified into four categories, namely:
(1) Economic objectives;
(2) Social objectives,
(3) Human objectives, and
(4) National objectives
These objectives are interrelated in nature.
(1) Economic Objectives:
The economic objectives of a business are discussed below:
(i) Earning of Profits – Profits are needed to provide adequate reward to the entrepreneur and to provide funds for future growth. Entrepreneurship is one of the important factors of production. Just as other factors get their rewards, the entrepreneur must get reward for his efforts and taking of risk. Moreover, every businessman will like to see that the business he is managing should grow. This is possible only if the business earns sufficient profits for investing them into the business for expansion.
(ii) Satisfaction of Customers – The survival of the business depends upon the satisfaction of customers. Thus, the business must aim at winning and satisfying the customers. Peter F. Drucker has rightly said, “There is only one valid definition of business purpose, i.e., to create a customer.” Customers are created through advertisement and sales promotion and delivering them ‘want satisfaction’.
(iii) Innovation – Innovation means developing new technology, new products and their multiple uses. Business cannot succeed without designing new products and finding their new uses.
(iv) Effective Utilisation of Resources – Business requires the use of men, machines and materials which are considered scarce resources. Every business is expected to make the best possible use of these resources. This objective can be achieved by employing efficient personnel, making full utilisation of machines and reducing wastage of raw materials.
(2) Social Objectives:
Social objectives of a business denote its obligations towards various stakeholders including customers, employees, community and the government.
The important social objectives include the following:
(i) Supply of Quality Goods at Fair Prices – The business must supply quality products as desired by the customers. The products should be durable, genuine (not duplicate) and safe. The prices charged for the goods should also be reasonable.
(ii) Adoption of Fair Trade Practices – The business should follow fair business practices at all times. It should avoid anti-social practices like hoarding, black-marketing, over-charging the buyers, etc. It should also not indulge in unfair trade practices like spurious products or misleading advertisements.
(iii) Generation of Employment Opportunities – Every business should grow and expand its operations to create new jobs for the society. Further, a business should employ suitable people without any discrimination based on caste, creed, sex or religion.
(iv) Employees’ Welfare – It is an important responsibility of the business to promote the welfare of its employees. Besides providing fair wages, the business should also provide good working conditions, canteen facility, housing, transport and medical facilities, etc., to the employees.
(v) Community Service – Modern business organisations engage in community service to fulfill their social responsibility and thereby enhance their public image. Community service may be carried out by running dispensaries and schools, encouraging social activities and setting up training centres for the unemployed youths in the backward areas.
(vi) Protection of Environment – Every business house should ensure safety of the local surroundings and the protection of neighbourhood environment. It should take adequate measures to check air, water or noise pollution.
(3) Human Objectives:
A business is directly linked with two important groups, namely, – (a) customers, and (b) employees. Both these groups must have a feeling of having been treated as human beings by the business enterprise. As human beings, customers expect courteous service and fair dealings from the business.
The employees look forward to the business enterprise for the following objectives:
(i) The employees are treated as partners in the business and not as inferior lot; they should get fair wages and healthy working conditions;
(ii) They are able to acquire and develop new skills in the process of employment; and
(iii) They derive job satisfaction.
(4) National Objectives:
These objectives are concerned with the goals of the nation.
Every business enterprise must contribute to the national goals such as:
(i) Achievement of self-sufficiency in production of goods and services,
(ii) Import substitution and export promotion,
(iii) Development of small scale and ancillary industries,
(iv) Development of backward regions,
(v) Economic development of the nation.
Key Takeaways:
- A business objective may be defined as the purpose or the reason for the existence of the business in the society.
- Profits are needed to provide adequate reward to the entrepreneur and to provide funds for future growth.
Business activities may broadly be classified into two categories namely (A) Industry and (B) Commerce. Industry involves production of goods and services whereas commerce is concerned with the distribution of goods and services.
Classification of Business Activity
1. Industry:
Industry is concerned with the making or manufacturing of goods. It is that constituent of production which is involved in changing the form of goods at any stage from raw material to the finished product, e.g., weaving woolen yarn into cloth. Thus, industry imparts ‘form utility’ to goods.
The goods produced may either be used by other enterprises as raw materials for further production, they are known as “producers goods”. The production of plant, machinery equipment etc. are, examples of producers’ goods. When goods are finally used by consumers they are known as consumers’ goods. The examples of such goods are cloth, bread, groceries, drugs, etc.
An enterprise may produce materials which will further be processed by yet another concern for converting them into finished goods. These goods are known as intermediate goods. The examples of this category are—plastics, rubber, aluminium, etc.
