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The Business Environment
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The Business Environment:
A Global Perspective
Ninth edition
Ed Thompson, Ian Worthington and Chris Britton

De Montfort University, Leicester
Harlow, England • London • New York • Boston • San Francisco • Toronto • Sydney • Dubai • Singapore • Hong Kong
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First published in Great Britain in 1994 (print)

Ninth edition published 2023 (print and electronic)
© Ian Worthington and Chris Britton 1994, 1997, 2000, 2003 (print)
© Ian Worthington and Chris Britton 2006, 2009 (print and electronic)
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ISBN: 978-1-292-41784-4 (print)
978-1-292-41786-8 (PDF)
978-1-292-41785-1 (ePub)
British Library Cataloguing-in-Publication Data

A catalogue record for the print edition is available from the British Library
Library of Congress Cataloging-in-Publication Data

Names: Worthington, Ian, 1946- author. | Britton, Chris, author. |
Thompson, Edward, 1986- author.
Title: The business environment : a global perspective / Ian Worthington,
Chris Britton and Ed Thompson, De Montfort University, Leicester.
Description: Ninth Edition. | Hoboken, NJ : Pearson, [2023] | Revised
edition of The business environment, 2018. | Summary: “The business
environment is our environment, it is the world we live in and all
aspects of the business environment should be viewed in terms of people.
Business ethics is about fairness in how a business operates; a business
environmental policy is about how we pollute or preserve our own world;
employment and unemployment are about people’s ability to house and feed
themselves. This is a book about all of us and how we interface with the
world and each other, because businesses are just organisations of
people and material things”-- Provided by publisher.
Identifiers: LCCN 2022058060 (print) | LCCN 2022058061 (ebook) | ISBN
9781292417844 (paperback) | ISBN 9781292417868 (ebook) | ISBN
9781292417851 (epub)
Subjects: LCSH: Industrial management--Great Britain. | Great
Britain--Commerce. | European Union countries--Commerce. | Industrial
policy--Great Britain. | Industrial policy--European Union countries. |
International economic relations. | Business.
Classification: LCC HD70.G7 W64 2023 (print) | LCC HD70.G7 (ebook) | DDC
658--dc23/eng/20221201
LC record available at https://lccn.loc.gov/2022058060
LC ebook record available at https://lccn.loc.gov/2022058061
10 9 8 7 6 5 4 3 2 1
23 22 21 20 19
Cover design: Kelly Miller

Cover image: bfk92/iStock/Getty Images Plus/Getty Images
Print edition typeset in 9.5/13pt Stone Serif ITCPro by Straive

Printed by Ashford Colour Press Ltd., Gosport
NOTE THAT ANY PAGE CROSS REFERENCES REFER TO THE PRINT EDITION

For Lindsey, Tom and Georgina, for Rachael, Philip,
Nick and Megan, and for Ramanjeet, Darshan, Sandra
and David – with our love

Brief contents
Contributors xix
Preface to the Ninth Edition xx
Publisher’s Acknowledgements xxii
Guided tour xxiv
Part One INTRODUCTION 1

1 Business organisations: the external environment 3
2 Business organisations: the internal environment 17
3 The global context of business 39
4 De-globalising factors: sovereignty, conflicts and political priorities 55
Part Two CONTEXTS 69

5 The political environment (P) 71
6 The macroeconomic environment (E) 103
7 The demographic, social and cultural context of business (S) 141
8 The resource context: people, technology and natural
resources (T) 163
9 The legal environment (L) 189
10 The ethical and ecological environment (E) 215
Part Three FIRMS 233

11 Legal structures 235
12 Size structure of firms 261
13 Industrial structure 285
14 Government and business 307
Part Four MARKETS 325

15 The market system 327
16 Market structure 351
17 International markets and trade 373
18 Pandemics and Covid-19 399
19 Governments and markets 419
Part Five CONCLUSION 441

20 Strategy and the changing environment 443
Glossary 469
Index 489

Contents
Contributors xix
Preface to the Ninth Edition xx
Publisher’s Acknowledgements xxii
Guided tour xxiv
Part One INTRODUCTION
1 Business organisations: the external environment 3

Learning outcomes and key terms 3
Introduction 4
The business organisation and its environment 4
The general or contextual environment 7
Mini case: The impact of regional economic conditions 8
The immediate or operational environment 9
Analysing the business environment 10
Mini case: Fresh but not so easy 10
Central themes 12
Synopsis 14
Summary of key points 14
Case study: Facing the unexpected 14
Review and discussion questions 15
Assignments 16
Further reading 16
2 Business organisations: the internal environment 17

Introduction 18
The concept of the organisation: an initial comment 18
Understanding the nature of organisations: theories of
organisation and management 19
Other theoretical approaches 23
Organisational structures 23
Mini case: ‘Into the Dragon’s Den’ 24
Mini case: Mergers and competition 27
The virtual organisation 29
Structural change 30
Aspects of functional management 30
Synopsis 35

x Contents
Case study: Reshuffle at Microsoft 36

Case study: Thomas Cook expansion 37
Assignments 38
Further reading 38
3 The global context of business 39

