MODULE 6

RECOGNIZING BUSINESS

TRENDS AND CHALLENGES

Entrepreneurs and business people must learn how to recognize trends in order to take advantage of them and make the most of these. More so, they must be ready to face the challenges that come their way so as not to lose any business.

OBJECTIVES:

After studying this module, the student should be able to:

1.      Describe major trends that affect the nature of business;

2.      Explain how and why government has regulated businesses in the past and why it has elected to deregulate some industries;

3.      Discuss changes in the labor pool and their effect on business;

4.      Describe changes in consumer rights and demographics and their impact on business;

5.      Identify and discuss major business challenges.

BUSINESS AND CHANGE

Some of the changes and challenges confronting businesses in the country today involve things internal to the organizations themselves. Among the most pressing of theses shifts are the growth of high technology, a move from manufacturing to informational services, geographical moves, and an increase in mergers and acquisitions.

The Impact of High Technology

One major trend that has affected virtually every aspect of the contemporary business world is the development and spread of high technology. A high-technology (high tech) firm is one that spends twice as much on research and development and employs twice as many technical employees as an average manufacturing firm. The term “high-tech” may conjure up images of computers and robots. Firms that make these products are definitely high-tech. But so are firms in the aircraft, pharmaceuticals, and communications industries.

High-tech has not, however, been what it was expected to be. It has not created the number of new jobs that many economists originally predicted. Some of the production jobs it has created have been in foreign factories. Many workers trained  for industrial jobs have also been unable or unwilling to make the transition to high-tech jobs. Finally, many entrepreneurs who rushed into the high-tech area did so with poorly conceived plans and were unsuccessful. Still, high-tech is clearly with us to stay and will have an increasingly important role in our national economy.

Manufacturing to Information Services

Developments in high technology have also contributed to another change in the business world. In recent years, the manufacturing sector has decreased as an employer of workers, while the service sector has grown.

Not all service industries have grown as much as others, though. While employment in traditional service industries such as construction, restaurants, hotels, and repair services has grown as percentage of national employment, informational services are the area of greatest growth of late. Informational services personnel include lawyers, accountants, data processors, computer operators, financial analysts, office personnel, and insurance agents—all those who spend their day working on or with information.

This sector has grown for many reasons. An increasing need to acquire and manage information in a highly competitive marketplace is a prime factor. Another reason is the increasing government regulation of business. With more governmental regulations, companies have had to hire more people to read about the regulations and to construct and implement policies that comply with the regulations. Filling out government forms is another major task.

A Geographic Move

Another trend affecting business has been a gradual population shift to the economic zones. These are geographical regions that have economic laws that are more liberal than a country's typical economic laws. Usually the goal is an increase in foreign investment. With the influx of foreign investors, workers get hired in the company’s within these zones. Most of these workers come from different places. They bring their families with them and relocate them to housing within or very near these zones.

The Rise of Mergers and Acquisitions

A final trend in modern business has been the rising number of mergers and acquisitions although this trend may be fading. An acquisition is simply the case of one firm buying another. In contrast, a merger is a consolidation of two firms. In the case of acquisition, one firm (usually the larger) buys the other (the smaller). In a merger, on the other hand, the firms are usually more similar in size and the arrangement is more collaborative.

After a merger or acquisition, three things can happen. One possibility is that the acquired company will continue to operate as a separate entity. Another possibility is that the acquired business will be absorbed by the other and simply disappear. Finally, the two companies may form a new company.

BUSINESS AND GOVERNMENT

Government Regulation of Business

Government regulates business for a variety of reasons. Chief among these reasons are to protect competition and to meet the nation’s social goals.

Protecting Competition

One key reason for government to regulate business is to ensure competition. Government regulation in this area protects both consumers and other business. Competition is crucial to a market economy. Monopolists could charge high prices for inferior goods, since consumers have no options. Laws against monopolies thus preserve competition and mean companies will strive to offer goods that meet consumers’ expectations at a reasonable price.

Similarly, without government restrictions, a large business with vast resources could cut its prices so low and advertise so much that smaller firms lacking equal resources would be forced to close.

In cases when a monopoly is desirable for some reason, government regulation seeks to prevent companies from price gouging or increasing prices unreasonably.

Meeting Social Goals

Another reason for the regulation of business is to help meet social goals. Social goals promote the general well-being of our society. In several areas, business activities and social goals overlap.

In any market economy, consumers must have money to purchase goods and services. But our sense of fairness dictates that the sick should be treated, regardless of their ability to pay. Toward this end, cities have long maintained public hospitals. Public immunization programs have inoculated millions of Filipinos against TB, polio, etc.