Classification of industries:
Industries may be classified as to the types of goods produced, scale of investment and type of technology employed.
I. On the basis of type of goods produced:
The industries may be studied on the basis of the type of goods produced as follows:
(i) Primary and Genetic Industry:
Genetic industry is related to the re-producing and multiplying of certain species of animals and plants with the object of earning profits from their sale. Nurseries, cattle breeding, fish hatcheries, poultry farms are all covered under genetic industry. The plants are grown and birds and animals are reared and then sold on profit. No doubt nature, climate and environment play an important part in these industries but human skill is also important.
(ii) Extractive Industry:
The extractive industry is engaged in raising some form of wealth from the soil, climate, air, water or from beneath the surface of the earth. These industries are classified into two categories. In the first category, workers merely collect goods already existing.
Mining, fishing, and hunting is covered in this category. In the second category’, the goods are to be produced by the application of human skill, i.e., agriculture and forestry. Extractive industries supply basic raw materials that are mostly the products of the soil. Products of these industries are usually transformed into many useful products by manufacturing industries.
(iii) Construction Industry:
This industry is engaged in the creation of infra-structure for smooth development of the economy. It is concerned with the construction, erection or fabrication of products. These industries are engaged in the construction of buildings, roads, dams, bridges, and canals. These industries use the products of other industries such as cement, iron, bricks and wood, etc. Engineering and architectural skills play an important part in construction industry. Engineering and constructing firms are organised for undertaking operations of construction industry.
(iv) Manufacturing Industry:
This Industry is engaged in the conversion of raw materials into semi-finished or finished goods. This industry creates form utility in goods by making them suitable for human use. Most of the goods which are used by consumers are produced by manufacturing industries. These industries supply machines, tools and other equipment’s to other industries too.
The products of extractive industry are generally used as raw materials by manufacturing industry which may be classified as follows:
(a) Analytical Industry:
In this industry, a product is analysed and many products are received as final products. In the processing of crude oil we will get kerosene, petrol, gas and diesel, etc.
(b) Processing Industry:
In this industry a product passes through various processes to become a final product. The finished product of one process becomes the raw material of the receiving process and soon the final process produces the finished goods. In case of cotton textiles, cotton passes through ginning, weaving and dyeing processes to become cloth. Sugar industry and paper industry are other examples of processing.
(c) Synthetic Industry:
In this industry many raw materials are brought together in manufacturing process to make a final product. In manufacturing cement, rocks, gypsum, coal etc. are required. Soap making, paints are the other examples of synthetic industry.
II. On the basis of size and investment:
Industries may further be divided on the basis of their size and investment:
(i) Large Scale Industry:
Though there may not be any hard and fast rule for such classification but government has fixed certain limits on investments which differentiate between large scale and small scale industries. At present the industries investing more than Rs. 3 crore in plant and machinery in manufacturing units and in ancillary units are covered in large scale sector. Large scale units are in a position to use latest methods of production and economize on various inputs.
(ii) Small Scale Industry:
The units having an investment upto Rs. 1 crore in plant and machinery are small units. A small scale unit has the disadvantage of lower production and comparatively higher cost of production.
III. On the basis of technology employed:
Different units use different types of technology. This classification may be as follows:
(i) Heavy Industry:
The industry engaged in the production of machinery, steel, power generation are called heavy industry. These units need heavy .investments and employ complex technology in production.
(ii) Light Industry:
Industries engaged in producing consumer goods etc. arc called light industries. The production technology is simple and machinery used is inexpensive.
2. Commerce:
All those activities which are connected with taking goods and services from producers to users come under the purview of commerce. The goal of commerce is to ensure a proper flow of goods and services for the benefit of both producers and consumers. People are able to buy goods produced anywhere in the world with the help of commerce.
Commerce activities may precisely be described as follows:
(i) Commerce is related to the activities dealing with distribution and exchange of goods and services. These activities relate to trade aspect
(ii) Commerce covers all these activities which smoothen or help trade. These activities are transport, banking, insurance, warehousing, advertising, etc. These are ancillary services and are called aids to trade.
(iii) Commerce is a part of business. Business is a wider concept and includes industry too.
(iv) Commerce is a part of economics. Economics is a study of human beings as consumers and producers and it has a much wider scope than commerce.
Business and Profession:
Business is a sum total of activities pursued with a purpose to produce and accumulate wealth. A profession is also adopted to earn a living. The purpose of both business and profession is to earn a living. Though both look similar yet there is a difference between the two.
Business and Employment:
In employment a person serves an employer under certain agreement and is paid an agreed remuneration. A business, on the other hand, is working for himself and aiming at earning profit out of it.
