Social, Cultural and Demographic Factors can directly affect the activities of a business. The ever-changing values and attitudes of society means businesses must navigate a minefield of potential backlash to ethical concerns of all activities.
Growing support for environmental protection has altered business behaviour immensely, with many organisations now reporting the non-financial aspects of their operations, such as recycling and waste management.
With a more liberal and modern social attitude towards women in most societies, businesses have benefited from advocating diversity in the workforce.
Acceptance of multiculturalism has opened up opportunities for businesses to target foreign markets to expand their customer base and reach.
The advancing technological environment presents constant threats and opportunities. Advances in technology, if adapted correctly, can improve work processes and present opportunities for market development and penetration strategies. However, with a rise in technology comes a rise in new competitors who have managed to predict and ride waves of advancement (Tech Unicorns).
Technology also affects HR management (recruiting with LinkedIn etc.), Marketing (E-commerce, online advertisements etc.), Finance (using excel to speed up calculations, publishing reports online etc.), operations management (using technology to measure productivity etc.), and security management (preventing data leaks and hacks)
New working practices - Advancing communications technologies and file sharing platforms have opened the door to working from home.
Increased productivity and efficiency - Automation, automated stock control systems to automatically reorder new stock, computer-aided-design and computer-aided-manufacturing technologies.
New products and new markets - Innovation can breed opportunities to start new products (wireless products, smartphones, electric cars, etc.).
Reduced costs - Adopting an e-commerce platform can potential enable a business to invest in cheaper locations, overcome geographical limitations to reach a global audience, and remove intermediaries from its distribution channel.
Unreliable and insecure - Computer systems failures, hacking, etc.
Shorter product life cycles - Software becomes obsolete quickly in highly competitive industries.
Job losses - Automation has led to unemployment in primary and secondary sectors.
Price transparency - Potential customers can easily compare products with similar products of competitors online.
Lowered barriers to entry and emerging industries - Startups that have developed new technologies are creating entire industries, such as Uber in the ride-hailing industry and Netflix in the subscription-based on-demand entertainment industry. Businesses that fail to quickly identify and adapt to changes will quickly lose market share and power to emergent unicorns.
The economic environment refers to the state of the economy in which the business operates. It can be defined by four different economic factors: inflation, unemployment rates, economic growth, and a healthy international trade balance.
Inflation - The continued rise in the general level of prices in the economy. Low and stable inflation is a priority for economic prosperity.
Uncontrolled inflation can complicate business planning and decision-making: raw material costs, catalogue and menu prices, wage claims are all affected by inflation.
Inflation also affects how a business can compete internationally, as they would have to raise prices to offset the rising costs. The domino effect would be a fall in export earnings, lower revenue, and then possible unemployment.
Unemployment - The proportion of a country’s workforce not in official employment. The government uses a combination of policies to tackle unemployment, which provides opportunities for businesses.
For example, the government could reduce taxes or increase its spending to boost the level of consumption in the economy, which helps businesses increase revenue. The government could also spend more on education and training to build a skilled and flexible national workforce, which will improve the workforce of local businesses.
Economic Growth - An increase in a country’s economic activity over time, measured by the change in the value of the economy’s total output (GDP) per year. The pattern of fluctuations in economic growth is known as the business cycle.
Businesses have to forecast and prepare for sales during booms and recessions if they want to capitalise on opportunities and survive through threats.
International Trade Balance - The value of a country’s export earnings and import expenditure.
When there is a negative imbalance in international trade, governments will attempt to alter their exchange rates to make local businesses more competitive.
A government can also introduce protectionist measures to safeguard domestic businesses from foreign competitors. Such measures pose a barricade to foreign businesses trying to establish themselves in overseas markets to support local businesses. However, introducing these policies will damage local businesses who rely on foreign imports of raw materials.
Individuals, organisations and governments are increasingly concerned about the negative impacts of business activity on the natural environment. (link to articles about increased measures for environmental protection)
Changes in social attitudes towards the environment has meant that businesses are increasingly reviewing their practices. Firms that do not respect the environment face ruining their reputation and long-term profitability.
Additionally, weather and seasonal changes can also present opportunities or threats. For apparel retailers, the products on offer often depend on the season and local climate. Extreme weather (flooding, natural disasters, etc.) and pandemics/epidemics can have negative impacts on local businesses.
The political stability of a country and government policies will affect business.
Stability offers monotony and security for a business, allowing them to more accurately forecast economic factors in the future as they will not have to worry about changing fiscal policies and monetary policies. For the same reasons, larger multinational corporations will also be attracted to the country, which can carry positive and negative effects of its own.
The government imposes rules, regulations and laws to ensure that the general public is protected from adverse business activity. Government intervention could also protect the interests of businesses.
Consumer Protection - Laws exist to prevent businesses from providing false or misleading descriptions of their products and services, and to ensure products meet a certain quality standard before being fit for the market.
Employee Protection - Laws protect the interests and safety of workers. (minimum wages, anti-discrimination, unjust firing etc.)
Competition - Laws to ensure businesses are competing fairly. Preventing monopolies, underhand tactics to sabotage competitors, and price fixing are examples.
Environmental Protection - Laws to prevent exploitation of natural resources or pollution.
Ethics - The moral principles that guide decision-making and strategy, based on society’s perspective of what is wrong and right.
Corporate Social Responsibility - A management concept that helps a business integrate ethical concerns in their business operations and interactions with stakeholders. CSR makes a business conscious of its economic, social and environmental impacts on its community and stakeholders.
Improved Corporate Image - Enhances corporate image and public reputation of the business, with positive media coverage raising brand awareness.
Improved Staff Morale - Potential employees may be attracted to work for the business if their values align with the social benefits the business advocates; this gives the business a competitive edge for hiring talent, and enables the business to retain productive employees and improve motivation.
Lower Profits - Compliance with ethical standards typically means sacrificing profits for a better cause. The lower revenue will have to be offset by either cutting costs or increasing prices, which will decrease the competitiveness of the product from a price standpoint.
Stakeholder Conflict - Shareholders and financial investors will be concerned with a dramatic adoption of ethical behaviour that threatens to decrease profits and hence reduce the value of the business.
Subjective Perspectives - All ethical behaviour will incite conflict over opposing perspectives on whether the business’ actions can be justified as ethical.