Business Environment Final

Mahmodul Hasan Tutul, Dept. of Marketing, RU.
01717-211994
1
Chapter one
Contents of this chapter
1.
2.
3.
4.
5.
6.
What is marketing environment?

Types of marketing environment.
Discuss the influence of natural environment on business.
Environmental influence in marketing.
Socio economic model of business and society.
Difference between economic and socio economic model.
What do you mean by marketing environment?

Marketing environment consists of the actors and forces outside
marketing that affect marketing managements ability to build and
maintain successful relationships with customers. By carefully
studying the environment, marketers can adapt their strategies to
meet new marketplace challenges and opportunities. Like Grameen
Phone companies constantly watch and adapt to the changing
environment. To compete with the competitors in the competitive
market, marketers should have update information and vast
knowledge about the marketing environment to take the effective
marketing strategies.
Types of marketing environment
A companys marketing environment consists of the actors and
forces outside marketing that affect marketing managements ability
to build and maintain successful relationship with target customersMarketing environment is made up of microenvironment and
microenvironment.
a. Microenvironment: The microenvironment consists of the actors
close to the company that affect its ability to serve its customers the company, suppliers, marketing intermediaries, customers
markets, competitors and public which are discussed in below-
Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

2
1. The company: In designing marketing plans, marketing

management takes other company groups into account - groups such
as top management, finance, research and development, purchasing,
operations and accounting. All these interrelated groups form the
internal environment.
2. Suppliers: Suppliers form an important link in the companys
overall customer value delivery system. They provide the resources
needed by the company to produce its goods and services. Marketing
managers must watch supply availability - supply shortages or delays,
labor strikes, and other events.
3. Marketing intermediaries: Marketing intermediaries help the
company to promote, sell and distribute its goods to final buyers.
They include reseller, physical distribution firms, marketing service
agencies and financial intermediaries.
4. Customers: The Company needs to study five types of
customer markets closely. These are consumer market, business
market, reseller market, Govt. market and international market. Each
market type has special characteristics that call for careful study by
the seller.
5. Competitors: The marketing concept states that to be
successful, a company must provide greater customer value and
satisfaction than its competitors do. They must gain strategic
advantage by positioning their offerings strongly against competitors
offering in the minds of consumers.
6. Publics: A public is any group that has an actual or potential
interest in or impact on an organizations ability to achieve its
objectives. The company has to design an offer to this public that is
attractive enough to produce the desired response.
b. Macro environment: Macro environments consist of the larger
societal forces that affect the microenvironment- demographic
economic, natural, technological, political and cultural forces. Which
are discussed below-

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1. Demographic environment: Demography is the study of

human populations in terms of size, density, location, age gender,
race, occupation, and other statistics. The demographic environment
is of major interest to marketers because its involve people and
people make up markets.
2. Economic environment: The economic environment consists
of factors that affect consumer purchasing power and spending
patterns. Marketers must pay close attention to the consumers
purchasing power and consumer spending patterns both across and
within their world markets.
3. Natural environment: The natural environment involves the
natural resource that are needed as inputs by marketers or that are
affected by the marketing activities. Marketers should be aware of
several trends in the natural environment.
4. Technological environment: The technological environment is
perhaps the most dramatic force now shaping our density.
Technological environment is the forces that create new technologies,
creating new product and market opportunities.
5. Political environment: Marketing decisions are strongly
affected by developments in the political environment. The political
environment consists of laws, government agencies and pressure
groups that influence and limit various organizations and individuals
in a given society.
6. Cultural environment: The Cultural environment is made up of
institutions and other forces that affect a societys basic values,
perceptions, preferences, and behaviors. People grow up in a
particular society that shapes their basic beliefs and values.
As a marketing manager, he should know how to take the
opportunities of marketing environment and how to overcome it.
Discuss the influence of natural environmental on business

4
Natural environment consists of natural resources that are needed

as inputs by businessmen that affect the marketing activities. Natural
environment can influence the business in terms of both positively
and negatively. The influence of natural environment on business are
discussed belowa. Positive influence of natural environment on business: As
natural environment determine the living standard of people, their
consumption patterns and what types of product and services should
be produced or marketed. As it affects standard of living, consumption
pattern and production patterns, so it affects the marketing activities
directly. Natural environmental factors that are favorable for the
business are discussed in below.
1. Supply of raw materials: Most of the industries are dependent
on nature for their raw materials. For example- Paper industry needs
fiber stick and woods as raw materials, so we get the availability of
raw materials from nature.
2. Reducing energy cost: For production we need energy which
mainly comes from nature. Energy may also comes from artificial
sources which is costly than natural resources. For exampleelectricity which comes from natural gas is cheaper than the
electricity which comes from artificial like generator.
3. Location of an industry: Natural environment determines the
location of an industry. If the industry is not located in suitable place
then the production cost will be higher because of higher cost of
factors of production. For example - most of the sugar mills are
located in Rajshahi division because the raw materials for producing
sugar that is sugar cane are available in Rajshahi.
4. Criteria of production: Weather influences the business
greatly. For example production in old country is different from warm
country.
All these are the positive effect of natural environment on business.
b. Negative influence of natural environment on business:
Natural environment threaten the activities of business in many ways-

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1. Shortage of raw materials: For natural disaster, production of

raw materials is hampered; hence, supply of raw materials is not
available. So, it increases the cost of raw materials and also increases
the production cost. Shortages of raw materials are increasing day by
day because of natural disasters.
2. Increase energy cost: Due to some environmental changes,
the production and supply of energy are decreased which causes the
increase in energy cost. To produce product and services energy is
needed. So, because of increase in energy cost, the cost of production
is increasing. As a result the price of products is also increasing which
is creating problems for the business.
3. Cost of Research and Development: Public needs and
expectations are always changing with the change in natural
environment. To adapt the business decision with this change,
company has to emphasis on Research and development. For this
huge cost is required.
4. Increased packaging cost: Natural environment influence the
packaging system. To develop the packaging system, cost of
packaging is increased. For example few years ago polythene bags
were used for packaging, which was prevented by the
environmentalist and government, because it causes pollution. So,
now we have to use paper bags or jute bags, which is costly than
polythene.
5. Disposal cost of hazardous waste: In industrial production to
produce products, it is bound to produce waste which is harmful for
environment. So, under the pressure of world and from their
responsibility they have to (company) dispose the waste which is
produced by them. But it requires huge cost.
Because of environmental affect on business, the costs of
production are increasing. As a result the price of product is also
increasing. This is creating problem for the business to compete in the
international market.

6
From the above discussion, we can say that natural environment

influence the business in many ways. Business cannot run its
operation without considering natural environment.
Environmental influence in Marketing
Marketing activities are greatly influenced by the environmental
factors. Environmental influence in marketing are discussed in below1. Production: Production fully depends on the environment. If the
environment is not favorable, productions will be hampered. On the
other hand more favorable environment causes the increase in on
more production.
2. Price: Price level depends on the production cost and govt. tax.
Production cost and govt. tax depends on the factors of production
and govt. So, if the govt. activities are favorable to business and
factors of production are available then price of product will be low.
On the contrary unavailability of raw materials and production factors
and high indirect tax may increase the price level.
3. Distribution: Modern business concept requires better service
for customer. Proper distribution of product and services is possible
only when, there exist good communication and transportation
system. As an example, in Africa, there are some remote areas, where
people do not get their basic needs for live, due to poor
communication system.
4. Marketing promotion: Marketing promotional mix includes
advertising, sales promotion, public relation, and selling, each of them
is greatly influence by environment. For example in an Islamic country
it is restricted to advertise of win for its promotion.
5. Marketing cost: Marketing cost depends on the channel level,
competition, and distribution, each of its cost is determined by
marketing environment. Marketing cost may higher if there exist high
channel level and competition and high distribution cost.

7
6. Marketing strategy: Before taking strategy company should

consider its environmental factors. If the strategy goes against the
social beliefs then the company should give up these types of
straggly.
7. Marketing planning: Marketing planning indicates when, who,
where and how the marketing activities will be done. To do it, one has
to think about the environmental factors, otherwise, it will go vain.
8. Total industry and company sales: Industry and company
sales affected by environment in various ways. Such as natural
calamity, political disturbance and war may the causes of decrease in
industry and company sales.
At last we can say that every step of marketing activities is greatly
influenced by the environmental factors.
Differences between Economic model and socio economic
model.
Some differences between the developing socioeconomic model
and traditional model are shown in the following figure.Economic model
Exploitation of resources.
Socio Economic model

Conservation
of
resources
and
harmony with nature.
Market decision.
Some community controls on market
decision.
Economic
return
on Balanced economic and social return
resources.
on resources.
Individuals interest.
Community interest people working in
system interdependence that requires
co-operation.
Business as primarily a Business as primarily an open system.
closed system.
Minor role for govt.
Active govt. involves.
Production
Quality of life.
An important point is that the earlier model emphasis on
production of material goods, but the new model focus on a much

8
broader concern for the quality of life. In seeking production the

economic model emphasis on exploitation of resources, but the newer
model is more concerned with conservation of resources and harmony
with nature. The earlier model largely depends on market decision
when they are seen as inconsistent with community goals. Simple
economic efficiency gives way to balanced economic and social return
on resources so that a broader range of human need is served.
The economic model also focused on individualism, but the socio
economic model gives recognition to system interdependence
requiring some areas of co- operation.
In the economic model business primarily was closed system (free
of govt. interference); but in the newer model system, business is
primarily an open system expecting govt. and community
involvement.
Clearly the socioeconomic model is broader and more open than
economic model.
Chapter Two
1. What is social system?
2. Arguments for social involvement.
3. Arguments against social involvement.
4. Social interaction business and society an interactive
system.
5. Interactive model of business and society.
6. Social challenges to business.