Introduction 40
Globalisation versus internationalisation 40
The role of multinational enterprises 43
Mini case: Transfer pricing 44
Globalisation and business 46
Mini case: Currency crisis in emerging markets 47
Globalisation and the small and medium-sized firm 48
Synopsis 49
Case study: Global financial markets – too big to fail 50
Case study: FDI flows 51
Assignments 53
Further reading 53
4 De-globalising factors: sovereignty, conflicts and

political priorities 55
Introduction 56
What is globalisation? 57
Bretton Woods System (or the ‘New World Order’) 58
The 1970s to the present 59
Isolationism 59
International conflicts 62
Sanctions 63
Case study: Local solutions to global problems 65
Environmentalism 65
Case study: Weetabix – local solutions to global problems 67
Assignments 68
Further reading 68
Part Two CONTEXTS
5 The political environment (P) 71

Introduction 72
Political systems 74

Contents xi
Government in democratic states 76

Mini case: Brought to book 79
The three branches or functions of government 82
Mini case: The power of the purse 83
Checks and balances in democracies 87
A model of the policy process 87
Synopsis 89
Appendix 5.1: A democratic political system in action: UK national
government 90
The executive branch of government 92
The judicial branch of government 97
Appendix 5.2: Subnational government: UK local authorities 97
Appendix 5.3: Other levels of government 99
Case study: The business of lobbying 100
Case study: Political campaign funding 101
Assignments 102
Further reading 102
6 The macroeconomic environment (E) 103

Introduction 104
Economic systems 105
Economies in transition 109
Politico-economic synthesis 110
The macroeconomy 111
Government and the macroeconomy: objectives 117
Mini case: Digging in for the long term 123
Government and the macroeconomy: policies 123
The role of financial institutions 128
Mini case: A new kid on the block: the rise of the credit rating
agency 130
International economic institutions and organisations 131
Synopsis 134
Case study: Austerity 136
Case study: Quantitative easing (QE) 136
Assignments 138
Further reading 139
7 The demographic, social and cultural context

of business (S) 141

Introduction 142

xii Contents
The demographic environment of business 142

The social context 147
Mini case: A new class structure? 148
Lifestyles 151
The cultural environment 153
Mini case: National cultures 155
Application: market segmentation 156
Synopsis 158
Case study: An invitation to ‘tweet’ 159
Case study: Supply and demands – a changing workforce 160
Assignments 161
Further reading 161
8 The resource context: people, technology and

natural resources (T) 163
Introduction 164
People 164
Mini case: Zero-hours contracts 166
Technology 173
Technological change 173
Mini case: The robots are coming 175
Natural resources 180
Synopsis 183
Case study: Agricultural work and Brexit 184
Case study: Fracking 184
Assignments 186
Further reading 187
9 The legal environment (L) 189

Martin Morgan-Taylor
Introduction 190
Classification of law 190
Public and private law 190
Mini case: Verity and Spindler v Lloyds Bank (1995) 191
The legal system: the courts 194
Mini case: Jean-Marc Bosman – a case of foul play? 196
Business organisations and the law 197
Contract law: the essentials 197
Agency 201
Law and the consumer 202

Contents xiii
Codes of practice 209

Synopsis 210
Case study: The sale of goods on the Internet 211
Assignments 213
Further reading 214
10 The ethical and ecological environment (E) 215

Introduction 216
Ethics and business 217
Mini case: Illegal or unethical? 218
Corporate social responsibility 219
The ‘environment’ as a business issue: the emergence of
corporate environmentalism 220
Drivers of ‘green’ business 221
Why and how firms become more environmentally responsible 225
Mini case: Going round in circles: Desso Carpets 226
Another perspective: the ‘outside-in’ view 227
Case study: Doing well by doing good 228
Assignments 230
Further reading 230
Part Three FIRMS
11 Legal structures 235

Introduction 236
Private sector organisations in the UK 236
Mini case: Companies under pressure 242
Social enterprises 245
Public sector business organisations in the UK 246
Legal structure: some implications 249
Franchising, licensing and joint ventures 254
Mini case: Cross-national joint ventures 256
Synopsis 257
Case study: Uber 258
Assignments 259
Further reading 260

xiv Contents
12 Size structure of firms 261

Introduction 262
The size structure of UK industry 262
Organisational growth 263
Methods of growth 264
Mini case: The story of a failed merger 267
Finance for growth 268
Small firms 273
Mini case: ‘Olderpreneurs’ and small firms 274
Multinationals 281
Synopsis 282
Case study: The Scottish National Investment Bank 283
Assignments 284
Further reading 284
13 Industrial structure 285

Introduction 286
The structure of industry 286
Mini case: The end of manufacturing? 290
Mini case: The life cycle model 295
Deindustrialisation 297
Synopsis 300
Appendix 13.1: The Standard Industrial Classification (SIC), 2007 301
Case study: The rise of the public service companies 302
Assignments 305
Further reading 305
14 Government and business 307

Introduction 308
Government and business: an overview 308
Selected urban policy instruments 309
Developments in urban policy: 1997–2010 312
Urban and industrial policy developments in the UK since 2010 313
Local government and business in the UK 315
Business as an influence on government 320
Mini case: A taxing issue 321
Synopsis 322

