Sample Cheat Sheets: External Influences On Business Activity: Political And Legal
Privatisation
- Definition: Transfer of state-owned enterprises (SOEs) to private ownership.
- Advantages:
- Efficiency and productivity ↑ (profit motive).
- Revenue for government from asset sales.
- Encourages competition and consumer choice.
- Attracts foreign investment.
- Reduced political interference.
- Wider share ownership.
- Disadvantages:
- Loss of government control.
- Risk of private monopolies.
- Job losses (cost-cutting).
- Short-term profit focus, less long-term investment.
- Higher costs for consumers in monopolies.
- Loss of government profit stream.
Nationalisation
- Definition: Government takes private firms into public ownership.
- Advantages:
- Protects strategic/national interest industries.
- Job security and wage stability.
- Universal service provision (even in unprofitable areas).
- Profits reinvested for public welfare.
- Long-term planning possible.
- Disadvantages:
- Inefficiency due to lack of competition.
- Political interference in decisions.
- Taxpayer burden to support loss-making firms.
- Private sector investment discouraged.
- Risk of corruption/mismanagement.
Government Control Through Laws
- Employment practices: Anti-discrimination laws, fair recruitment, dismissal rules.
- Conditions of work: Health & safety standards, working hours, training.
- Wage levels: Minimum wages, equal pay, collective bargaining laws.
- Marketing behaviour: Ban false ads, protect consumers, restrict harmful product ads.
- Competition: Prevent cartels, regulate mergers, ban abuse of market power.
- Location decisions: Zoning laws, tax incentives for underdeveloped areas, environmental restrictions.
- Goods and services: Ban/restrict harmful goods (drugs, weapons), regulate gambling/tobacco/alcohol.
Impact of Political & Legal Factors
- Business costs ↑ due to compliance (training, equipment, audits).
- Competitiveness ↓ with strict regulation; deregulation attracts investors.
- Political stability encourages FDI; instability discourages.
- Uncertainty from changing laws/taxes affects planning.
- CSR pressure due to stricter legal/social expectations.
- Innovation: Protected by IP laws, slowed by strict approvals (e.g., pharmaceuticals).
Quick Examples
- Privatisation: British Airways, British Telecom – efficiency ↑, fares/prices ↑.
- Nationalisation: UK banks (2008 crisis) – stability maintained.
- Legal Control: EU Working Time Directive, bans on tobacco advertising, US Equal Employment laws.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change A2 Level Business Full Scale Course