Another social goal—a safe work place—has also generated extensive government regulation of businesses. In addition, state-mandated worker compensation programs require businesses to contribute to a fund that pays workers who have been injured on the job.

Other national, city and municipal laws regulate countless aspects of business in order to “protect” the public. Various laws regulate banks, stock sales, and automotive emissions. The state license physicians, insurance salespeople, real estate brokers. And local ordinances establish where garbage can be dumped and who can serve liquor. Indeed millions of laws, licensing rules, and legal actions regulate every aspect of business in the Philippines today, a pattern some small businesses find threatening.

A Move Toward Deregulation

Although government regulation has benefited the country in some ways, it is not without its drawbacks. Business people and entrepreneurs complain—with some justification—that government regulations require too much paperwork. There are other reasons these people find no very reasonable. For these and other reasons, the country began deregulating certain industries, with mixed results. Deregulation is the removal or easing of government-imposed laws or restrictions on business operations.

How Business Influences Government

Not everyone agrees on the benefits of government regulation or deregulation. Naturally, businesses attempt to assure that laws regarding regulation and taxation do them the least harm and the most good. Toward this end, businesses attempt to influence the government through the use of lobbyists, trade associations, advertising, and political action committees.

A lobbyist is a person hired by a company or industry to represent its interests with government officials. Some business lobbyists have training in the particular industry, public relations experience, or a legal background. A few have served as legislators or government regulators. But all are required to register with the government as paid representatives of interest groups or particular businesses.

Employees, some entrepreneurs and owners of small businesses that cannot afford lobbyists often join trade associations. Trade associations may act as an industry lobby to influence legislation. They also conduct excellent training programs relevant to the particular industry, and they arrange trade shows at which members display their products or services to potential customers. Most publish newsletters featuring articles on new products, new companies, changes in ownership, and changes in laws affecting the industry.

Corporations can also influence legislation indirectly by influencing voters. That is, a company or industry can launch an advertising campaign designed to get people to write or inform their congressman demanding passage—or rejection—of a particular bill.

Finally, businesses may attempt to influence legislation by contributing to political action committees (PACs) which are special political fund-raising groups.

Critics have argued that the growth of lobbying by business and industry and of PACs has distorted the legislative process. They charge that legislators have become most sensitive to the best funded arguments.

For many lobbying efforts, however, there are opposing efforts. So, in looking at business and government, it is important to keep in mind that competing interests can have vastly different effects on political processes.

BUSINESS AND LABOR

Because workers are an important resource to every company, relations with the labor force are another important dimension of the contemporary business world.

Changing Demographics of the Labor Force

The statistical makeup—the demographics—of the labor force has changed gradually over the past several years. These changes have been in terms of age and the role of women.

The Graying Work Force

Many workers are getting older and older in the jobs that they hold. As you might expect, this increase is the result of more older workers and fewer younger workers. People are living longer than ever before, and some older individuals are taking advantage of changes in retirement laws and continuing to work beyond age 65.

This trend has affected business in two ways. First, older workers tend to put greater demand on a company’s health insurance, life insurance, and retirement benefit programs. And second, younger workers taking the places of retirees tend to want different things from employers—things like more opportunities for self-expression or more leisure time.

On another front, many businesses are also hiring retirees as part-time employees. Many have lots of experience to draw on, are dependable, and require fewer benefits than full-time employees.

Women in the Work Force

Another trend that has had a significant impact on business is the growing number of women in the work force. In the fifties, only a small percentage of the female population worked outside the home. Thirty years later, the percentage has more than doubled.

There are many reasons for the increase in the number of women who work outside the home. Faced with rapid increases in the prices of goods, many couples found that they needed two incomes to maintain their standard of living. In addition, the women’s movement and the greater number of women attending and graduating from college have provided more career options for women.

The large percentage of women in all types of careers has had and will continue to have a major impact on business. Many companies are having to address the problem of child care in order to retain valuable trained personnel.

BUSINESS AND CONSUMERS

At the start of the 21st century, business have had to adjust to an increase in the power of the consumer. Gone are the days of caveat emptor, “let the buyer beware.” A business following that dictum today is apt to face boycotts, lawsuits, and government intervention. Consumer tastes and preferences are also more complex than in the past. Again, there are several reasons for this trend, including demographic changes and the rise of consumer rights.

Consumer Rights

Activism on the part of consumers seeking better value from businesses—the consumer movement—has altered the way many businesses conduct themselves.

