UNIT I
INTRODUCTION
Business is a broad term and signifies all economic activities undertaken with a profit-earning motive. It may involve procurement, production, exchange distribution etc. of goods and services.
According to B.O. Wheeler, “Business is an institution organized and operated to provide goods and services to society under the incentive of private gain.”
According to Sec.2 (13) of the Income Tax Act, 1961, “Business means any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture.”
In the words of Boono & Krutz, “Business comprises all profit seeking activities and enterprises that provided goods and services necessary to an economic system. It is the economic pulse to a nation striving to increase society’s standard of living. Profits are a mechanism for motivating these activities.”
Business includes repeated exchange of goods and/or services with the view to earn money. It includes many activities like manufacturing, trading, transportation, banking, insurance, warehousing, finance etc.
Nature of Business
The nature of business is best understood on the basis of its characteristics or features which are as follows:
i. Business is an economic activity
ii. It includes the activities of production or purchase and distribution.
iii. It deals in goods and services.
iv. It implies regularity of transactions.
v. It aims at earning profits through the satisfaction of human wants.
vi. It involves risk; it is not certain that adequate profit will be earned.
vii. It creates utilities.
viii. It serves a social purpose by improving people’s standard of living.
Scope of Business
Following is the 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 The production philosophy has been replaced by the marketing philosophy where the production is being done by knowing the need of the consumers first and then demand is created.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.
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: 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.
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.
Key Takeaways:
- Business includes repeated exchange of goods and/or services with the view to earn money. It includes many activities like manufacturing, trading, transportation, banking, insurance, warehousing, finance etc.
- Business involves risk.
- 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.
- With the advent of globalization, advanced technology, rise in rural market, diversified work force etc., the scope of business has widely expanded.
A business system is a combination of policies, personnel, equipment and computer facilities to co-ordinate the activities of a business organisation. It establishes the rules and procedures of that organisation, which are to be governed. Business system decides how data must be handled and is methodically processed. It also controls the procedures of the processed data and the results to be displayed. For e.g. a system may automatically order parts for an inventory, monitor future corporate profits or post credit card sales to the on line customer accounts. The overall nature of the business system will reflect the efficiency of its designersWhen we apply defined principles and practices to the systems and processes that deliver value to our customers, we’re creating what is often referred to as a “business system.” A business system is designed to connect all of an organization’s intricate parts and interrelated steps to work together for the achievement of the business strategy. Creating effective business systems often unifies the problem solving and decision making of the organization. The business system also encompasses how we lead our people and connect them to the operational strategy.
There are several reasons to implement a business system. Some of these are discussed below:
i. Improving Top-Line Performance: A business system takes care of the future. It ensures that customers’ expectations and brand are improved, which are key to growing a healthy business. Use of a systematic approach leads to constant supply of information on such areas that needs to be improved.
ii. Meeting Customer’s Expectations: Using a systematic approach helps the organization in analyzing, measuring, comparing and testing customers’ wants.
iii. Consistent Results: The business system gives a “process to fix the processes.”
Whether we are considering safety, quality or getting the job done in a timely manner, a business system is designed to give effective, efficient and repeatable results.
iii. Employee Engagement: The goal of the system is to enable proper education and opportunities to all employees so they can complete their work more efficiently and effectively. Moreover, having a system enables the organization in recruitment and training of staff and makes it easy for employees to learn their role and come up with new ideas.
iv. Reduce Cost and Increase Profits: The implementation of a sound business system helps reduce costs..
The objectives of business system are:
1. To meet the user and customer needs.
2. To cut down the operating costs and increase savings.
3. To smooth the flow data through various levels of the organisation.
4. To speed up the execution of results with the reliable data available in a system.
5. To handle data efficiently and provide timely information to the management.
6. To establish the most desirable distribution of data, services and equipment’s throughout the organisation.
7. To define a proper method of handling business activities.
8. To eliminate duplicated, conflicting and unnecessary services.
Key Takeaways:
- A business system is a combination of policies, personnel, equipment and computer facilities to co-ordinate the activities of a business organisation.
- It establishes the rules and procedures of that organisation, which are to be governed.
- Business system decides how data must be handled and is methodically processed
A business objective may be defined as the purpose or the reason for the existence of the business in the society. 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 is an integral part of modern society. It is an organized and systematized activity for profit. It is concerned with activities of people working towards a common goal. The modern society cannot exist without business. The need and importance of business in society can be described as follows:
1. Improvement in standard of living: Business helps people in general to improve their standard of living.
2. Proper utilization of resources: It leads to effective utilization of the scarce resources of society. It provides facility of mass production.