Key Takeaways:
- Business activities may broadly be classified into two categories namely (A) Industry and (B) Commerce.
- Industry involves production of goods and services whereas commerce is concerned with the distribution of goods and services.
Environment is closely related with business. There is a constant ‘give and take’ relationship between environment and business. The business receives inputs, information and technology from the environment and gives it back in the form of outputs (goods and services).
If these outputs are accepted by the environment, the environment-business interaction continues but if they are unacceptable to the environment, firms adapt to the environmental requirements and change their operations.
The organisation has to look after the interest of stakeholders like shareholders, consumers, workers, suppliers etc. The environment also offers threats and opportunities to which organizations have to respond positively.
Business and environment interaction takes place in the following ways:
1. Business is affected by economic conditions of the environment. During recessionary conditions, for example, firms reduce the production or pile their inventories to sell during normal or boom conditions. Business, on the other hand, can create artificial scarcity of goods by piling inventories and force the economic conditions to show signs of adversity while it is not actually so. Both business and environment, thus, affect and are affected by each other.
2. When financial institutions increase the lending rates, firms may resort to other sources of funds, like bank loans or internal savings (reserves). This may force the financial institutions to lower the interest rates. The financial environment and the business system, thus, act and interact with each other.
3. The firm’s micro environment consisting of workers, suppliers, shareholders etc. affects the business activities and is, affected by them. Workers demand high wages, suppliers demand high prices and shareholders demand high dividends.
Firms reconcile the interests of diverse groups and satisfy their demands. If management resolves these demands, it will be positively affected by the environmental forces but if it fails to satisfy these demands, it becomes a victim of the environment. Growing firms pay high wages and dividends to their workers and shareholders to maintain harmonious industrial relations and a positive business-environment interface.
4. Business receives useful information from the environment regarding consumers’ tastes and preferences, technological developments, Government policies, competitors’ policies etc. and provides useful information to the environment regarding its goals, policies and financial returns. This information is transmitted to environment through annual reports as a requirement of disclosure practices.
5. The basic function of a business enterprise, input-output conversion, is carried through active interaction with the environment. It receives inputs from the environment, converts them into outputs through productive facilities which are also received from the environment and sends them back to the environment. A constant feedback is received from the environment to improve its performance.
6. The environment offers threats and opportunities to business systems which they overcome and exploit through their strengths and weaknesses. SWOT analysis helps in integrating external environment with the internal environment.
The business and environment, thus, have much to give and take from each other. The economy is structured by effective interaction of the business and its environment. The business-environment interaction is a continuous process. It is like a biological organism that keeps environment and management responsive to each other.
The continuous interaction of environment with business leads to new expectations of environment from business (in terms of social responsibilities and business ethics) and business from environment (in terms of regular supply of inputs at reasonable prices). This involves changes in business and environmental policies and leads to new level of business-environment interface or business-environment equilibrium.
Key Takeaways:
- There is a constant ‘give and take’ relationship between environment and business.
- The continuous interaction of environment with business leads to new expectations of environment from business (in terms of social responsibilities and business ethics) and business from environment (in terms of regular supply of inputs at reasonable prices).
Meaning of Social Responsibility
According to concept of Social Responsibility of business the objective of managers for taking decision related to business is not only to maximize profit or shareholder value but also to serve and protect the interest of other members of its society like consumer, worker and community as a whole.
Business and Society
Business and Society are correlated with each other. As business fulfill the needs of society and society gives business the resources required to it. The different businesses operating in society play our important role in functioning of society in different ways like business provide employment to various people of society.
The basic objective of business enterprise is to develop, produce and supply goods and service to customer. This need to be done in such a way which allowed companies to make profit, that in turn demands far more than just skills in companies on fields and processes. The social skills of owners of companies, together with maintain relationship with customers, suppliers and business people, are always important if companies want be run well and developed with view to future.
Benefits by companies to society
1. Supply goods and service which customer can’t or do not want to produce themselves.
2. Creating jobs for suppliers, co-workers, customer and distributor. This people make money to support themselves as well as their families, use their wages to purchase goods and service and pay taxes.
3. Continually developing new process. Goods and service.
4. Investment in new technologies as well as in the skills of employees.
5. Building up as well as spreading international standards, for example environmental
practice.