9
Arguments for social involvement

Arguments for social involvement relate to potential benefits for
society and for business. Because of social involvement business and
also society get some benefits which are as follows1. Changing public needs and expectations: One of the most
potent arguments for social involvement is that changing public needs
have led to changing expectations of business. Increased social
response is necessary in order to narrow the gap between
expectations and response and keep business in tune with society.
Since public expectation are changing, it follows that business is
required to move toward more social involvement in order to be
accepted and successful.
2. Moral obligation: This argument includes the view that
business is a member of society in the same way that all persons and
other institutions are members. Acceptance of that membership
requires that it must act responsibly in order to maintain the moral
system and preserve the interest of other members.
3. Discouragement of further government regulation: Some
government regulation may reduce freedom of both business and
society. In the case of business, regulations tend to add economic
costs and restrict flexibility in decision making. From business point of
view, freedom in decision making allows business to maintain
initiative in meeting market and social forces. Therefore, if business
by its own socially responsible behavior can discourage new
government restrictions; it is accomplishing a public good as well as
its own private good.

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4. Balance of responsibility with power: Business has large

amounts of social power. It affects the environment, consumers,
community conditions and many other areas of society. In turn, an
equal amount of responsibility is required to watch its power, because
any other arrangement would invite irresponsible behavior that would
reduce the public good. In other words, responsibility is a necessary
corresponding with power.
5. System interdependence requires social involvement:
Social system is so complex and interdependent that almost any
internal act of business has some influence on the external world. In
ancient times the social system was a rather simple but modern
society is more complex and interdependent. The petroleum refinery
that makes candle wax is so interwoven with society in terms of its
social effects that it must be concerned about the environment,
minority employment, and a host of other social issues, they must
show concern about their external influences on the system.
6. Stockholder interest:
Another argument for social
responsibility is that it is in the interest of the stockholder for business
to engage in certain kinds of responsible behavior, as they are the
part of society.
7. Problems can become profit: If business innovative ability
can be turned to social problems, many problems could be handled
profitably according to traditional business concepts. It is recognized
that not all problems can be handled in this way, but the fact that
some can be so handled should encourage business to become more
active in social areas. For example Chemical companies have found
that they can reclaim some wastes at a profit and other companies
are examining similar profit possibilities.
8. Public image: Social responsibility improves the public image
of business. Every firm tries to enhance public image so that it may
gain more customers, better employees, and other benefits. It is easy
to extend this public image concept to the accomplishment of various
types of social goals. A favorable image is also important in a firms
money markets. For example some banks have established policies
that they will not make business loans for projects which cause
substantial pollution.

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9. Let business try: Many institutions may fail in handling social

problems, so why not turn to business. Many people are frustrated
with the failure of other institution and in their frustration they are
turning to business. Give business a try, May be it can come up with
some ideas.
10. Prevention is better than curing: If business delays dealing
with social problems now or later it may difficult to deal. Since these
social problems must be dealt with at some time, it is actually more
economical to deal with them now before they develop into serious
social break downs that consume most of managements time.
11. Better environment for business: Social responsibility
creates a better environment for business. A better society produces
environmental conditions more favorable for business operation. The
firm which is most responsive to improvement of community quality
of life will as a result has a better community in which to conduct its
business.
Arguments against social Responsibility
Arguments against social responsibility for business are given below1. Profit maximization: The most powerful argument against
social responsibility is the classical economic doctrine/policy of profit
maximization. The doctrine (principle) explains that business produce
a public good when it reduces costs and improves efficiency in order
to maximize profit. Business function is economic not social. It
responsibility is to conduct the business in accordance with their
desires, which generally will be to make as much money as possible
while conforming to the basic rules of the society.
2. Threat to business primary purpose: Another argument is
that involvement in social goals might threat to business primary
purpose, and weaken business in the marketplace, with the result that
it would accomplish poorly both its economic and its social roles. This
means that society would get less productivity and that the
economics role of business in society would become confused.

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Similarly, social goals also would be inadequately achieved, leaving

society the poorer both socially and economically.
3. Business costs of social involvement: Another argument is
the excessive business costs of social involvement. Business has very
significant economic resources, but it must use wisely. Business
should not invest major economic resources for social responsibility
unless the costs of these resources are paid by government or other
institutions. If business is pushed into social obligations, these
additional costs will drive out marginal firms in various industries.
4. Cost to society for social responsibility: Some persons may
be misled about who will pay the costs of social involvements cost.
They think that business will pay while they receive the benefits
free As a matter of reality; they (customers) will pay, because
business will try to add these costs to the price. If the public know
that it would have to pay the costs, and if it knows how high the true
costs were, it would not demand many of the actions that it is now
demanding.
5. Weekend international balance of payments: If social
programs add to business costs, then these costs must be recovered
and generally they will be added to the price of the product, similarly,
if social actions reduce economic efficiency, then this lower efficiency
is likely to lead to higher costs and prices. It these firm compete in
international markets with others firm, then they will be a competitive
disadvantages and they will have fewer sales leading to a weakened
international balance of payments.
6. Business has enough power: Business has already enough
social power; therefore, society should not give it more. Business
influence is felt throughout society. The process of combining social
activities with the established economic activities of business would
give business an excessive concentration of power. This concentration
of power would threaten the pluralistic division of powers.
7. Lack of social skills: An additional argument against social
involvement is that many business leaders may lack the perceptions
and skills to work effectively with social issues. It is said that their
outlook and their abilities are primarily economic. They really do not

13
feel at home in the social area, because it involves acts that go by

different rules.
8. Lack of accountability: Businessmen have no direct lines of
accountability to the people; therefore, it is unwise to give
businessmen responsibility for areas where they are not accountable.
Accountability should always go with responsibility, and it is poor
social control to allow any other kind of arrangement.
9. Divided support: If business does become socially involved, it
will create so much friction among competitors that business cannot
perform its social assignment. Divided support for business social
involvement means that it will operate somewhat in a hostile
environment which could cause it to fail in its social mission and also
cause disastrous side effects.
Business and society an interactive system.
Business is normally conducted within a social network. The social
networks- both internal and external close around the business firm.
Business cannot escape from society and society cant exist without
business. Business is a part of society and society penetrates far and
often into business. In spite of the close relationship of business to
society, not all business ties to society are the same. Some are
directly related to a companys main functions and some are indirectly
related to a companys functions in society. So the relationship
Wholesociety are categories
between business and
Employ
into two types. Such as.
sellers
ee
&
retailer
s
relationship
(unions)
Stockholder
s
1. Internal
2. External relationship
1. Internal relationship: A Business

businesss primary involvement with
firm
society includes
all the direct relationship
which is called internal
Competit
(Owners;
ors
relationship necessary for it tomanagers)
perform its major mission of producing
goods and services for society. To carry out its primary mission in
society, it must interact with all the below groups.
Custo
mers
Credito
rs
Suppli
ers

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Distribute
products
sell
labour
Invest capital
Compete
money
Buy products
sell
lend
materials
a. Employees: Employees are the part and parcel of the business.

Business cannot run without the employee. Employee provides their
labor to the business. Employees contribute their work skills in the
business.
b. Stock holders: Business firms collect their funds from the
stockholders.
c. Creditors: Creditors provide capital for the business firm.
Business firm enrich their capital fund by the creditors money.
d. Wholesalers and retailers: Wholesalers and retailers help to
move the product from the plant to sales outlets and on to
consumers.
e. Suppliers: Business firm need raw materials and energy to
produce a product. Suppliers sell raw materials, energy, and other
needed supplies to the business.
f. Competitors: Most companies compete with others who are
selling identical or similar products and services. Because of
competitors business firm have to pay greater facilitates to the
customers.

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g. Customers: In modern world customers are the boss of the

business. All business firms need customers willing to buy what is
produced for sale.
2. External relationship: Social groups who are not directly related
to the business is called external group and the relationship with
these groups is called external relationship.
Public
Opinion
Business
Support
Groups
Local
Communities
Local
Communities
Business
Firms
Foreign
Government
Media
Social
activities
group
a. Local communities: Many people get job in business

organization. Social environment has a great impact on business
organization.
b. Local government: Local govt. imposed some rules and
regulations on business organization which has great impact on his
functions. Business organizations have to pay taxes for their income.
c. Foreign governments: Two types of relationship such as
friendly and hostile may exist between foreign governments and
business organization which has positive and negative impact on the
business.
d. Social activities groups: Social activities groups like churches,
environmentalists, and minorities impact the business functions and
its products demand.