Over the past decade, legislation has broadened consumer rights considerably. Now, consumers are guaranteed the right to choose the products they desire, the right to safety from the products they purchase, the right to be informed about what they are buying, the right to choose, and the right to be heard in the event of problems. As a result, most products today come with extensive instructions as to their use and, in the case of food products, a detailed list of their ingredients. Most products also have a guarantee or warranty, and many list telephone numbers, addresses, websites and email to contact in the event of problems.

Changing Demographics of Consumers

The same pattern of demographic changes that affect labor practices also reflect consumer shifts: age and women.

An Ageing Population

Just as the average of workers is increasing, so is the average age of the entire population. Because of this trend, companies are finding new market opportunities and challenges. Older adults are demanding recreational facilities, health care, housing, leisure-time products, and personal-care items designed specifically for them.

Working Women

Working women also are providing more marketing opportunities for business. For instance, in recent years there has been demand for convenience foods that require little preparation, such as microwavable dinners and frozen pizzas. Products like telephone answering machines and home computers have increased in popularity, partially because of two-career families. Restaurants and home-cleaning services have benefited too. There has also been increased for professional “gear” for working women: business attire, bags, and the like. The fact that women are not staying at home to care for children has even created a new industry—the day-care industry.

CHALLENGES

Given the nature and complexities of today’s business environment, it is not surprising that business faces a number of critical challenges. Four of the most important ones relate to productivity, international trade, pollution and technology.

In Search of Higher Productivity

Productivity is a measure of our economy’s success. It is also a measure of a business’s success, since it reflects the efficiency with which a company uses resources. That is, a company that uses fewer resources (whether of materials, management or labor) to make the same number of products as another firm is more efficient.

International Trade

Another significant problem facing managers is trade deficit. A trade deficit means that, on the whole, a country is importing more products that it exports.

Why have so many foreign companies been more successful than others? Some economists blame conflict among business, the government, and labor in a particular country. Some reasons for trade imbalances hinge on characteristics of other countries. Some pay their employees lower wages. Some have employees who accomplish more in an equal amount of time. Lower safety standards and pollution controls in many foreign countries mean lower costs of producing goods. Fewer “paperwork” requirements means that foreign companies do not have to employee as many accountants and lawyers—a substantial savings.

One source of particular distress to a country’s firms is that some countries fail to honor that country’s patents. Another reason for a trade deficit is that many countries have complex rules that restrict another country’s import of goods. Finally, if unemployment threatens a particular industry, some foreign governments will subsidize that industry through outright grants, very low-interest loans, or government purchases at inflated prices.

As you can see, many factors are involved in the international trade problem. Any solution will have to be equally complex. Because of these difficulties, international trade remains a major business challenge.

The Continuing Challenge of Pollution

As the world’s landfills disappear, how will countries dispose of solid waste? Will they burn it? Will the recycle it? How will these countries meet the energy needs of the future? Will they continue to use conventional power plants that damage the air and land? Or will they turn to nuclear-powered power plants that raise the issue of safe nuclear waste disposal? Pollution cleanup may be a new source of business profit.

Technology Fiend or Foe?

Dealing with technology and its role in modern society will continue to be a major business challenge. Is high technology friend or foe to Filipinos and their business? Critics fear the replacement of traditional middle-class jobs with automated machinery.  They predict a depersonalized society in which people become numbers to a computer that received telephone calls, handles banking transactions, maintains the temperatures in our homes, and even answers the doorbells.

Defenders of technology point to its promised benefits. New genetically engineered seeds that will increase agricultural production for a hungry world have entered the market. New vaccines that may help win the battle against cancer, AIDS, and viruses are in development. And new employment opportunities in safer environments than the blistering hot and dangerous steel mills of the past are a reality for many today.

Some people argue that technology will provide answers to pollution and ways to continue to increase productivity. Others raise complex questions about whether we can control technology we create. As future business and government leaders, you will be confronted with these and many other challenges in the decades ahead.

Questions to Answer:

1.      Identify the significant internal forces that businesses must now contend with

2.      What are the major hurdles facing business? Explain each.

3.      In what ways do businesses attempt to influence government? What ethical implications can be drawn regarding these actions?

4.      Using periodicals relating to business and entrepreneurship, identify five recent mergers.

5.      What do you see as the appropriate role of technology in the future? In general, will it improve or harm our society? Should it be regulated?

6.      Enumerate three examples of instances in which you believe business has been more responsive to consumer expectations than it was in the past.