3. Better quality and large variety of goods and services: It involves production, purchase and sale of goods and services for price. Customer’ satisfaction is the backbone of modern business. Services such as supply of water, electricity etc. may be considered highly significant for the community.
4. Creates utilities: Business makes goods more useful to satisfy human wants. It adds to products the utilities of person, time, place, form, knowledge etc. Thus, people are able to satisfy their wants effectively and economically.
5. Employment opportunities: It provides employment opportunities to large number of people in society.
6. Workers’ welfare: Business organizations these days take care of various welfare activities for workers. They provide safer and healthier work environment for employees.
Key Takeaways:
- The modern society cannot exist without business.
- Business provides regular supply of quality goods and services.
- It creates employment opportunities for people.
- It creates utilities and ensures welfare of its workers.
- Business improves the standard of living of people in the society.
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 industries engaged in the production of machinery, steel, power generation are called heavy industries. 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.
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.
Social responsibility of business implies the obligations of a business enterprise to protect the interests of the society. According to the concept of social responsibility, the objective of managers for taking business decisions is not merely to maximize profits or shareholders’ value but also to serve and protect the interests of other members of a society such as workers, consumers and the community as a whole.
Thus, Sachar Committee on Companies and MRTP Acts appointed by Government of India states, “In the development of corporate ethics we have reached a stage where the question of social responsibility of business to the community can no longer be scoffed at or taken lightly. In the environment of modern corporate economic development, the corporate sector no longer functions in isolation. If the plea of the companies that they are performing a social purpose is to be accepted, it can only be judged by the test of social responsiveness shown to the needs of the society”.
It may be noted that some Indian sociologists and economists relate the idea of social responsibility of business to the Gandhian concept of trusteeship. According to Mahatma Gandhi, capitalist class owns wealth or capital as trustees of the society. The resources and capital they use for production of goods and services, according to him, should be used not to maximize profits for them but for the larger benefit of the society.
The concept of social responsibility as used in management science is that businesses should maximise their profits subject to their working in a socially responsible manner to promote the interests of the society. Their business activities should not harm other groups such as consumers, workers, and public at large. Working in harmony with the community and environment around us and not cheating our customers and workers we might not gain anything in the short run but in the long term it means greater profits and shareholders’ value’.
Let us discuss the responsibility of business towards various stakeholders.
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. Its special responsibility is that in its efforts to increase profits or shareholders’ value it should not pollute the environment.
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 recognize 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.
However, it may be noted that very few companies in India follow many of the above good practices. While the captains of Indian industries generally complain about low productivity of their employees, little has been done to address their problems. Ajith Nivard Cabraal rightly writes, “It should perhaps be realised that corporations can only be as effective and efficient as its employees and therefore steps should be taken to implement such reforms in a pro-active manner, rather than merely attempting to comply with many labour laws that prevail in the country. This is probably one area where good governance practices could make a significant impact on the country’s business environment.”
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.
The following responsibilities of business enterprises to consumers are worth mentioning:
1. They should supply goods or services to the consumers at reasonable prices and do not try to exploit them by forming cartels. This is more relevant in case of business enterprises producing essential goods such as life-saving drugs, vegetable oil and essential’ services such as electricity supply and telephone services.
2. They should not supply to the consumers’ shoddy and unsafe products which may do harm to them.
3. They should provide the consumers the required after-sales services.
4. They should not misinform the consumers through inappropriate and misleading advertisements.
5. They should make arrangements for proper distribution system of their products so as to ensure that black-marketing and profiteering by traders do not occur.
6. They should acknowledge the rights of consumers to be heard and take necessary measures to redress their genuine grievances.
Despite the above responsibilities which are generally regarded as good marketing practices by management experts the business enterprises in India generally do not pay heed to them and as a result consumers are dissatisfied or disappointed in a large number of cases. There has been a growing awareness of consumer rights.
The organised movement to protect consumer rights which is termed as consumerism has been the result of the negligence of business enterprises to their responsibilities to consumers. Besides, due to the indifferent attitude of business enterprises to consumer rights, Government has been compelled to enact Consumer Protection Act to protect consumers’ rights and to prevent their exploitation by the businesses.