16
e. Media: Media like films, newspaper, TV, radio, magazines etc.

impact the consumers behavior and consumer behavior impact
business.
f. Public opinion: Public opinion may be positive or negative for
the business.
g. Business support group: Business support group like chamber
of commerce, Trade association etc help the business in different
ways. Business support groups advice the business and help them to
research.
The fundamental/ major social challenges to business
In interacting with society, business faces six fundamental social
challenges, these challenges or opportunities- run in continuous way
through all business and society relations. Each of these social
challenge are discussed below1. Achieving Ecological Balance: Industrial production is bound
to produce waste and pollution, along with needed goods and
services. The social challenge to business in an industrial society
therefore is not to stop pollution and waste but to reduce its volume
and to lessen its burden on society. Industrial society should achieve a
sound ecological balance between nature and industrial production.
2. The human element at work: A second challenge for business
is utilizing human skills and talents for productive work while
protecting human dignity and health at the same time. Because work
is done by people an enormous number of complex social problems
occur in the work place. Safeguarding, an employees privacy,
allowing a greater degree of employee participation in business
decision making & job opportunity for minority and women a safe and
healthier job environment and security in ones present job and in
ones retirement years are the social challenges for the business.
3. Improving productivity: Productivity is an input and out
relationship. Productivity can be increased by anythings that improve
the efficiency with which industrial inputs are converted into outputs.

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A society well- being therefore depends largely on having a high and

rising level of productivity. Improving societys overall productivity
requires a joint effort by all major institution. Business is now
challenge to help find the best ways to improve a societys well- being
through higher product.
4. Global pressures, Demands and Needs: The worlds peoples
have become accustomed to business and are dependent on it for
many of their needs. Private business capital invested by large
multinational corporations can boost a nations economic growth rate.
Business can also help by producing what is needed and selling these
things at fair prices; buying the poorer nations products also at fair
prices, and working cooperatively with international organizations
such as the world Bank to find ways to improve food production and
build a sounder economic system.
5. Balancing ethics and economics: Society wants business to
produce needed goods and services but it also expect business to
conduct its economics operation in ethical ways. Ethical problems in
business arise when business practices devote from the societys
nations of what is right and moral. The challenges to business are to
find a balance between two social demands - high economic
performance and high ethical standard.
6. Designing social partnership: Society seemed to be
encouraging business to form a more active partnership with
government and with societies other major institutions to help to
solve social problems cooperatively, rather than expecting any one
institution to do the job alone. This partnership might bring together
group that normally compete with and criticize one another;
consequently they may than in arguing over who has the right to do
so. There are 5 principles of social partnership.
Decentralized decision making.

Participation by affected groups.
Voluntary self help
co-operation among competitors
Practical approach to problems.
Interactive model of business and society

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Primary interactions
interactions
With society
Federal, state &

local govt.
Employee
s
Creditors
Suppliers
Wholesalers
&retailers
Customer
with society
Local
communities
Stock holders
Free
NonMarket
Market
Secondary
Foreign govt.
Business
Firms
Social activities group

Media
Public opinion
s
Business support group
Competitors
1. Primary interactions with society: A businesss primary

involvement with society includes all the direct relationship which is
called internal relationship necessary for it to perform its major
mission of producing gods and services for society. To carry out its
primary mission in society, it must interact with all the below groups.
a. Employees: Employees are the part and parcel of the business.
Business cannot run without the employee. Employee provides their
labour to the business. Employees contribute their work skills in the
business.
b. Stock holders: Business firms collect their funds from the
stockholders.

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c. Creditors: Creditors provided capital for the business firm.

Business firm enrich their capital fund by the creditors money.
d. Wholesalers and retailers: Wholesalers and retainers help
move the product from the plant to sales outlets and on to
consumers.
e. Suppliers: Business firm need raw materials and energy to
produce a product. Suppliers sell raw materials, energy, and other
needed supplies to the business.
f. Competitors: Most companies compete with others who are
selling identical or similar products and services. Because of
competitors business firm have to pay greater facilitates to the
customers.
g. Customers: In modern world customers are the boss of the
business. All business firms need customers willing to buy what is
produced for sale.
2. Secondary interactions with society: Social groups who are
not directly related to the business is called external group and the
relationship with these groups is called external relationship.
a. Local communities: Many people get job in business
organization. Social environment has a great impact on business
organization.
b. Local government: Local govt. imposed some rules and
regulations on business organization which has great impact on his
functions. Business organizations have to pay taxes for their income.
c. Foreign governments: Two types of relationship such as
friendly and hostile may exist between foreign governments and
business organization which has positive and negative impact on the
business.
d. Social activities groups: Social activities groups like churches,
environmentalists, and minorities impact the business functions and
its products demand.

20
e. Media: Media like films, newspaper, TV, radio, magazines etc.

impact the consumers behavior and consumer behavior impact
business.
f. Public opinion: Public opinion may be positive or negative for
the business.
g. Business support group: Business support group like chamber
of commerce, Trade association etc help the business in different
ways. Business support groups advice the business and help them to
research.
Chapter Three
1.
2.
3.
4.
5.
6.
7.
What is free market economy?

Basic components of free market economy.
Ideology of free market economy.
Challenges to free market economy.
What is pluralistic society?
Elements of pluralistic society/ pluralistic social system.
Weakness/disadvantages of pluralism.
What is free economy market?

A free economy market is based upon the principle of voluntary
exchange and competition market. People sell their goods and
services voluntarily to the market, seeking to obtain a profit from the
sale. Other people with wants to satisfy go to market voluntarily
hoping to find the things they want to buy. No one forces anybody to
buy or to sell. Producers are drawn voluntarily to the market by their
desire to make a profit. Consumers likewise go willingly to the market
place in order to satisfy their many wants. The producers and

21
consumer then make an economics exchange, in which normally both

of them receive an economic benefit.
Basic components of a free market system
In a free market economy production is for profit and consumption
is for the satisfaction of wants. A producer has to set prices at about
the same level as competing supermarkets, and has to supply
according to the consumers demand. Because of competition, the
consumer achieves an optimum satisfaction of their wants at the
lowest cost. In free competitive market, the consumer is king or
queen because producers must obey the wishes and demands of
consumers, if they want to make a profit.
Consumers
Business firms
Produce goods and services
and needs
Market place
Supply Competitive
price
Voluntary exchange
Have wants
Demand
Profits
wants satisfied
In a free market system the members of society satisfy most of

their economic wants through these voluntary market transactions.
Business firms that sells goods and services to consumers for a profit
are at the same time fulfilling a social or public need.

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In a free economy market, a producer has to increase economic

efficiency and productivity. This high level of economic efficiency and
productivity lead to more goods for more people. In its ideal form a
free market system maximizes economics and social welfare for the
largest number of people in society.
The ideology of free market economy
Underlying and supporting the free market economics is a
traditional ideology of free economy. Like all ideologies, it defines the
good life. In other words, it makes up an ideal way to organize
economic life. Each of these core ideas summarized in below:
1. Individualism and freedom: Individualism exists when a
society believes that each individual is more important than society
and its institutions. Individualism is linked to freedom. All individuals
must be free to promote and protect their own personal interests. This
means in economic affairs that they should be free to own property
and enter into contracts with others, selling their skills and products
when desirable and buying from others when necessary. Free markets
can exist only when individuals are free to make these economic
decisions on their own initiative and without interference.
2. Private property and profit: In free economy market, the
ownership of property allows one to control ones own destiny.
Property and profits are closely linked. Profit is a payment made to
owners who used their property for productive purpose. When
individuals make free choices in the market place, they maximize
their own personal welfare. And the sum total of these individual
welfares is identical to the societys overall welfare.
3. Equality of opportunity: Equality of opportunity is a strong
pillar of ideology for both business and individuals. A system of
unequal rank and privilege would hamper the many opportunity for
making profits. In free economy market every business man starts
their business, having an equal chance to engage in trade and
commerce.

23
4. Competition: Competition is an indispensable part of a free

economy system. Competition is societys way of encouraging high
level of economic performance from all its citizens. It tends to keep
power from being concentrated exclusively in the hands of a few,
because even those who have risen to the top might be challenged by
other competing to take their place. In a free economy system the
most efficient regulator and the one that encourages the greatest
degree of freedom is competition.
5. The work ethics and environment: The ethic of work says
that work itself is worthily, admirable, and personally and socially
valuable. Since hard work and productivity are so essential to the
success of a free market economy, the work ethics occupies a central
position in free enterprise ideology.
Limited
Govt.
Profits
Natural
laws
Work
ethics
Competiti
on
The
Free
market
Private
property
Equal
Opportun
ity
Freedom
Individuali
sm

24
6. Natural laws and limited government: Natural laws were

believed to be responsible for governing
not just the physical
universe but also human affairs also. Adam Smith, father of free
market economics asserted that human beings are selfish by nature
and will try at all times to promote their own personal welfare. In free
economy market, govt. has very limited economic functions. Beyond
protecting private property, enforcing contracts, and providing for
general security, the government had little to do.
Challenge to free market economy
Over the years the original free enterprise ideology has been
severally challenged by several major changed that has occurred in
the business system and in society. Questions have been raised about
the continued usefulness and relevance of free market philosophy.
The most important of these challenges are given below1. The growth of big business: The numbers of big business are
increasing day by day. As a result small business gets fewer facilities
in free economy market. Small business cannot compete with big
business. They cannot make vast market for their product. Because,
big business capture most of the market place.
2. Great depression: Because of free economy market some
business enters the whole market; as a result some others fall in
depression. Depression discloses social class divisions and inequality,
because some groups suffered more and longer than others.
3. World wars: Large- scale wars, especially world wars I and II,
expanded the size and economic impact of government. World wars

