Business Success Factors: Ethics, Policy, and Scaling Efficiency

Ethical Business Practices and Reputation

Businesses should operate ethically to safeguard their reputation, image, and profitability. Benefits include attracting and retaining high-quality workers and customers, generating positive publicity, and fostering strong business relationships.

Political Influences on Business Activity

Government Intervention and Policy

Governments: Utilize legislation and policies to oversee business behavior and influence activity (often referred to as an Interventionist approach).

Policies: Involve the use of taxation and government expenditure (Fiscal Policy), and the manipulation of interest rates (Monetary Policy) to affect the money supply and exchange rate, thereby influencing overall business activity.

• Deregulation: The removal of government rules and regulations that restrict business activity within a particular industry. This enhances efficiency and encourages competition.
• Corruption: Dishonesty or criminal activity undertaken by a person or organization to acquire illicit benefit or through the abuse of power.

Legal Framework and Compliance

The government imposes rules, regulations, and laws designed to protect the general public and the interests of businesses.

Ecological and Environmental Factors

Environmental Concerns: This refers to the concern regarding the negative impact businesses have on the environment.

Due to the prevailing social attitude toward environmental protection, businesses must maintain a positive stance and review their practices to safeguard their reputation, profitability, and image.

External Environmental Risks

• Weather and Seasonal Changes: These factors may present opportunities or threats to a business. Since they cannot be controlled, businesses must adapt their operations.
• Health Scares and Epidemics: Outbreaks of certain diseases can potentially collapse businesses, especially if they are linked or associated with the outbreak.

Business Growth, Evolution, and Efficiency

Scaling Operations: Economies and Diseconomies

Economies of Scale: A reduction in the average unit costs as the business increases in size. This occurs when a business increases the scale of operations and becomes more efficient.

Diseconomies of Scale: An increase in average unit costs as the business increases in size. This occurs when the business experiences inefficiencies as it becomes larger.

Defining Efficiency and Costs

Total Costs (TC): TC = Fixed Costs (FC) + Variable Costs (VC)

Average Cost (AC): AC = Total Cost / Quantity Produced

Internal Economies of Scale

These are efficiencies that the business generates internally:

• Technical: Bigger units of production reduce costs because the increase in variable costs (VC) is spread over a set of fixed costs (FC).
• Managerial: Achieved through managers who specialize in one job rather than attempting to handle many roles.
• Financial: Larger businesses are considered less risky by financial institutions, allowing them to charge lower interest rates.
• Marketing: Larger businesses have more capital to spend, leading to more effective marketing campaigns.
• Purchasing: Businesses can obtain discounts through bulk buying.
• Risk Bearing: Businesses can maintain a range of products or brands to decrease the risk of failure if one specific product underperforms.