Contents xv
Case study: Public sector procurement – the Royal Navy 323

Assignments 324
Further reading 324
Part Four MARKETS
15 The market system 327

Introduction 328
The market mechanism 328
Demand 328
Supply 331
Shifts in demand and supply 335
Mini case: The effect of a factory fire on the market for microchips 336
Price controls 337
Mini case: The price of toilet rolls in Venezuela 339
Elasticity of demand 340
Cross-price elasticity of demand 343
Elasticity of supply 343
The importance of the market to business 344
Synopsis 345
Case study: The housing market in the UK 346
Assignments 348
Further reading 349
16 Market structure 351

Introduction 352
Market structures – in theory and practice 353
Porter’s five-forces model 360
Mini case: Open Skies and contestability 363
Mini case: Blizzard, Activision and Microsoft 365
Measuring the degree of actual competition in the market 366
Synopsis 368
Case study: A Porter’s five-forces analysis of the cigarette industry
in the UK 369
Assignments 372
Further reading 372

xvi Contents
17 International markets and trade 373

Introduction 374
International trade – why it takes place 374
Restrictions to international trade 375
Mini case: The cotton dispute 376
The establishment and growth of the European Union 377
‘Brexit’ and Euroscepticism 379
The balance of payments 380
The history of the balance of payments in the UK 383
Mini case: The current account of the balance of payments 385
Exchange rates 388
Exchange rates and business 394
Synopsis 394
Case study: Post-Brexit trade 395
Assignments 397
Further reading 397
18 Pandemics and Covid-19 399

Introduction 400
Pandemics 400
Pandemics in history 403
Global spread 406
Prevention 407
Case study: Covid-19 408
Mini case: FFP2/N95 respirators and surgical masks 408
Mini case: Peloton bikes 409
UK government support measures 411
The future 416
Returning to normal 417
Synopsis 417
Assignments 418
Further reading 418
19 Governments and markets 419

Introduction 420
Privatisation policy in the UK 420
Mini case: Government to the rescue 426
Competition policy 429
Mini case: Accusations of price fixing 431
Government and the labour market 432
Synopsis 436

Contents xvii
Case study: Who leads who? 437

Case study: ‘What a fine mess you’ve got me into’ 438
Assignments 439
Further reading 439
Part Five CONCLUSION
20 Strategy and the changing environment 443

David Orton
Introduction 444
The need to monitor environmental change 445
Analysing the business environment: broad approaches 446
Mini case: Multinational inward investment: a PESTLE analysis 447
Techniques 450
Limitations to environmental analysis 455
Sources of information 455
Synopsis 463
Case study: Scenario planning at Shell 464
Assignments 466
Further reading 467
Glossary 469
Index 489

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Contributors
Authors
Ed Thompson, BA (Hons), MSc, PhD, PGCertHE, CMBE, CMgr, FHEA, FRSA, MCMI is
Associate Professor and Director of Apprenticeships in Leicester Castle Business School
at De Montfort University. His research is focused on organisational behaviour and
crisis management, and is a member of the editorial board of the SGEN Research Review
in the Philippines.
Ian Worthington, BA (Hons), PhD (Lancaster), is Emeritus Professor of Corporate Sus-

tainability at De Montfort University, Leicester, UK. He has published in, and reviewed
for, a variety of academic journals in both the UK and United States and is also author
of a book entitled Greening Business: Research, Theory and Practice.
Chris Britton, BA (Hons), MSc, was formerly a Principal Lecturer at De Montfort

University where her teaching and research interests included industrial economics,
labour markets and executive recruitment. With Ian Worthington and Andy Rees, she
is also co-author of a book on business economics.
Contributors
Martin Morgan-Taylor, LLB, LLM, FHEA, FRAS I, LTM, is an Associate Professor in the
School of Law at De Montfort University, Leicester, where he teaches business and com-
mercial law on a range of undergraduate and postgraduate courses. His research inter-
ests include online trading, consumer protection, and light pollution and nuisance. He
is a legal adviser on the latter to the Campaign for Dark Skies and the British
Astronomical Association.
David Orton, BA (Hons), MSc, is a Senior Lecturer at the University of Derby where he
is programme leader of the MBA Global and MBA Global Finance programmes. His
teaching and research interests lie in the fields of strategic management and crisis and
business continuity management.

Preface to the Ninth Edition
Why study the business environment?