6. Developing good practice in different areas such as environment and workplace safety.
The role of business in societal development can be measure in many ways. If company wants to progress and develop, it must nurture relation with its stakeholder, of which there may be plenty. Some have a strong influence and are of fundamental importance for the survival of the business; this includes customer, suppliers and employees. The authorities, media, local resident and trade union are others stakeholders with a vital influence. The role of business in society as well as accompanying responsibility that transpire from that role is highly contentious and debated topic. The long term survival of companies is partly dependent on maintaining the relationship of trust. The economist Milton Friedman famously contended that the “business of business is business” and because of which it has only one responsibility and that is to generate profit for shareholder. In the contrary of that argument is thinking that recognizes business as a system in society which affected by and affects other system in society, for example government body, natural environment, surrounding community other types of organization etc. Thus, business required to work with this system to attain its economic goals. In a way that will also benefit the society as whole.
Concept of Social Responsibility
The evolution of the concept of social responsibility of business has passed through different stages of struggle. Business began merely as an institution for the purpose of making money. As long as a man made money and kept out of jail, he was considered successful. He felt no particular obligation and acknowledged no responsibility to the public. As an owner of his business, he thought that he had a perfect right to do with it what he pleased. Social norms and attitudes had very little influence on the practice of business.
Economic Responsibility
What is a business? The business itself is an economic activity. Its main function is to earn profits. To earn profits means to understand the needs and demands of consumers whether it is regarding the quality of the product or its price. While understanding the perspective of the consumer and meeting their needs and demand to earn a profit is the economic responsibility of a business. When a business earns a profit, it also means that the employees earn the profit in terms of incentives. The economic growth of a business is not restricted to it but affects the society as a whole.
Legal Responsibility
Legal responsibilities are not only liable to the individuals in the society but also to the businesses in the society. As business is an entity itself, it must also follow laws and rules. Every business has a responsibility to operate within the boundaries set by the various commissions and agencies at every level of the government. These rules and regulations are set for maintaining balance and the greater good of the society. A law-abiding enterprise is a socially responsible enterprise as well. The business is free to do business however it wants but only within the boundaries of regulations of various laws such as labour law, environmental law and criminal law. For example, it’s a business’s duty to pay taxes to the government and keep its account books clean as it helps the government to track the economic state of the company.
Ethical Responsibility
Ethical responsibilities include the behaviour of the firm that is expected by the society but not codified in law. The factors of ethical responsibility include that the business must be environmentally friendly. The business should always be aware of its activities and how do they affect the environment. It is the moral and ethical responsibility of every human and every business.
Philanthropic Responsibility
Business is one the most important pillar of the society. And therefore it should support and improve the society whenever it can. If a business is making significant profits it is the business responsibility that it should be philanthropic towards the society by donating funds or its goods and services. It’s the philanthropic responsibility of the business to help different groups of the society. It should also work towards providing free education by opening educational institutes and training institutes or helping the people affected by natural calamities such as floods and earthquakes. It is the responsibility of the company management to safeguard the capital investment by avoiding speculative activity and undertaking only healthy business ventures which give good returns on investment.
Importance of Social Responsibility
A growing body of evidence has identified a company’s role in its community as a factor in increasing profitability, promoting company image, reducing costs, and elevating employee morale and customer loyalty, among other benefits. Interesting aspect of social responsibility in the modern era is that, being socially responsible is not a matter of choice to a very large extent. It has become a business compulsion. Behaving in a socially responsible manner gives business benefits to organizations. It may involve costs in short run but has proved beneficial in the long run.
For companies operating on a multinational basis, community involvement can be helpful in supporting efforts to enter new markets, attract potential employees, and establish or strengthen the reputation of the company, its brand and products. Social responsibility of business is important from the following point of view.
1. From employees’ point of view: with the help of companies employment and healthy working condition, social responsibility of business is important for employees.
2. From Customer point of view: under social responsibility, business follows ethical practice and manufacture the product which is as per expected quality and reasonable price.
3. From investor point of view: business who understand value of social responsibility is provide protection to the investor fund with help of development and growth of its business as well as expected return to investors with profit earn by it.
4. From Suppliers point of view: the importance of social responsibility is also require to perform in case of suppliers as they are one to provide raw material to business as well as other required material. When they are paid on time as well as reasonable demands of them are satisfied company, suppliers are loyal to business.
5. From government point of view : when business pay regular taxes, follow the norms of government then it is consider as social responsibility of business which is duly fulfill by it.
6. From Society point of view: business need to work in society, some importance of social responsibility is also define from society point of view. The business provide good product, try to maintain clean environment, provide opportunity to participate to business as well as work for the overall development of society, these are the some example of it.
Key Takeaways:
- Business and Society are correlated with each other. As business fulfill the needs of society and society gives business the resources required to it.
- The role of business in societal development can be measure in many ways.
References:
- Business Organization a Management by P.C. Tulsian