25
have posed challenges to free enterprise ideology and the free market
system.
Growt
h of big
business
Less competition
World
wars
Bigger
govt.
Free
The
great
depressi
on
enterprise
ideology
Less
free
Social
concern
Less
The
organizat
ional
society
Individualism
Bigger
Govt.
market
bigger
Govt.
Intere
st group
demand
4. Organizational society: The organizational society composed

of big business, organized labour, the welfare state, large- scale
agribusiness, a large defense establishment, massive educational
institutions, and even huge religious organizations challenged the
ideological principles of individualism and self reliance. One or more
of these groups participate in them to gain power through
independence and self reliance.
5. Social concerns: worldwide industrial pollution threat to slow
down the unbounded economic expansion of free enterprise. Women,
minors, and other groups argued that true equality of opportunity has
never existed for them. The consumer movement spread doubt
among the public about the workability and fairness of competition.
6. Interest group demands: Interest group demands have
imposed challenges to free economy market and government. The

26
farmers want guaranteed farm prices, workers want a minimum wage,

small business required protection from large corporations, and
domestic business appealed for protection against foreign
competitors.
What is pluralistic society?
A pluralistic society is one in which a variety of organized groups
use power and influence to represent special interests of groups of
citizens. Pluralism is a basic reality of the modern business culture.
The significance of this reality for business is that pluralism defines
the fundamental framework within which business must live and grow.
Todays society and political organization are pluralistic.
Elements of a pluralistic social system
Major elements of a pluralistic society are as follows1. Business pluralistic environment: Unless business leaders
understand the rules of the game by which pluralism operate, they
are disabled in their efforts to make business a responsive social
institution. This is their environment. They must know it in order to
perform their roles as leaders. Whether they prefer pluralism is not
the issue. It likes the weather is here.
2. Diversity of interests and diffusion of power: In pluralism
there are numerous economic, political, educational, social, artistic,
and other groups organized by people to promote their own interests.
There are, therefore, many different points of view represented.
Pluralism, operating between the extremes, decentralizes social
power. No group is completely independent to do exactly as it wishes,
but each has some autonomy to pursue its own private interest. By
means of diffusion of power, society is somewhat protected from
autocratic dominance by one group.
3. Many opportunities for leadership: Since there are a
multitude of organizations in a pluralistic society, there are also many
opportunities for leadership. There are so many leadership avenues

27
open in a pluralistic society. Pluralistic social organization is a training

ground for leadership, and a progressive society needs a large supply
of leaders.
4. Improved social inputs: Since pluralism brings many
organizations clamoring to present their different points of view, it
provides a large variety of inputs into the social decision making
process. These inputs should shed more light on social issues than
monolithic/colossal social designs are able to do, and the normal
result should be an improved decision.
At last we can say, pluralistic system also tends to be creative and
innovative because their multiple areas of power and initiative
provide alternative choices to society.
Weakness of Pluralism
Pluralism has some weakness comparing with other systems which
are as follows1. Lack of central direction: A pluralistic system tends to
depend on govt. to provide social goals, long- range plans, and
policies to guide institutions towards the long run public interest. If
govt. does not accept its guiding role, then pluralistic organizations
may become preoccupied with their own pet projects and short run
goals.
2. Emphasis on institutional power instead of service: It is a
valid social basis for gaining power to perform designated institutional
functions. However, in the absence of suitable checks and balances,
this valid functional power can be diverted to power for its own sake.
This kind of diversion makes organization greedy for power and leads
to war among them for power supremacy. Power becomes the
measure of success rather than the instrument by which service is
rendered.
3. Erosion toward partisanship: One of the most compelling
weaknesses of pluralism is the tendency of the system to erode
toward more partisanship among group. The negative results are

28
numerous. The sense of community declines. Society loses its unity

and common purpose. Conflict and stress increases. It can be
categorized into two types.
a. Partisan pluralism: In partisan pluralism each group pursues
its own interests without regard to the interests of others.
b. Integrated pluralism: In this system Govt. defines common
goals for society and works with other institution to support a
community of interests and values. This common framework
encourages pluralistic groups to pursue their own interests only in
ways that also tend to serve the public interest.

29
Chapter Four
1.
2.
3.
4.
5.
Political involvement of business.

Types and mechanism of political influence.
Govt. regulation and control of business/ types of regulations.
How regulations work?
Cost of govt. regulations.
Political involvement of business

Business and politics are different. But the development of the
business is depended on the politics of a country. Political parties are
a vital element of our pluralistic society. From different aspect effect of
political involvement by business are discussed below1. Business and politics compared: Business and politics are
different, and these differences need to be well understood if business
is to be an effective participant in the public policy process. Two of the
most important differences are the followinga. Contrasting/ Dissimilarities of goals: The primary goals of
business is production for profit: The primary goal of politics is to
allocate power among various groups in society. Without post
politician is as powerless as a business firm without profit.
b. Different approaches: Business decisions ideally are made by
applying rational, objective, coolly calculated standards. Ideally, a
new product will not be brought out nor will a capital investment be
made without profit. One the other hand, political decisions are often
made on irrational, emotional grounds, where hard-to-measure social
and philosophical factors are involved.

30
2. Justifications for political involvement of business: Those

who argue that business should be an active political participant
mention four main justifications.
a. Political representation: Our representative political system
gives business the right to express its views, just as other interest
groups in society do. A workable pluralistic society depends on active
participation of all groups.
b. Importance of govt. business relations: Govt. and business
relations, whether supportive or regulatory requires active
involvement in politics in order to safeguard business interests.
c. Counteract political activity: Business political activity is
necessary to counteract political activity by other groups that affect
business, such as labour unions, consumerist and environmentalists.
d. Political activities positions as one of societies central
institutions: Because of its position as one of societys central
institutions, businesss political views may at a time promote the
interests of other related groups including workers, consumers,
suppliers, and local communities.
3. Against political involvement of business: Political action by
business can lead to trouble and should be avoided for the following
reasons.
a. People in business are not necessarily qualified: Business
should leave politics to politicians, because people in business are not
necessarily qualified or knowledgeable in the field of politics and their
views often are too narrow.
b. Business leaders are hard disciplined: Business leaders who
are trained in the hard disciplined of the business world sometimes
prove to be simple/ naive about the complexities and uncertainties of
politics.
c. Business political power in view of the size: Business
political power in view of the size of many corporations may

31
unbalance pluralism and tend to substitute dominates private interest

for the public welfare.
d. Target of public criticism: A great deal of political activity by
business, particularly, if successful, makes it a target of public
criticism, causing a loss of customers and inviting even more
government controls. A low profile type of influence over government
policy is more effective and less risky.
Types and Mechanism of Political influence

Business may exercise political influence from two different types.
1. Government politics: An attempt is made to shape
government politics, forthcoming legislation and the actions of
regulatory agencies which are dealt with governmental politics. The
techniques used by business to participate in governmental politics
are about the same as those of other interest groups.
2. Electoral politics: Business tries to influence the outcome of
elections which is dealt with electoral politics. An interesting
development of the 1970s was the emergence of corporate political
actions committees (PACs) which are active in electoral politics.
Several states place restrictions on corporate contributions in state
election. These limits were imposed on all PACs to reduce the role of
concentrated wealth in determining the outcome of elections to public
office.
Types of govt. Regulations
Government regulations, like items in supermarket, come in several
different varieties indirectly felt. Some are aimed at a specific industry
and some are aimed at all industries. Some are for a long time and
some are for a short time. These varieties are described in below:

32
1. Industry specific economic regulations: Govt. regulations

are primarily economics in nature. It makes a conscious effort to
substitute their judgment for that of the market in such matter as
price setting, capital expansion, quality of services offered and
admission into the industry of new competitors. A regulatory agency
imposed control over the fundamental business matters facing an
industry, its prices, capital investments, services offered, customers
served and profit. Although the company is still privately owned and
managed, scope of decision making is severally restricted by govt.
regulations.
2. All industry social regulations: Most of these regulations are
aimed at four major social goals of our society: Pollution control, work
place healthy and safety, consumer protection, and equal
employment opportunity. Law concerning
pollution, safety and
health, and discrimination apply to all major institution, including
business, although some very small firms are usually exclude, and
consumer protection laws are apply to all relevant business producing
and selling consumer goods. It promotes social goal.
3. Functional regulations: Some regulations are imposed on the
functions of business. Govt. set minimum wages, regulates overtime
pay, allows unions to monopolize the supply of workers if they can do
so, and often intervenes to settle troublesome and serious labour
management disputes that theater national well- being. It attempts to
prevent monopolies, preserve competitive pricing and protect
consumers against unfair practices.
How govt. regulation works?
The legal basis of regulation and regulatory mechanism provide a
sound basis for understanding how government regulates business
and many other aspects of our lives.
1. The legal basis: The government gets its regulatory authority
from two sources - the common law and the constitutional power.
a. The common law: The common law is a body of legal
precedents and customs built up over many years as a result of