The business environment is our environment, it is the world we live in and all aspects
of the business environment should be viewed in terms of people. Business ethics is
about fairness in how a business operates; a business environmental policy is about
how we pollute or preserve our own world; employment and unemployment are about
people’s ability to house and feed themselves. This is a book about all of us and how we
interface with the world and each other, because businesses are just organisations of
people and material things.
In reading about the business environment you are reading about your world. You
are reading about why the prices of the things you buy might go up or down, or why
at any given time it might be harder or easier for you to get a job. By understanding
the things in this book that make up your world you will better understand how the
world works, what changes mean and the implications they might have on your
organisations (whether they are organisations that we work for, or the organisations
that we have at home). In my own life, understanding the business environment has
helped me make decisions about when and where and how to buy a home, and what
and what not to invest in. Understanding the world allows us to make informed
decisions.
Despite the global pandemic, Brexit, the Russian invasion of Ukraine and increased
international trade tensions, the world keeps on turning. People continue to learn at
home and at universities – and people continue to graduate and find jobs. It will be
sensible for somebody going for an interview to carry out some research on the poten-
tial employer and understand how they might be affected by their business
environment.
The first aim of this book is to set out the way things are in the world today. It will
do this by breaking down everything outside of a business (and cover a little bit inside
as well) into chapters organised in a logical way. In effect, what we mean by external
and internal environments in a global context in which business operates today. The
second part will cover aspects of the business environment as you might find them in
a PESTLE analysis (Political, Economic, Social, Technological, Legal, Ethical/Ecological).
The third part will cover firms and industries, as well as how government regulates
business. The fourth part will consider the importance of markets as a concept, nation-
ally and internationally. Finally, we will consider how the business environment feeds
into strategy making for organisations.
The second aim of the book is to offer you examples and opportunities to apply what
you have learned. The biggest change in this edition of the book has been the inclusion
of specific chapters on the biggest contemporary events – namely the global Covid-19
pandemic and the retreat of some aspects of globalisation, including Brexit. These new
chapters apply some of the content which are introduced elsewhere to give an all-round
perspective on how factors influence one another, and convey the complexity of the
business environment.

Preface to the Ninth Edition xxi
The context
With this edition, like the last, I feel I have to introduce some caveats at this point. A 600-
page textbook takes a while to update. As I write this (in early 2022) the terms of Brexit
arrangements are finalised, but the implications are still being worked out – particularly
at the Irish/Northern Irish boarder. The tide appears to be turning with respect to Covid-
19, with several viable vaccines, countries making progress with their distribution, and
plans for how the developing world will be supported to ensure global protection. How-
ever, things change quickly. While I will address Brexit and Covid-19, the concepts set
out here can be applied to many different contexts; the specific situations will change
over the next two to five years but the concepts will persist. Further afield, when I started
the last edition Russia was considered a friendly nation to Europe; when I started this
edition things were a bit more icy between the two nations. Now things are very different
and Ukraine has been invaded – with things in Ukraine looking increasingly like a proxy
war. . . at any rate, the most significant conflict in Europe for 20 or more years.
The second caveat is with respect to data. I have updated data wherever possible – but
in some circumstances there are simply no more updates. Sometimes data are reported
in a different way, so continuity could not be maintained if the datasets were any more
up to date, and in a few cases data had been collected by agencies which have changed
or been disbanded. As a result, some of the datasets are not as up to date as I would have
preferred, but they are sufficient to illustrate the points made in the book.
My authorship
This book is now in its ninth edition. Ian Worthington approached me to author this
title in a more stable world (2015), a time when pandemic flu was hypothetical and
before Brexit; a time when writing a book on the business environment seemed like a
less troublesome undertaking!
I have quite a broad background in terms of my experience with the business envi-
ronment, having worked for large and small private and public sector organisations.
My first degree in business studies equipped me with most of my foundational business
environment knowledge. Subsequently, I gained a master’s degree in project manage-
ment, and a doctorate in organisational behaviour. In most of my organisational work
I have applied an actor–network theory perspective to how the world works. Actor–
network theory considers all things related, nothing existing in isolation. This has
proven a logical approach writing this book too; the environment is a world of many
connections, some obvious and others less so. I hope through reading this book that
you will come to understand the world in a similar way.
Thanks on behalf of Ian, Chris and myself to a dedicated team from Pearson for their
work on this edition, particularly Archana Makhija, Supervising Producer for UK and
Canada, for her support and encouragement through the development of this edition.
And on behalf of myself, a big thanks to Ian and Chris, who handed over the updating
of the title in the 8th edition. This remains their creation, but as the person responsible
for updates I must insist that errors are my own.
Finally, take it from someone with a British PhD in Organisational Behavior: organi-
sation is spelled with a Z in English English (it’s in the OED). However, to appease my
publishers, it will appear as organisation hereafter.
Ed Thompson

Publisher’s Acknowledgements
Text Credits
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Publisher’s Acknowledgements xxiii
263 Office for National Statistics: UKBAD01 - Enterprise/local units by employ-