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.
In economic theory pollution of environment is regarded as social cost that must be minimised. There is now a growing awareness towards reduction in environment pollution. According to the recent findings the climate change is occurring due to greater emission of carbon dioxide and other pollutants.
Therefore, the corporate enterprises should adopt high standards of environmental protection and ensure that they are implemented regardless of enforcement of any environment laws passed by the government. Many countries including India have passed laws to protect the environment but they are not properly and strictly enforced.
Business enterprises in their attempt to maximise profits recklessly and negligently pollute the environment. Therefore, it is required that government should take tough measures and enforce environment laws strictly if environment is to be protected.
5. Responsibility to Society in General:
Business enterprises have a lot of responsibility to the society at large.
1. Suppling goods and service which customer can’t or do not want to produce themselves.
2. To take appropriate measures to reduce level of pollution and adopt eco-friendly technologies.
3. To generate sufficient employment opportunities so as to make good contribution to the reduction of poverty in the country.
4. Respect the rights of workers and other employees and take appropriate measures to ensure their safety and to improve their working conditions.
5. To provide quality healthcare to their employees.
6. To invest adequately in the research and development so as to make innovations to improve their productivity.
7. Continually developing new process, goods and services.
8. Investment in new technologies as well as in the skills of employees.
9. Building up as well as spreading international standards, for example environmental practice.
10. Developing good practice in different areas such as environment and workplace safety.
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. In fact in such imperfect market conditions, consumers are exploited by raising of prices much above the cost of production, workers are exploited as they are not paid fair wages equal to the value of their marginal product. Besides, there are harmful external effects to which are not given due considerations by private enterprises in making their business decisions. Therefore, there is urgent need to make business enterprises behave in a socially responsible manner and to work for promoting social interests.
Key Takeaways
- Social responsibility implies that corporate enterprises should follow business ethics and work for not only to maximise their profits or shareholders’ value but also to promote the interests of other stakeholders and the society as a whole.
- Business and Society are correlated with each other. As business fulfill the needs of society and society gives business the resources required to it.
- Business has responsibilities towards different stakeholders such as consumers, employees, government, shareholders and the society as a whole.
Values and ethics in simple words mean principle or code of conduct that govern transactions; in this case business transaction. These ethics are meant to analyse problems that come up in day to day course of business operations. Apart from this it also applies to individuals who work in organisations, their conduct and to the organisations as a whole.
We live in an era of cut throat competition and competition breeds enmity. This enmity reflects in business operations, code of conduct. Business houses with deeper pockets, crush small operators and markets are monopolized. In such a scenario certain standards are required to govern how organizations go about their business operations, these standards are called ethics.
Business ethics is a wider term that includes many other sub ethics that are relevant to the respective field. Business ethics in itself is a part of applied ethics; the latter takes care of ethical questions in the technical, social, legal and business ethics.
Origin of Business Ethics
When we trace the origin of business ethics we start with a period where profit maximisation was seen as the only purpose of existence for a business. There was no consideration whatsoever for non-economic values, be it the people who worked with organisations or the society that allowed the business to flourish. It was only in late 1980’s and 1990’s that both intelligentsia and the academics as well as the corporate began to show interest in the same.
Nowadays almost all organisations lay due emphasis on their responsibilities towards the society and the nature and they call it by different names like corporate social responsibility, corporate governance or social responsibility charter. In India Maruti Suzuki, for example, owned the responsibility of maintain a large number of parks and ensuring greenery. Hindustan unilever, similarly started the e-shakti initiative for women in rural villages. Many organisations, for example, IBM as part of their corporate social responsibility have taken up the initiative of going green, towards contributing to environmental protection. It is not that business did not function before the advent of business ethics; but there is a regulation of kinds now that ensures business and organisations contribute to the society and its well being. Nowadays business ethics determines the fundamental purpose of existence of a company in many organisations.
Key Takeaways
- Certain standards are required to govern how organizations go about their business operations, these standards are called ethics.
- Values and ethics in simple words mean principle or code of conduct that govern transactions; in this case business transaction
References:
- Tulsian, P.C. Business Organization and Management, Pearson Education, India (2002). Pp. 671.
- Dam, B.B., Choudhury, R.N., Nag, R & Dam, L.B. Company Law, Gayatri Publications, Guwahati, Assam (2020).
- Wason, V. Textbook of Business Studies, S.Chand, New Delhi (2010)
