Stakeholders in Business

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In this lesson we discuss the various stakeholders in business, and their involvement and interactions, and business companies responsibilities towards its stakeholders.

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Stakeholders in Business

  1. 1. STAKE HOLDERS, CONSUMERS AND BUSINESS Units 4 and 5 Prof. Prabha Panth3-Jun-12
  2. 2. Stakeholders in Business• Stakeholders: Individuals and groups with interests, expectations, and demands about what business should provide to society.• Business should consider stakeholders’ expectations under: – Legitimacy: the validity of the stakeholder’s claim, – Power: the ability of the stakeholders to affect the firm’s operations, – Urgency: the degree of immediate attention of the stakeholder’s claim. 2
  3. 3. Stakeholders and Business 1. Government 2. Employees6. Environment Business 3. Owners 5. Society 4. Consumers 3
  4. 4. Types of Stakeholders• Primary stakeholders: with direct stake in the organisation and its success – owners, managers, share holders, and workers. Includes: – Core stakeholders: essential to the survival of the firm, – Strategic stakeholders: vital to the organisation and to face its threats and opportunities – owners and managers• Secondary stakeholders: public or special interest stake in the organisation – consumers, government, civil society, neighbourhood, environment. Also called: – Outside stakeholders 4
  5. 5. Stakeholder Management Strategy Stakeholder’s Potential for Threat to OrganisationStakeholder’s Stakeholder Type 4Potential for Mixed Blessing Stakeholder Type 1Cooperation Supportivewith Strategy: Strategy: CollaborateOrganisation Involve Stakeholder Type 3 Stakeholder Type 2 Non-supportive Marginal Strategy: Strategy: Defend Monitor 5
  6. 6. The Clarkson Principles of Stakeholder Management1. Acknowledge: and monitor concerns of legitimate stakeholders.2. Listen and communicate with stakeholders,3. Adopt mechanisms sensitive to stakeholders’ claims and requirements,4. Interdependence and distribution: recognise the interdependence of interests, and distribute benefits accordingly.5. Cooperate with other public and private entities – to reduce any negative impacts of the business, and to pay compensation,6. Avoid activities that infringe rights of stakeholders, e.g. right to life, property, and clean environment.7. Transparency of activities, reporting of actions taken to address stakeholders’ requirements. 6
  7. 7. Competitive forces• In perfect competition, firms work in a no risk environment, with equal shares in the market, and equal profits• But in the real world, there is no perfect competition, only oligopoly or monopolistic competition,• Businesses have to face different types of competition risks, affects their market size and profits• SWOT analysis – Strengths, Weaknesses, Opportunities and Threats 7
  8. 8. Porter’s - Five Forces• Porter: to diagnose the principal competitive pressures in a market and assess its strength and importance to the firm.• He identifies five forces that affect the competitive structure of firms.• The five forces are external forces that impact on a company’s ability to compete in a given market. 8
  9. 9. Porter’s - Five Forces Threat of new entrantsBargaining Rivalry among Bargaining power of competing firms power of buyers suppliers Threat of substitutes 9
  10. 10. 1. Rivalry among firms: cut throat competition, oligopoly, high fixed costs, no product differentiation.2. Threat of new entrants: low barriers to entry, government licensing policy, economies of scale, expected retaliation.3. Bargaining power of buyers: monopsony, consumers’ knowledge, undifferentiated products (no brand loyalty)4. Bargaining power of suppliers: supplies from few firms, vertical integration, few or no substitutes. Influences input prices (oil)5. Threat of substitute products: rivals develop substitutes, technology, adv campaigns 10
  11. 11. CONSUMING CLASSES IN INDIA• In recent times consumerism is growing in India.• Factors affecting consumerism in India: 1. More access and availability of consumer durables and luxuries, imports and local production 2. Growth of service sector, and incomes, 3. Growth of middle class, 600 million effective consumers 4. Change in lifestyles, 5. Credit cards, consumer loans and credit, 6. Growth of shopping malls, 7. Change in attitudes towards consumption, 8. Larger share of younger generation in population. 11