ment size band 2021 data (ONS); 269 European Union: Evaluation of the user guide
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for Business, Energy and Industrial Strategy: Adapted from ‘Sectoral Indicators
of Concentration and Churn 2006–2018’ from the Department for Business, Energy
and Industrial Strategy (BEIS), 2018; 369 The Office for National Statistics:
Adapted from Office for National Statistics, Opinions and Lifestyle Surveys; 369 The
Office for National Statistics: Adapted from Office for National Statistics, Adult
Smoking Habits in the UK 2019; 370 The Office for National Statistics: Adapted
from ONS Consumer Price Inflation Time Series Data (MM23); 375 Organisation for
Economic Co-operation and Development: Adapted from Financial Indicators
– Stocks: Private Sector Debt, http://stats.oecd.org/index.aspx?queryid=34814. OECD.
StatExtracts http://stats.oecd.org/; 381 Office for National Statistics: Adapted
from ONS Balance of Payments, 2021 Q4 Data www.ONS.gov.uk; 383 Office for
National Statistics: Adapted from Balance of payments, various years, www.ons.gov.
uk; 385 Office for National Statistics: Adapted from Office for National Statistics;
386 The Centre d’Études Prospectives et d’Informations Internationales:
Adapted from CEPII - BECI data, 2020; 387 Office for National Statistics: Adapted
from UK Trade ONS.gov.uk; 395 Agriculture and Horticulture Development
Board: Agriculture and Horticulture Development Board - www.AHDB.org.uk; 402
Cabinet Office: Adapted from Samuel Hilton and Caroline Baylon, Risk management
in the UK: What can we learn from COVID-19 and are we prepared for the next disas-
ter?, November 2020, National Risk Register, Cabinet Office, Crown copyright 2017;
406 World Bank: World Bank, Yearbook of Tourism Statistics, International Tourism,
Number of Arrivals (2022); 412 HM Revenue and Customs: HMRC (2022) Error and
Fraud in the COVID-19 schemes; 413 HM Revenue and Customs: ONS (2022), UK
Government Debt and Deficit (March 2022); 415 Office for National Statistics :
Office for National Statistics (2022) Inflation and price indices; 450 Harvard Business
Publishing: Adapted from Branden burger, A. and Nalebuff, B. (1995) ‘The right
game: use game theory to shape strategy’, Harvard Business Review, July–August,
pp. 57–71; 465 Jeroen van der Veer: Quoted by Jeroen van der Veer.

Guided tour
1
Business organisations:
the external environment
Business organisations differ in many ways, but they also have a common
Learning outcomesfeature:
highlight core coverage
the transformation in terms
of inputs of expected
into outputs; learning
it is through outcomes
this process that
2
after completing eachthe
chapter, to helpThis
value is created. students focusprocess
transformation their learning
takes placeand evaluate
against a their
progress.
Business organisations:
background of external influences which affect the firm and its activities. This
the internal environment

external environment is complex, volatile and interactive, but it cannot be
ignored in any meaningful analysis of business activity.
Learning
Having
The readapproach
systems this chapter you
to the should
study be able to:
of business organisations stresses the
outcomes
interaction
● indicate between a firm’s
the basic internal
features and external
of business environments. Key aspects of
activity
the internal context of business include the organisation’s structure and
● portray the business organisation as a system interacting with its environment
functions and the way they are configured in pursuit of specified organisational
● demonstrate the range and complexity of the external influences on business
objectives. If the enterprise is to remain successful, constant attention needs to
activity
be paid to balancing the different influences on the organisation and to the
● identify the
requirement central
to adapt to themes inherent
new external in the study This
circumstances. of the business environment
responsibility lies
essentially with the organisation’s management, which has the task of blending
people, technologies, structures and environments.
Key terms Environmental change Immediate (or operational) Outputs
External environment environment PESTLE analysis
General (or contextual) Inputs Transformation system
Learning Having read this chapter you should be able to:
outcomes environment Open system
Key terms are drawn out at
● outline the the
broadstart of every
approaches chapter
to organisation andand are emboldened
management, paying the first
time they appear in theparticular
text attention
to enable to thestudents
systems approach
to locate information quickly. A full
identify alternative organisational structures used by business organisations
Glossary appears at the end of the book.
●
● discuss major aspects of the functional management of firms

● illustrate the interaction between a firm’s internal and external environments
Key terms Bureaucracy Human relations approach Project team

Classical theories of Human resource Public sector
organisation management Re-engineering
Contingency approach Management Scientific management
Divisional structure Marketing Sub-systems
Downsizing Marketing concept Systems approach
Formal structures Marketing mix Theory X and Theory Y
Functional organisation Matrix structure Theory Z
Functional specialisation Organisation chart Virtual organisation
Hierarchy of needs Private sector Voluntary (or third) sector
Holding company Profit centre
M01_The_Business_Environment-A_Global_Perspective_9e.indd 3 10/02/2023 08:04
Lecturer resources tailored to support the use of this textbook in teaching is available
at go.pearson.com/uk/he/resources.

Guided tour xxv
210 Chapter 9 · The legal environment (L)
Case studies of varying complexity

service customers relate
should expect the
to receive theory
and by represented
encouraging acceptable businessin the chapter to
prac-
tices. In addition, such codes of conduct invariably identify how customer complaints
real-life situations in should
a range of diverse organisations.
be handled and many offer low-cost or no-cost arbitration schemes to help settle
disputes outside the more formal legal process. Case study: The sale of goods on the Internet 211
Whilst codes of practice do not in themselves have the force of law, they are normally
seen as a useful mechanism for regulating the relationship between business organisa-
case
tions and their customers and accordingly they have the support of the OFT, which often
study
The sale of goods on the Internet
advises trade associations on their content. Businesses, too, usually find them useful,
particularly if through the establishment of a system of self- regulation they are able to
The saleavoid the introduction
of consumer of restrictions imposed
goods on the Internet byavailable
cancellation the law. under Article 9, where the buyer
(particularly those between European member states) has a right to cancel the contract for 14 days starting
raises a number of legal issues. And these issues are on the day the consumer receives the goods or
now complicated by the fact that the UK has left services (this was seven days under the Distance
Synopsis Europe, but not stopped trading with EU member