33
experience, trial and error and court rulings. It contains many

commonly accepted principles, such as trial by jury, the protection of
property, and the enforcement of contracts. It gives government the
right to regulate human affairs in order to achieve fairness and
justice.
b. The constitutional power: Most govt. regulations today are
based on four constitutional powers such as the power to regulate
interstate and foreign commerce, the power to tax and spend the
power to borrow, and the power to promote the general welfare.
These powers have been used to justify all the direct and indirect
regulations.
2. The regulatory mechanism: The main system of regulation
follows closely the three branches of govt. Each branch has certain
responsibilities where regulation is concerned. These branches are as
followsa. Legislative: Normally, legislatures respond to various interest
groups in society that have a hazarded in the new regulations. These
may include consumer advocated, environmentalists, minorities and
the affected business groups.
b. Exceptive: Once a law is enacted, the executive branch of
government becomes officially involved. It may already have been
unofficially involved by lobbying for or against the legislation. A new
regulatory agency- one like the environment protection agency or the
occupational safety and health administration may be created by the
new law.
c. Judiciary: The judiciary branch becomes active if serious
disagreement arises between the regulatory and those being
regulated. The court may be asked to judge the fairness or legality of
the regulatory agencys rules and interpretations, or the entire law
may be challenged as unconstitutional.
Cost of govt. Regulation

34
All social actions including govt. regulations generate costs. These

unavoidable costs can be called the rule of costs. This cost rule is
applied in all types of socioeconomic systems, whether free market or
central state control.
a. Cost-benefit analysis: Cost-benefit analysis is a method of
calculating the costs and benefits of a project or activity intended to
produce benefits. Cost- benefit analysis can be done in two ways such
as.
1. Comparing cost and benefit: If the potential costs are higher
than the potential benefits then that project will not be taken. A costbenefit analysis in business gives a clear answered to whether
benefits do or are expected to exceed costs. It identifies all possible
benefits and compares them with potential costs. This kind of cost
benefit analysis is regularly made by a business before it launches a
new product or makes a new investment.
2. Measurement difficulties: Social costs and benefits are more
difficult to calculate because many of them cannot be able to be
measured in tk. terms alone. For example an urban housing authority
decides to build a low- income housing project (a social benefit) by
using recreational park loans. But what is the true value of the
relaxation and fun people have when using public parks? Social costs
and benefits are indeed difficult to calculate perfectly but continuing
public pressure for social improvements leaves no choice but try to
work out better methods for comparing social factors.
b. Cost problem: Sometimes the benefits are more important
than the costs. As a result we have to provide a better payoff in the
long run for the societys problem. We pay for the benefits of social
regulations in the following ways1. Administrative costs: Regulatory cost takes several different
forms. Most obvious are the direct costs of running the regulatory
agencies, including salaries of government employees, office
equipment and supplies utility bills, and other such items. Govt.
authority has to control population, pollution, maintain good working
order, training facilities for the unskilled employees etc. which bear
cost.

35
2. Paper work: Business efficiency is hampered by paperwork

requirements and long delays sometimes result. Before starting a
construction, govt. permission is needed which takes huge time. As a
result cost increase. This permission is needed for the environmental
facts.
3. Higher prices and taxes: Sometimes hidden taxes are raised
when regulation costs of govt. increases. If hidden tax increase then
price of products also increase. Regulation costs increase because of
social infrastructure. Public have to pay this hidden tax.
4. Opportunity costs: What could I have done with that money if
I hadnt spent it in that particular way? This is the meaning of
opportunity cost. Having more Hospitals, better and safer highways,
bridges, more business investment in modernizing industrial plants in
order to meet foreign competition, more research on life threating
diseases etc are the opportunity cost to society for having extensive
social regulations.
5. Economic and social tradeoffs:
Economics and social
tradeoffs occur when society discovers that its social goals involve
economic costs and its economics goals incur social costs. If we want
cleaner and safer electric power plants (a social goal) then the added
costs of installing safe cleaner generators will increase utility bills (an
economic cost). The rule of cost is at work as usual because all
benefits generate costs. In this way social goal generate an economic
cost.
6. Unintended impacts of regulations: Some costs of
government regulations are partially or totally unforeseen when the
regulation is adopted. It forces to close down when costly
environmental controls
are required.
Contents
of thisIndustrial
chapter productivity become
lower and 25% productivity lost because of environmental control
systems.
Because ofenvironment.
lower productivity we cannot compete in world
1. Technological
trade.
2. Features of technology.
3. Phases of technology and the social system they create/steps
Chapter Five
of technology.
4. Technological change and its effects on business.
5. Business responsibility for technological change.
6. What is a competitive advantage?
7. Industry structure and elements of industry structure.

36
Technological environment.
Technological advances are perhaps the most dramatic forces
affecting todays marketing strategies. We have heard the word
online marketing which is totally based on the technology. Because
of the technology we can get the information regarding market,
products, customers, prices etc through net. We need not to go
market to order something, to know something moreover to buy
something. Marketers also can inform or remind the customers about
the product through internet.
Technological environment is the forces that create new technologies,
creating new product and market opportunities.
It should keep in mind that technological environment changes
rapidly. Think of todays entire common product that was not available
100 years ago.
Features of technology
We live in the age of technology. Because of using modern
technology, the quality of life are enhancing day by day. Technology
has some special features. These are as follows1. Future shocks: The important feature of technology is change
and then more change. Technology forces change on people whether

37
they are prepared for it or not. In modern society, it is called future

shock, which means change come so fast that it approaches the
limits of human tolerance and people lose their ability to cope with it.
Technology is directly or indirectly involved in most changes that
occur in society. For example the compute is an example of fast
change and the future shock result from it. Its power is increasing
rapidly.
2. Multiplier effects: Another feature of technology is that its
effects are widespread. It influences the every sector of our life.
People cannot escape from it. In every steps of our life, we are
influenced by technology.
3. Self- re-enforcing: This features means that technology acts
as a multipliers to encourage its own faster development. It acts with
many parts of society so that invention leads to a chance of
inventions in other places. Thus invention of wheel leads to invention
of many other related appliances.
All these are the important features of technology.
Phases of Technology and the social systems they create/
steps of technology.
Five broad phases of technology have developed. One phase at a
time tends to dominate the work of a nation and in doing. So, it has a
major influence on that nation. These phases are described belowTechnology Phases of
level
technology
1
Nomadic
Agrarian
2
Agrarian
3
Industrial
Duration
Until-1650
1650-1900
1900-1960
Service
1960-1975
Knowledge 1975-
Activity
Harvests
Primary Skill
Manual
Plants & harvests

Manual
Build
materials Manual & Machine
goods
Provides generals Manual & Intellectual
needs
serves the mind
Intellectual

38
1. Nomadic Society: In a nomadic society people live by hunting,

fishing, picking berries etc. Rather than producing more, they merely
take what is available. They use spears, fishing hooks, and baskets,
but their technology is poorly developed. Often they move to
wherever a good natural harvest is available.
2. Agrarian society: An agrarian society is one in which
agricultural activities dominates work and employ the largest
proportion of the labour force. Food rising is the main task of this
society. Nations tend to remain at this society until they can develop
enough productivity to release many of their labour force from farm to
other productive occupation.
3. Industrial society: An industrial society is one in which the
building and processing of material goods dominate work and
employs the largest proportion of the labour force. In this society
emphasis is given on machine work. It is the result of industrial
revolution. When a nation moves from agrarian society to industrial
society then many changes occur. Large factories develop and large
labour force is required. People move to the cities for higher wages. In
addition life Style of people also changes.
4. Service society: A service society is one in which majority of
labour force is employed in providing non- product value (service) like
retailing, banking, insurance etc, rather than in direct production. Few
years ago it was thought that service societies productivity would
decline but recently the productivity of service type job is higher than
manufacturing job and this productivity boosted the nations general
output of goods and service.
5. Knowledge society: A knowledge society is on in which the
use of knowledge and information rather than manual skill, dominates
the work and employees the largest proportion of labour force.
Examples of knowledge jobs are news editors accountants, computer
programmers, software developers, teachers etc. Examples of
knowledge
industries
are
news
publishing,
education,
telecommunication etc. A knowledge societies technology is primary
electronic in nature and depends on computers, which can process
and store a large amount of information at a very low cost. Another

39
important device for bringing information to employees

telecommunicating and teleconference. It is very cheap.
is
Technological change and effects on business

1. Economic effects of technology: Business is the principles
institution that uses technology. Technology has a great effect on
business. The economic effect of technology are given belowa. Higher productivity: The most fundamental effects of
technology are greater productivity in terms of both quality and
quantity. Automated factories are made possible by computers and
extensive use of robots that can perform many works rapidly. As a
result productivity increases.
b. Upgraded job skills: With the advance of technology, jobs
tend to become more intellectual and upgraded. For example the job
that once required a clerk, now requires a computer expert. In modern
business many scientific and professional people are required.
Money
Former skill
Distribution
Intermediate skill
distribution
R & D skill
distribution
few
Low
----- skill-----high
Figure: changes in skill distribution in business by technological
changes.