  12. 12. Indian Retail Market• Indian retail market is considered to be the second largest in the world in terms of growth potential.• The market growing at 11-12% pa.• C-durable expenditure accounts for around 10% of GDP.• Attracts global retail giants• Investments estimated in C-durables: Rs 200 billion by end of 2010. 12
  13. 13. India: consumer classes (NCAER) 13
  14. 14. Indian Consumer classes - forecast100% 3 90% 10 24 80% 17 70% 54 35 60% 77 50% 36 46 40% 30% 32 35 20% 24 15 17 10% 8 6 2 6 8 0% 5 0 1 7 12 20 1965 1995 2005 2015 2025Globars Strivers Seekers Aspirants Deprived 14
  15. 15. Consumer durables (000)14000 1314912000 995710000 83698000 677460004000 3466 3437 1785 18502000 760 276 0 Cars Motorcycles CTV regular Refrigerators White goods 1995-96 2001-02 2005-06 2009-10 15
  16. 16. Forecast of Consumers’ Profile1. Income group: domination of middle class,2. Demography: average age in India (2020) - 29, in China and the US – 37, Europe 45.3. Urban: 35-45% population living in towns and cities by 2050.4. Demonstration effect: rural population copies urban, urban copies Western C-patterns.5. Brand loyalty: will decrease, as younger generation are not brand loyal, also more choice,6. Health conscious: with more education, awareness 16
  17. 17. Consumer protection• In Economics, consumers are supposed to have full knowledge of the product.• Is there Consumer’s Sovereignty?• Unscrupulous business – can sell unsafe, substandard, dangerous products.• Incorrect advertisements forcing consumer’s to buy their products.• Consumers have no bargaining power.• Both international and national policies to protect consumers and educate them. 17
  18. 18. International Forum for Consumers• International’s Charter of Consumer Rights (UN 1982), to be implemented by governments.• Eight rights 1. Right to basic needs - Food, clothing, shelter, health care, education, water and sanitation 2. Right to safety – in consumption, lead in toys, Bt fruits and vegetables, 3. Right to information – inputs, expiry dates, reactions, impacts, technology 4. Right to choice – safer and healthier substitutes 18
  19. 19. 4. Right to be heard – through media, courts,5. Right to redress – compensation – health effects6. Right to education – about product, what it contains, how it impacts consumers,7. Right to healthy environment – environmental safety, protection. 19
  20. 20. Consumer Protection Act, 1986• COPRA : based on UN Guidelines for Consumer Protection in 1985 recognising the rights of consumers,• To protect and save consumers from exploitation, from adulterated, substandard goods and deficient services, – setting up of consumer protection councils at the central and state levels, – Central Consumer Protection Councils (CCPC) and State Consumer Protection Councils. – District consumer protection councils. – National Consumer Policy to ensure that goods and services are available to consumers at reasonable prices and acceptable standards of quality. 20
  21. 21. Consumer complaints• A number of NGOs have taken up the cause of consumer’s complaints : – International Consumer Rights Protection Council (ICRPC), Consumer court, Jagoo Party,However, despite Government policy on consumer rights and consumer protection, consumers are a helpless lot in the legal system of India.The consumer court system of our country is one of the highly inefficient and impotent systems in the world. • Years of legal battles (10-15 yrs), • High costs • Corrupt bureaucracy, • Industry power and clout 21
  22. 22. Business EthicsBusiness ethics : refers to the Includes:behaviour that a business • Labour management, safety inadheres to in its daily production, and of finaldealings with the world. product,(1) avoid breaking • Environmental safety andthe criminal law in one’s protection,work-related activity; • Pricing of products, • Proper and not misleading(2) avoid action that may advs.result in civil law suits against • Avoid promises ofthe company; and products, that cannot be kept, (3) avoid actions that are • Ethical behaviour ofbad for the company image workers, staff and managers 22
  23. 23. • Many large companies flout ethics due to their money power. – Coca cola – exploitation of labour in South and Central America, pesticide content – India, – Union Carbide – Bhopal gas tragedy, – Nestlé - selling genetically modified food in some Asian countries without labelling them explicitly. – Health drinks (Complan, Horlicks) – as substitutes for a balanced diet, increase intelligence!

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