states. First, there is the issue of trust, without which
Selling Directive). This ‘cooling-off’ period is intended
to place the consumer in the position as if they had
the consumer will not buy; they will need assurance seen the goods in store. Failure to inform the
that the seller is genuine,activities,
All business and that they fromwill get
thethe consumerof
establishment of the
this right automatically
organisation extends the
through to the sale of
goods that they have ordered. Second, there is the period to a year and 14 days. Whilst the seller can
the product to the customer, are influenced by the law. This legal environment within
issue of consumer rights with respect to the goods in place the cost of returning goods on the buyer, the
question:which businesses
what rights exist and exist
do theyandvaryoperate
across evolves overrefund
seller must time the and is a key
standard rateinfluence
outgoing on firms of
Europe?all sizes
Last, and ofinenforcement:
the issue all sectors, as illustrated
what by anThe
postage. examination of some
seller is not entitled of the
to deduct any main
costs laws
happensgoverning
should anything thegorelationship
wrong? between a business
as a restockingandfee.its All
customers.
of this places The majority of con-
a considerable
sumer laws are of relatively recent origin obligation
and on the seller;
derive from however, such data should
the attempts by successive
Information and trust stop many misunderstandings and so boost cross-
governments to provide individuals with a measure of protection against a minority of
border trade by boosting consumer faith and
Europe recognises the problems of doing business
firms that behave in ways deemed to beconfidence unacceptable.in non-face-to-face sales.
across the Internet or telephone and it has attempted
Concomitantly, they also provide reputable
to address the main stumbling blocks via directives
Another organisations with a isframework
concern for the consumer fraud. The within
which are which to carry
incorporated out their
into member business
states’ own laws.and, as such, acthas
consumer who aspaid by credit cardto
an incentive willentrepreneurial
be
Summary of key points provides the student with a useful revision aid.
And these activity
European indirectives
market-based date to aeconomies.
time when
protected by section 83 of the Consumer Credit Act
1974, under which a consumer/purchaser is not liable
the UK was a member of the EU, and so they are
for the debt incurred if it has been run up by a third
incorporated into domestic law. The original Distance
party not acting as the agent of the buyer. The
Selling Directive, implemented as the Consumer
Distance Selling Regulations extended this to debit
Protection (Distance Selling) Regulations 2000, has
cards, and removed the ability of the card issuer to
Summary of key points
been replaced by the Consumer Rights Directive
(2011-83/EU). (Note that this is different from the
charge the consumer for the first £50 of loss.
Moreover, section 75 of the Consumer Credit Act
Consumer Rights Act 2015.) The replacement
1974 also gives the consumer/buyer a like claim
Directive is a ‘maximum harmonisation’ measure,
● The legal rules within which businesses exist
against the and
creditoperate are an
card company forimportant
any part of the
meaning that the provisions are binding on, and
misrepresentation or breach of contract by the seller.
external
cannot be modified by,environment
member states.of business organisations.
Both
This is extremely important in a distance-selling
Directives attempt to address the issues of trust in
Laws affecting businesses derive transaction, where the seller may disappear.
distance●sale. In short, the consumer who does not from a variety of sources, including custom, the deci-
buy face to sions
face may oflack
theimportant
courts and legislation.
information,
What quality and what rights?
which they may otherwise have easy access to if they Assignments 259
● Laws
were buying face toareface.sometimes made at international The nextand issuesupranational levelthat
relates to the quality (including
may be Europe).
Article 6 of the Consumer Rights Directive requires expected from goods bought over the Internet.
● Contract,
to abide by regulation (and bear the agency and consumer protection
cost that security? What are three key areas governing
are the advantages and disadvan- the day-to-
inter alia for the seller to identify themselves and an Clearly, if goods have been bought from abroad, the
regulation brings) and dayfind it hard to ofrestructure if tages of this position?
address must be work provided ifbusinesses.
the goods are to be paid levels of quality required in other jurisdictions may
demand changes. Critics argue that this system is 2 What advantages arethis
there to regulated services
for in advance. Moreover, a full description of the vary. It is for reason that Europe has and
attempted to
goods and the final price (inclusive of any taxes) must intention
● Offer, acceptance, consideration, to the
create
issue legal relations and capacity are
unfair on drivers, who earn money for Uber while formal organisations?
standardise of quality and consumer
having none of the protection of employees. Finally,
central
also be provided. Theelements
new directive of bans
contract 3law.
pre-tickedUber has recently with
remedies, launched Uber Connect
the Consumer – a same
Guarantees Directive
where Uber services are less regulated than taxi firms,
boxes (e.g. for insurance), and limits card transaction day parcel pick up andThe
(1999-44/EC). delivery service
Consumer provided
Rights by has
Act 2015
there have been cases where drivers
● Agency have been are a common feature of business practice.
relationships
charges to those of the cost actually incurred by the cyclists on the same non-contractual basis
replaced The Sale and Supply of Goods to Consumeras its
accused of crimes against passengers – and Uber
trader. These provisions will help to cut hidden costs. drivers.Regulations
What other types
2002 in ofimplementing
service and companies
this Directive,
accused of not taking● Thetheserelationship
crimes seriously. between businesses think and of?their customers is governed by a variety of
▼
The seller must also inform the buyer of the right ofcan youwhich not only lays down minimum quality standards
laws, many of which derive from statute.
Questions and assignments
Case study questions
● In addition to the provide engaging
protection provided activities
to consumers by the law,for
manystudents
organisations and lecturers
1 Given the choice, would you rather
operate underwork for a com-
agreed codes of conduct.
in and out of the classroom
pany with employment rights situation.
and responsibilities, orFurther questions on the website help to evaluate
work as a self-employed contractor with limited
their progress. M09_The_Business_Environment-A_Global_Perspective_9e.indd 211 10/02/2023 08:26
Review and discussion questions