40
c. More scientific and professional workers: Modern

businesses require more scientific and professional workers because
of technological advancement. Creative and intellectual workers
expect relatively high job freedom. They are motivated by
opportunities that offer a change and achievement. Business is trying
to meet the needs of intellectual workers through providing high
salary, flexible work schedule etc.
d. Techno structure: Scientific and specialized workers make up
techno structure of modern organization and action much influence on
decision making process since majority within techno structure are
technically trained persons, care must be taken to assure that they do
not become so powerful to dominate business and society. So,
business managers must consult with various groups of business,
while making decision about the use of technology.
e. More emphasis research and development: As technology
has advanced, research and development become an important
activity. Research concerns with creation of new ideas and
development concerns with their application. With faster technology
many companies now developed goods, produce them and sell them.
Research and development becomes a major department of the
business.
f. Capital requirement: Another effect of technology is its
continuous demand for capital. Large amount of capital are required
to build the big production system that save labour and provide other
benefits of technology. For example in the last decade Tk 700-800 for
each worker was adequate but now in garments industries it is more
than 4000 Tk for each worker.
All these are the economic effect of technology.
2. Social consequences or effect of technological change:
Technological advance bring both benefits and costs to society.
Technological change has a great effect on society. These are as
follows-

41
i. Social cost and benefits: Technology has some social side

effects. Technologies effect on social costs and benefits can be
divided into two waysa. Technologies social cost: When the side effect of
technological change become negative then they are called social
costs. From societies point of view these social cost must need to be
calculated in the cost benefit analysis of every proposed technological
change. Social effects of technological change are frequently
unpredictable.
b.
Technology
assessment:
Technological
assessment/
evaluation is a useful technique that seeks to provide feedback about
technologys effect and try to guess the unconscious, indirect and
harmful effects of new technology. A positive side of technological
change is that technology can be used to correct, side effect that it
caused. For example- Technology causes pollution, however,
technology also can be used to reduce pollution.
ii. Restraints/ Hindrance on technological growth: There are
three major factors that may limit technologys ability to contribute
positively to society. These area. Pollution: Pollution is an unavoidable consequence of industrial
production. In addition many consumer items like- automobile are
responsible for much pollution. This pollution have very harmful effect
on biosphere, that means the land, air, water and natural conditions
on which all life on earth depends.
b. The industrial resource base: Another factor limiting
technology growth is the reduction of worlds industrial resources
base. This base is composed mainly of minerals, energies, skilled
labour forces and human knowledge. Some studies have questioned
whether the globes supplies of resources are sufficient to support
unlimited industrial and technological expansion.
c. Social institutions: A third factor limiting technology is social
values and institutions. There are many social groups likeenvironmentalist opposes the technology causing pollution or harmful
effects.

42
From the above discussion we can say that technological change

has many social consequences. Before installing new technology the
manager should consult with various social groups.
Pollution of
biosphere
Technology
Push Against
Social
Institutions and
values
Resource
base
Figure: Factors limiting technological growth.
Business responsibility for technological change

Business has some responsibility at the time of technological
change. These are as follows
1. Technological foresight: Society wants new technology to be
introduced with greater care and more foresight concerning long run
results for individual and society. For these reasons business follow
premarket testing of drugs, safety guideline for genetic engineering
project and govt. regulation of waste management.
2.
Compensatory
payments:
Another
responsibility
is
compensatory payments or other type of support by business that
would help individuals or groups to readjust their lives when damaged
by technological changes. Example of such include industrial
retraining program, advance notification when plants are to be closed
and compensatory payments to lay off employees.

43
3. Co- operation among stakeholders: Many social groups like

universities, laborer union, nonprofit organization and many local
groups have made important contributions to technological advance.
All of these groups and institutions are technological stakeholders.
Business should consider the interest of all groups.
What is Competitive Advantage?
Competitive advantage is at the heart of a firms performance in a
competitive market. Competitive advantage means how a firm
actually puts a group of strategies into practice. These straggles for
achieving competitive advantage arei)
ii)
iii)
Cost leadership.
Differentiation.
Focus.
Through competitive advantage firm can gain sustainable cost

advantage. It can differentiate itself from competitors. A firm can
choose a segment so that competitive advantages grow out of a focus
strategy.
Competitive advantage grows fundamentally out of the value of a
firm which it is able to create for its buyers. It may take the form of
prices lower than competitors for equivalent benefits or the provision
of unique benefits. Potential sources of competitive advantage are
everywhere in a firm. Every faculty, department, branch office and
other organization unit has a role that must be defined and
understood.
All employees must recognize their role in helping a firm to achieve
and sustain competitive advantage:
What is a competitive force?
In any industry, whether it is domestic or international or, produces
a product or a service, the rules of competition are expressed in five
competitive forces, these are- the entry of new competitors, the

44
threat of substitutes, the bargaining power of buyers, the bargaining

power supplies, and the competition among the competitors.
Potential
Competitors
Industry
Competitors
Bargaining
Suppliers
Competitions
among
Existing firms
Buyear
Power of
buyers
Threats of
substitute
Products or
services
Substitutes
Fig: Five competitive forces that determine industry profitability.

1. Potential competitors/ entrants: The threat of new entrants
places a limit on prices and shapes the investment required to
prevent new entrants.
2. Buyers: Buyers power influences the prices that firm charges.
The bargaining power of buyer can also influence cost and investment
because powerful buyers demand costly services.
3. Suppliers: Suppliers supply raw materials and other inputs to
the industry. The bargaining power of suppliers determines the cost of
raw materials and other inputs.
4. Industry competitors: There is always exist competition
among existing firms. The intensity of competition influence price as

45
well as the cost of competing in areas such as plant, product

development, advertising and sales forces.
5. Substitutes: Competitive firms always try to produce a
substitute product of a product. The threat of substitute product and
services influence the prices that firm charge.
The five forces determine industry profitability because they
influence the prices, costs and required investment of firms in an
industry.
The strength of five forces varies from industry to industry. In
industries where the five forces are favorable, many competitors earn
attractive returns. But where pressure from one or more forces is
intense, few firms earn attractive returns.
From the above discussion we can say, that five competitive forces
determine industry profitability.
What is industry structure?
Every industry is unique and has its own unique structure. A five
complexities and find out those factors that are critical to competition
Entrants
in its industry. The strength of New
each
of the five competitive
forces is a
Competition Determinant
function of an industry structure. The elements of an industry
structure are shown by a figure.
Threat of new
Competitors
Bargainin
g power
supplies
Supplier
s
Industry
Competitors
Competitions
among
Existing firms
Determinants of
supplier power
Threats of
substitute
Substitutes
Bargaining
Power of
buyers
Determinants of
buying power
Buyer

46
The main elements are described below1. Entry barriers: The threat of new entry influences the industry
structure. The determinant of entry barriers are as follows:
Economics of scale
Proprietary product differences
Brand identity
Switching cost
Capital requirements
Access to distribution
Absolute cost and advantage
Access to necessary inputs
Govt. policy.
2. Determinants of competitions: The intensity of competition

influences price as well as cost of competing in areas like plant,
product development, andvertising and sales. The determinants are.
Industry growth
Fixed cost
Product differences
Brand identity
Switching cost
Informational complexity
Exist barriers

47
Diversity of competitors
3. Determinants of suppliers power: The burgaining power of
supplier determiines the cost of raw materials and other inputs
inputs. Determinants of suppliers power are given belwo
Determination of inputs.
Switching cost of suppliers.
Presence of substitutes inputs
Supplier concentration
Importance of volume to supplier
Impact of inputs on cost
Threat of forward itegration.
4. Determinants of buyers power: The burgaining power of

buyer influence the price, cost and investment of an industry.
Determinants of buyers power can be divided into two types.i. Burganining leverage: It dpends on
Buyer concentration
Buyer volume
Buyer swithcihng cost relative to firm buyer information
Ability to backward integrate
Substitute product.
ii. Price sensitivity : Buyers price sensitivity depends on.
Total purchase
Product differences.
Brand identity
Impact on quality.
Buyer profit.
Decision makers incentives.
5. Determinants of substitution threat: The threat of
subsititute product and services influence the price that the firm
charge. Determinants of substitution threats are Relative price performance of substitute
witching cost.

48
Buyer propensity to substitute.

All these elements from an indusry structure. Industry structure is
relatively stable but can change as industry evolves. Industry
profitibility depends on industry structure.
1. What is ethics, business

ethics and
Chapter
morality?
Six
2. Ethical reasoning.
3. Ethical problems and issues in business.
4. Types and sources of ethical problems in business or
constraints on better
business ethics.
5. General ethical guides and simplified guides
6. Variety of value system.
7. Perspective on pollution.
8. Impact of environmental issues on business.
9. Controlling environmental pollution.
10. Results and impacts of pollution control.

