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STAKE HOLDERS,
      CONSUMERS AND
          BUSINESS
         Units 4 and 5



                         Prof. Prabha Panth
3-Jun-12
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
Stakeholders and Business


          1. Government         2. Employees



6. Environment       Business            3. Owners



        5. Society              4. Consumers

                                               3
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
Stakeholder Management Strategy
                Stakeholder’s Potential for Threat to Organisation


Stakeholder’s
                       Stakeholder Type 4
Potential for            Mixed Blessing
                                                 Stakeholder Type 1
Cooperation                                          Supportive
with                       Strategy:
                                                      Strategy:
                          Collaborate
Organisation                                           Involve



                       Stakeholder Type 3
                                                 Stakeholder Type 2
                         Non-supportive
                                                      Marginal
                            Strategy:
                                                      Strategy:
                             Defend
                                                      Monitor


                                                                  5
The Clarkson Principles of Stakeholder
            Management
1. 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
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
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
Porter’s - Five Forces
                      Threat of new
                        entrants




Bargaining          Rivalry among       Bargaining
 power of          competing firms    power of buyers
 suppliers



                       Threat of
                      substitutes
                                                  9
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
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
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
India: consumer classes (NCAER)




                                  13
Indian Consumer classes - forecast
100%                                                          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
                                                       2025
Globars   Strivers    Seekers   Aspirants   Deprived              14
Consumer durables ('000)
14000                                                                            13149

12000
                                                 9957
10000
                                  8369
8000
                                                                   6774

6000


4000             3466                                                     3437

                                         1785             1850
2000                    760
        276

    0
          Cars          Motorcycles      CTV regular      Refrigerators   White goods

                        1995-96     2001-02     2005-06     2009-10               15
Forecast of Consumers’ Profile
1. 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
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
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
4. Right to be heard – through media, courts,
5. Right to redress – compensation – health effects
6. Right to education – about product, what it
   contains, how it impacts consumers,
7. Right to healthy environment – environmental
   safety, protection.




                                               19
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
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
Business Ethics
Business ethics : refers to the
                                    Includes:
behaviour that a business           • Labour management, safety in
adheres to in its daily               production, and of final
dealings with the world.              product,
(1) avoid breaking                  • Environmental safety and
the 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 of
the company; and                      products, that cannot be kept,
 (3) avoid actions that are         • Ethical behaviour of
bad for the company image             workers, staff and managers

                                                                  22
• 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!
Stakeholders in Business

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Stakeholders in Business

  • 1. STAKE HOLDERS, CONSUMERS AND BUSINESS Units 4 and 5 Prof. Prabha Panth 3-Jun-12
  • 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. Stakeholders and Business 1. Government 2. Employees 6. Environment Business 3. Owners 5. Society 4. Consumers 3
  • 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. Stakeholder Management Strategy Stakeholder’s Potential for Threat to Organisation Stakeholder’s Stakeholder Type 4 Potential for Mixed Blessing Stakeholder Type 1 Cooperation Supportive with Strategy: Strategy: Collaborate Organisation Involve Stakeholder Type 3 Stakeholder Type 2 Non-supportive Marginal Strategy: Strategy: Defend Monitor 5
  • 6. The Clarkson Principles of Stakeholder Management 1. 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. 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. 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. Porter’s - Five Forces Threat of new entrants Bargaining Rivalry among Bargaining power of competing firms power of buyers suppliers Threat of substitutes 9
  • 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. 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. 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
  • 14. Indian Consumer classes - forecast 100% 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 2025 Globars Strivers Seekers Aspirants Deprived 14
  • 15. Consumer durables ('000) 14000 13149 12000 9957 10000 8369 8000 6774 6000 4000 3466 3437 1785 1850 2000 760 276 0 Cars Motorcycles CTV regular Refrigerators White goods 1995-96 2001-02 2005-06 2009-10 15
  • 16. Forecast of Consumers’ Profile 1. 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. 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. 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. 4. Right to be heard – through media, courts, 5. Right to redress – compensation – health effects 6. Right to education – about product, what it contains, how it impacts consumers, 7. Right to healthy environment – environmental safety, protection. 19
  • 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. 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. Business Ethics Business ethics : refers to the Includes: behaviour that a business • Labour management, safety in adheres to in its daily production, and of final dealings with the world. product, (1) avoid breaking • Environmental safety and the 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 of the company; and products, that cannot be kept, (3) avoid actions that are • Ethical behaviour of bad for the company image workers, staff and managers 22
  • 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!