1 Numerically, the sole proprietorship is the most popular form of business organisation
throughout Europe. How would you account for this?
2 To what extent is corporate status an asset to a business organisation? Does it have

any disadvantages?
3 Examine the implications of privatising a public sector business organisation.
4 Discuss how the legal status of a business affects its objectives, its methods of finance
and its stakeholders.
5 How would you explain the rise in the popularity of franchising in recent years?
Assignments
1 You have recently been made redundant and decide to set up your own small
business, possibly with a friend. Assuming that you have £25,000 to invest in
your new venture, draft a business plan which is to be presented to your bank
manager in the hope of gaining financial support. Your plan should include a
clear rationale for the legal form you wish your business to take, your chosen
product(s) or service(s), evidence of market research, an indication of anticipated
competition and supporting financial information.
2 You work in a local authority business advice centre. One of your clients wishes
to start a business in some aspect of catering. Advise your client on the
advantages and disadvantages of the various legal forms the proposed
enterprise could take.

Part One
INTRODUCTION
1 Business organisations: the external environment
2 Business organisations: the internal environment
3 The global context of business
4 De-globalising factors: sovereignty, conflicts and
political priorities

1 Business organisations:
the external environment
Business organisations differ in many ways, but they also have a common
feature: the transformation of inputs into outputs; it is through this process that
the value is created. This transformation process takes place against a
background of external influences which affect the firm and its activities. This
external environment is complex, volatile and interactive, but it cannot be
ignored in any meaningful analysis of business activity.

outcomes ● indicate the basic features of business activity
● portray the business organisation as a system interacting with its environment
● demonstrate the range and complexity of the external influences on business
activity
● identify the central themes inherent in the study of the business environment
Key terms Environmental change Immediate (or operational) Outputs

External environment environment PESTLE analysis
General (or contextual) Inputs Transformation system
environment Open system

4 Chapter 1 · Business organisations: the external environment
Introduction
Business activity is a fundamental and universal feature of human existence and yet the
concept of ‘business’ is difficult to define with any degree of precision. Dictionary definitions
tend to describe it as being concerned with buying and selling, or with trade and commerce,
or the concern of profit-making organisations, and clearly all of these would come within the
accepted view of business. Such a restricted view, however, would exclude large parts of the
work of government and its agencies and the activities of non-profit-making organisations – a
perspective it would be hard to sustain in a climate in which business methods, skills, attitudes
and objectives have been vigorously adopted by these organisations. It is this broader view
of business and its activities that is adopted below and that forms the focus of an investiga-
tion into the business environment.
The business organisation and its environment

A model of business activity
Most business activity takes place within an organisational context and even a cursory
investigation of the business world reveals the wide variety of organisations involved,
ranging from the small local supplier of a single good or service to the multi-billion-dollar
international or multinational corporation producing and trading on a global scale.
Given this rich organisational diversity, most observers of the business scene tend to
differentiate between organisations in terms of their size, type of product and/or market,
methods of finance, scale of operations, legal status, and so on. Nissan, for example,
would be characterised as a major multinational car producer and distributor trading on
world markets, while a local builder is likely to be seen as a small business operating at a
local level with a limited market and relatively restricted turnover.
web Further information on Nissan is available at www.nissan-global.com

link
➚ The Nissan UK website address is www.nissan.co.uk
While such distinctions are both legitimate and informative, they can conceal the fact
that all business organisations are ultimately involved in the same basic activity, namely
the transformation of inputs (resources) into outputs (goods or services). This process is
illustrated in Figure 1.1.
In essence, all organisations acquire resources – including labour, premises, technology,
finance, materials – and transform these resources into the goods or services required by
their customers. While the type, amount and combination of resources will vary according
to the needs of each organisation and may also vary over time, the simple process described
above is common to all types of business organisation and provides a useful starting point
for investigating business activity and the environment in which it takes place.
A more detailed analysis of business resources and those internal aspects of organisa-
tions which help to transform inputs into output can be found in Chapters 2 and 8. The
need, here, is simply to appreciate the idea of the firm as a transformation system and
to recognise that in producing and selling output, most organisations hope to earn