49
What is ethics, business ethics and morality?

Ethics: All persons whether in business, Govt. University, or any
other enterprise are concerned with ethics. Ethics is defined as the
discipline dealing with what is good and bad and with moral duty and
obligation.
Ethics is an individuals personal beliefs about whether a behavior,
action or decisions is right or wrong. And ethical behavior that
conforms to generally accepted social norms.
Business ethics: Ethical issues relate to what is considered rights.
Businesses are concerned with both individual and corporate ethics.
So, business ethics is concerned with truth and justice and has a
variety of aspects such as the expectation of society, fair competition,
advertising, public relation, social responsibility, consumer autonomy,
and corporate behavior in the home country as well as abroad.
Morality: Ethical rules of conduct attempt to provide guidelines for
human behavior that will preserve a societys, a groups or an
individual persons notion of morality. Morality is considered moral or
immoral, a decision or action must either promote or endanger one or
more of our fundamental values.
Ethical Reasoning
The activities of individuals, organizations, and societies can be
analyzed to determine their ethical significance. This analysis asks
there basic questions- Do the activities being judged maximum social
benefits and minimize social costs? Do they respect a persons moral

50
rights? Are they fair and just in distributing benefits and burdens?
Each question raises slightly different ethical issues.
1. Benefits and costs: It is used to determine whether an action
produces utility or useful things for society as a whole. If benefits
exceed costs then some useful results. It suggests that plans and
actions should be evaluated by their importance. The underlying idea
is that plans and actions should produce the greatest good for the
greatest number of people. The main limitation of costbenefit
analysis is the difficulty of accurately measuring both cost and
benefits.
2. Rights: Human rights are another basis for judging ethics. It
holds that all people have basic rights such as the rights to freedom of
reservations free speech and due process. Nobody can interfere about
the basic rights of others. Denying these rights or failing to protect
them for other persons and groups in normally considered being
unethical.
3. Justice: A third principle of ethical reasoning concerns justice.
The theory of justice demands that decision makers be guided by
fairness and equality as well as impartiality. Each society must work
out its own ways of establishing justice amongst the people who live
there. The rules will vary from society to society. Justice refers to the
fair distribution of benefits and burdens among the people in a
society, usually expressed by some agreed upon rule.
At last we can say, utility, rights and justices may be used in ethical
reasoning. There is no simple rule to tell which questions is the mostimportant. In most situations, all three ideas can be usually applied to
shed greater light on the ethics involve.
Types and sources of ethical problems in business / Constraints on
better business ethics.
Ethical challenges in business take several forms and raise different

kinds of ethical dilemma. The approach and solutions to one problem
may not work with others.

51
1. Failure of personal character: Business sometimes employs

people whose personal values are less than desirable. In the selection
process there is an effort not to employ ethically undesirable
applicants but ethical qualities are difficult to measure, such persons
may get job unexpectedly for the business benefits. There is a little
reason to believe that business employees more of these ethically
undesirable person than other organizations in the society. It should
be clear that business is not to blame for its existence.
2. Conflict of personal values and organizational goals: A
major source of ethical puzzles/problems in business in the conflict
that can occur when a company pursues goals or uses methods that
are unacceptable to some of its employees. The contrast between
their personal values and the goal and methods of their companies
created an ethical dilemma. So business should balance between
values and organizational needs.
3. Organizational goals versus social values: An organization
can find itself at odds with social values also, especially when a
society is undergoing social change on a broad scale. In these cases
traditional business values may lead the firm to take actions that are
seen to be unethical by various stakeholder groups.
4. Hazardous but popular products: Sometimes business have
to sell some harmful products for the customers which is unethical for
the business. After that they have to sell these types of products for
its popularity. For example- cigarette smoking is associated with lung
cancer heart diseases and circulatory disorders, after that business
sell and customer buy it.
5. Other ethical challenges: Business decision makers are drawn
into other ethical situations are included questions of justice and price
fixing by allowing a business to take advantages of customers, may
shift an unfair share of wealth to producers; or discriminatory wage
scale may be unfair to some groups of employees.
The primary tasks for business are to be aware of the ethical
dimension, to learn how to reason ethically as economically, and to
incorporate ethical consideration into the firms operation.

52
General ethical guides and simplified guides

a. General ethical guides: Certain general ethical guides have
developed out of the experience of civilization, including the
teachings of great religious leaders.
1. Golden rule: Do unto other as you would have them do unto
you.
2. Public welfare: Act to provide the greatest good for the
greatest number.
3. Justice: Treat all human beings with fairness typically is related
to rights, duties, needs and investment in a situation.
4. Long range utility: Act to produce long- range maximum
individual benefits.
5. General Law: So act that your action could be made a general
law that could be proved from human experience to work towards
general human and social benefits. This law essentially asks decision
makers, Suppose everybody did this
b. Simplified guides: Since many ethical decisions are complex and
difficult, business people search for simply stated guidelines that will
help them when quick hard decisions are faced.
A company board chairman has offered the following short ethical
guide for both business and personal ethics.
1.
2.
3.
4.
Always be fair and just.

Alleviate pain and suffering, rather than create it.
Do not take advantages of one another.
Have respect for the planet which we all share

53
A variety of value systems

Business people make decisions that involve a complex
combination of many value systems. Instead of making just a
technical or an economic decision managers also must consider
social, psychological, political and other values. Most of these
decisions also have some ethical content, so they must be examined
additionally for their ethical rightness. Basic differences among
selected value systems are as follows-
Spiritual
Economic
Values
values
Technical
values
Ethical
Social
Values
values
Decisio
ns
Ecological
Phychological
Values
values
Asthetic
Legal
Political
Values
values
values:
values Technical values
1. Technical
science and logic.
based on physical facts,
2. Economic values: Economic values based on market values

determined by supply and demand.

54
3. Social values: Social values based on group and institutional

needs.
4. Psychological values: Psychological values based on personal
needs of individuals.
5. Political values: Political values based on general welfare
needs of the state.
6. Legal values: Legal values based on what the law requires.
7. Aesthetic values: Aesthetic values based on beauty.
8. Ecological values: Ecological values based on living system
and their environment.
9. Ethical values: Ethical values based on what is believed to be
right.
10. Spiritual values: Spiritual values based on what God has
revealed.
Perspective on pollution
Pollution is increasing day by day. People through their waste into
the social and water since the beginning of the civilization smoke from
household fires has polluted the air since the Stone Age.
1. Natural pollution: Natural also pollutes the air. Pollution
primarily occurs when there is so much of an item that it interferes
with the natural ecosystem. Natural forest fires cast smoke over
mountain valleys and lighting creates certain chemical compounds.
Although pollution has existed for many centuries, it was usually of
minor significance. Only a few serious problems developed.
2. Industrial revolution: Because of industrial revolution we are
facing the bellow problems-

55
a. Industry and agriculture pollution: A primary causes of air

and water pollution is the industrial revolution. The complex chemical
process of industry produce undesirable by products and wastes that
pollute land, water and air. Its mechanical process often creates dust,
grime and unsightly refuse. Agriculture also uses chemical, fertilizers
which are polluting water and soil.
b. Chemical hazards: One major result of the industrial revolution
is production of manufacture chemicals that have cancer censing
potential.
3. A higher standard of living: Industrialization has raised the
standard of living enormously. As people consume more, their
consumption tends to create more wastes. For example, when people
buy more, the more paper and packaging are required, most of which
becomes refuse. Every rise in the standard of living means a related
rise in per capital pollutants, since people have been improving their
standard of living for centuries.
4. Population explosion: The more people, the more pollution,
the ultimate time bomb in pollution is a speedup in population growth.
Population growth is not the result of a higher birth rate, because the
birth rate is declining in many parts of the world. Instead, population
is expanding because people live longer, primarily as a result of
economic and medical progress. Each additional person adds
pollutants to land, air and water.
5. Changes in social values: High consumption technologically
advanced society tends to live through important shifts in social
values. The changes have a powerful effect on peoples attitudes
toward the environment.
Impact of environmental issues on business
Impacts of environmental issues on business are discussed in
below. When the full effects of environmental issues are considered, it
is evident that business is significantly affected and will continue to
be so.

56
1. More obligations: One certain result is that business must live

with more regulations from all levels of government. Involvement of
government is necessary in order to establish priorities and maintain
controls in such areas as pollutions.
2. Higher cost: Another result, caused partly by the first one, is
that business is faced with increased capital and operating costs for
environmental improvement and maintenance. These additional costs
tend to contribute to inflation and customer dissatisfaction with
business because of higher costs.
3. Complex decision: A further effects is that the business
decision making environment has become much more uncertain and
difficult. Environmental problems are complex, and the participation
of many pluralistic groups in the decision system will make decisions
even more difficult. For example, new ecological management units in
organizations have a major influence in policy making and operating
decisions. Ecological influences are being felt in all functions and at all
levels of the organizations.
4. Broader thinking: A further impact of environmental issues is
that business is required to do much brooder thinking than formerly.
Business cannot confine itself strictly to economic issues, leaving
ecological problems to be considered by others. Management thinking
requires more extensive long term planning in order to incorporate
environmental complexities into business actions. For example,
environmental issues often become a major factor in plant location.
Results and impacts of pollutions control
Major efforts to clean up the environment began in our country and
in the world. How effective has our nation been in protecting its
environment, what has it cost, and what is left to be done?
1. Environmental improvements: There is no doubt that definite
progress has been made in cleaning up an improving air and water
quality. For cleaning up air the govt. impose some rules on the
vehicles and industry sectors. For improving water govt. are trying
their best.

57
2. Toxic substance and disposal of hazardous wastes: Two of

the most serious continuing problems were toxic (that is poisonous)
materials used by manufactures and farmers and findings safe ways
to dispose of hazardous industrial wastes.
a. Controlling toxic substances: A huge amount of chemical
substances sold each year as well as the 500 new chemical
introduced annually, which is threat to the human life. Rules about
labeling the product and how and where it is to be used are permitted
by the law.
b. Hazardous waste disposal: Not all industrial wastes are
hazardous, although may be unsightly. Acting under provisions of a
cleanup law, an agreement is made with the companies to pay for the
removal of the wastes.
3. Costs and other impacts: The nations pollutions control bills is
a big one and it grows larger every year. The cost of air water and
solid waste controls are distributed among consumers, govt. and
private business. The pollution control burden is not felt equally by
industry but the percentage is significantly higher for metals
manufactures, paper plants, chemicals, and others, while some find
the costs relatively small.
Controlling environmental pollution/ Approaches toward

pollution control
Peoples of the world are in dangers because of pollution. Different
types of approaches are taking by the govt. and several groups for
controlling the environmental pollution.
1. Pluralist approaches to pollution control: Several
approaches pollution control used by different branches of govt.
professional groups such as engineers and scientists, labour, business

58
groups with different interests environmentalists, and neighborhood

groups which are discussed in belowa. Business initiative: One approach to pollution control is
business action to prevent pollution or to remove it. Huge amount of
money are being invested annually in this way. We used to consider
mostly minimum capital and maximum efficiency in the plant design,
but now we have third elements, pollution costs. Different types of
business response is to improve a products desirability by designing
improved pollution control into it, such as producing a less- polluting
automobile engine or manufacturing process.
b. Countervailing powers among business: Different types of
business firms want different condition in the environment
consequent powerful countervailing pressures arise with business
itself. For example, commercial fishers filled a damage suit against
certain chemical companies wanted an economical dumping ground
for their waste, which create pressure for taking necessary steps for
controlling pollution.
c. Environmental groups: Strong removal actions for a cleaner
earth are taken by the organized environmental groups, as well as
individuals who enjoy fishing, camping, boating and outdoor life in
general. Different types of seminar are organized by them to aware
the people about the pollution and the process by which pollution
control is possible.
2. Role of government: Certainly govt. has a major role in
pollution control. It has strong capabilities for setting priorities,
general policies, and minimum standard for environmental quality. It
also can provide economic incentives to encourage businesses,
communities, and regions to reduce pollution and it can offer just
legal and administrative systems for resolving disputes about
pollution.
a. Major laws and regulatory agencies: To cope with todays
pollutions problems, government at all levels in the country enacted
laws and created regulatory agencies to police the environment. The
principal types of pollution and shows the jurisdictional authority of
four regulatory agencies--

59
i. Environmental Protection Agency (EPA): EPA is obviously

the nations main pollution control agency. It sets standard for air and
water quality, controls the use of toxic substance including pesticides,
monitors radiation levels, solid waste and noise control programs and
toxic substance controls.
ii. Nuclear Regulatory Commission (NRC): NRC licenses and
regulates nuclear facilities and materials including their possible
impact on the environment. It is often a target of groups protesting
the licensing and building of nuclear power plants.
Iii. Occupational safety and health administration (OSHA):
OSHA attempts to make the work environment safer for employees by
controlling discharging from production process and chemicals used
by workers.
iv. Regional, state and local agencies: In a typical state,
there is a state department of environmental control, some countries
have special bureau monitor and enforce controls and many citizen
have ordinance regulating solid waste disposal, noise and other kinds
of pollution.
b. Ways of applying govt. controls: Government applies pollutions
controls in a variety of ways, because the situation is too complex for
just one approach to work.
i. Incentives for environmental improvement: The govt. may
offer various types of incentives to firms that reduce their pollution.
For example, the govt. may decide to purchase only from those firms
that meet certain pollution standard, or it may offer aid to those that
install pollution control equipment.
ii. Environmental standards: Another type of pollution control
is environmental standards. These standards are established by
legislative action and applied by administrative agencies and courts.
An advantage of environmental standards is that they are
embraceable in the courts.

60
iii. Pollution charges: Another type of pollution control is

establishment of pollution charges. Each business pays fees for the
quantity of undesirable waste that it releases and the fees vary with
the amount of waste released. The result is The more you pollute,
the more you pay.

61
Chapter Seven
1. Causes of environmental threat.
2. Environmental threat from the point of marketing.
Causes of environmental threat

There are many causes behind the environmental threat, which are
discussed in below1. Natural change: Pollution primarily occurs when there is so
much of an item that it interferes with the natural ecosystem. The
temperature is increasing day by day because of natural changes
which are threatened for the environment.
2. Industrial and agriculture threat: Air and water are polluting
because of industrial and agriculture revolution. The complex
chemical process of industry produces under sable by products
wastes that pollute land, water and air. In agriculture, the farmers are
using different types of chemical and fertilizers for more production
which is threatened for the environment.
3. Chemical hazards: Different types of virus in the air are
increasing because of the production of manufactured chemicals.
Most of the people are attacked by the cancer and the cause of
cancer is the chemical hazards. Chemical increase the rate of cancer
when the chemicals contact with the human system in high
concentrations or for prolonged periods of time.
4. Pollution explosion: Population is increase day by day. Each
additional person adds pollutant to land, air and water, although the
amount of these vital natural resources remains the same. So, we can
say population explosion is the threat for the environment unless
people take steps to reduce pollution.

62
5. Change in social values: High consumption, technologically

advanced societies tends to reform important shifts in social values.
The changes have a powerful effect on peoples attitudes toward
environment. More concern is expressed about industrial pressures on
the natural environment. This is threatened to the ecological balance.
6. Increased pollution levels: The level of pollution is increasing
rapidly, which is the cause of environmental threat. It is not possible
for anybody to stop the pollution but to save our environment we
have to reduce or remove the pollution.
7. Change of technology: Because of change of technology the
use of machines are increasing. As a result, noise and air pollution are
creating. Different types of nuclear bombs are making by the different
nations with the use of technology which is threatened for the
environment.
At last we can say, pollution is the cause of environmental threat,
and pollution is a global problem. Whatever the way of life of the
people, problems of pollution arise. Mainly three conditions- industrial
revolution, population explosion and natural changes are the cause of
environmental threat.
Environmental threat from the point of marketing
Environmental threat in marketing indicates to unexpected
situations which creates barriers in the way of marketing activities.
There are some environmental threat from the view point of
marketing which are discussed to the below1. Shortage of raw materials: Raw materials are necessary to
produce goods and services. For natural disaster, production of raw
materials is hampered; hence supply of raw materials is not available.
So, it increases the price of raw materials and creates the shortage of
raw materials.
2. Increased energy cost: In case of production energy is a vital
element, due to some environmental changes the production and

63
supply of energy is decreased which causes the increase in energy

cost.
3. Cost of research and development: Public needs and
expectations are always changeable with the change of environment.
To adapt the marketing decision with this change of environment,
company has to emphasis on Research and development (R& D)
department. For this research and development huge cost is required
which refers to increase in cost.
4. Increased packaging cost: Environmental threat increase the
packaging cost of marketing. As an example, few years ago pollithin
was used for packaging which was prevented by the environmentalist,
because it produces pollution. So now we have to use alternative
packaging system which tends to more cost.
5. Disposal cost of hazardous waste: Industrial production is
bound to produce waste which is harmful for environment. So, it is the
responsibility or company is to dispose, those types of waste which is
hazardous for the environment. To do this disposal cost is required.

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Mahmodul Hasan Tutul, Dept. of Marketing, RU.

What is marketing environment?

What do you mean by marketing environment?

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

1. The company: In designing marketing plans, marketing

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

1. Demographic environment: Demography is the study of

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

Natural environment consists of natural resources that are needed

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

1. Shortage of raw materials: For natural disaster, production of

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

From the above discussion, we can say that natural environment

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

6. Marketing strategy: Before taking strategy company should

Socio Economic model

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

broader concern for the quality of life. In seeking production the

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

Arguments for social involvement

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

4. Balance of responsibility with power: Business has large

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

9. Let business try: Many institutions may fail in handling social

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

Similarly, social goals also would be inadequately achieved, leaving

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

feel at home in the social area, because it involves acts that go by

1. Internal relationship: A Business

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

a. Employees: Employees are the part and parcel of the business.

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

g. Customers: In modern world customers are the boss of the

a. Local communities: Many people get job in business

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

e. Media: Media like films, newspaper, TV, radio, magazines etc.

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

A society well- being therefore depends largely on having a high and

Decentralized decision making.

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

Federal, state &

Social activities group

1. Primary interactions with society: A businesss primary

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

c. Creditors: Creditors provided capital for the business firm.

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

e. Media: Media like films, newspaper, TV, radio, magazines etc.

What is free market economy?

What is free economy market?

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

consumer then make an economics exchange, in which normally both

In a free market system the members of society satisfy most of

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

In a free economy market, a producer has to increase economic

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

4. Competition: Competition is an indispensable part of a free

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

6. Natural laws and limited government: Natural laws were

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

4. Organizational society: The organizational society composed

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994

farmers want guaranteed farm prices, workers want a minimum wage,

Mahmodul Hasan Tutul, Dept. of Marketing, RU. 01717-211994