The business organisation and its environment 5
Figure 1.1 The business organisation as a transformation system
Inputs Outputs
Land, premises
Materials Goods
Labour BUSINESS Services
Consumption
Technology ORGANISATIONS Ideas
Finance Information, etc.
Managerial skills, etc.
sufficient revenue to allow them to maintain and replenish their resources, thus permit-
ting them to produce further output which in turn produces further inputs. In short,
inputs help to create output and output creates inputs. Moreover, the output of one
organisation may represent an input for another, as in the case of the firm producing
machinery, basic materials, information or ideas. This interrelationship between busi-
ness organisations is just one example of the complex and integrated nature of business
activity and it helps to highlight the fact that the fortunes of any single business organisa-
tion are invariably linked with those of another or others – a point clearly illustrated in
many of the examples cited in the text.
The firm in its environment

The simple model of business activity described above is based on the systems approach
to management (see Chapter 2). One of the benefits of this approach is that it stresses
that organisations are entities made up of interrelated parts which are intertwined with
the outside world – the external environment in systems language. This environment
comprises a wide range of influences – economic, demographic, social, political, legal,
technological, etc. – which affects business activity in a variety of ways and which can
impinge not only on the transformation process itself, but also on the process of resource
acquisition and on the creation and consumption of output. This idea of the firm in its
environment is illustrated in Figure 1.2.
Figure 1.2 The firm in its environment
Environmental influences
Political, social, legal,
cultural, technological, etc.
BUSINESS
Inputs Outputs Consumption
ORGANISATIONS

Figure 1.3 Two levels of environment
‘General’ or ‘contextual’ ‘Immediate’ or ‘operational’

environment environment
Economic Suppliers
Political Competitors
Legal Labour market
Social, etc. Financial institutions, etc.
BUSINESS
ORGANISATIONS
In examining the business environment, a useful distinction can be made between

those external factors that tend to have a more immediate effect on the day-to-day opera-
tions of a firm and those that tend to have a more general influence. Figure 1.3 makes
this distinction.
The immediate (or operational) environment for most firms includes suppliers, com-
petitors, labour markets, financial institutions and customers, and may also include trade
associations, trade unions and possibly a parent company. In contrast, the general (or
contextual) environment comprises those macroenvironmental factors such as eco-
nomic, political, socio-cultural, technological, legal and ethical influences on business
which affect a wide variety of businesses and which can emanate not only from local and
national sources, but also from international and supranational developments. Macro-
environmental factors might be thought of as factors so large that the business cannot
change them.
This type of analysis can also be extended to the different functional areas of an organi-
sation’s activities, such as marketing or personnel or production or finance, as illustrated
in Figure 1.4. Such an analysis can be seen to be useful in at least two ways. First, it empha-
sises the influence of external factors on specific activities within the firm and in doing
so underlines the importance of the interface between the internal and external
Figure 1.4 Environmental influences on a firm’s marketing system
Environmental influences
General
Immediate
Marketing Marketing Marketing

Market(s)
intermediaries system intermediaries

The general or contextual environment 7
environments. Second, by drawing attention to this interface, it highlights the fact that,
while business organisations are often able to exercise some degree of control over their
internal activities and processes, it is often very difficult, if not impossible, to control the
external environment in which they operate.
The general or contextual environment

While the external factors referred to above form the subject matter of the rest of the
book, it is useful at this point to gain an overview of the business environment by high-
lighting some of the key environmental influences on business activity. In keeping with
the distinction made between general and more immediate influences, these are dis-
cussed separately below. In this section we examine what are frequently referred to as the
‘PESTLE’ factors (i.e. Political, Economic, Socio cultural, Technological, Legal and Ethical
influences). A PESTLE analysis (or PEST analysis) can be used to analyse a firm’s current
and future environment as part of the strategic management process (see Chapter 19).
PESTLE examines factors external to the firm; these might represent opportunities or
threats and later can be used in a SWOT analysis (whereas strengths and weaknesses are
internal factors).
The political environment

A number of aspects of the political environment clearly impinge on business activity.
These range from general questions concerning the nature of the political system and its
institutions and processes (Chapter 5) to the more specific questions relating to govern-
ment involvement in the working of the economy (Chapter 6) and its attempts to influ-
ence market structure and behaviour (Chapters 12, 16, 18).
Government activities, both directly and indirectly, influence business activity, and
government can be seen as the biggest business enterprise at national or local level
(Chapter 14). Given the trend towards the globalisation of markets (Chapters 4 and 17)
and the existence of international trading organisations and blocs, international politico-
economic influences on business activity represent one key feature of the business envi-
ronment (Chapters 5, 8 and 17). Another is the influence of public, as well as political,
opinion in areas such as environmental policy and corporate responsibility
(Chapter 10).
The economic environment

The distinction made between the political and economic environment – and, for that
matter, the legal environment – is somewhat arbitrary. Government, as indicated above,
plays a major role in the economy at both national and local level (Chapters 6 and 14)
and its activities help to influence both the demand and supply side (e.g. see Chapter 15).
Nevertheless there are a number of other economic aspects related to business activity
which are worthy of consideration. These include various structural aspects of both firms
and markets (Chapters 11, 12, 13 and 16) and a comparison of economic theory and
practice (e.g. Chapters 15, 16 and 17).

mini case The impact of regional economic conditions
For a company that trades in different markets needed for building more factories and
across the world, macroeconomic conditions (see infrastructure. To support its own steel industry
Chapter 6) in a particular part of its overall market China has been selling steel at less than the cost
can play a key role in determining its corporate European steelmakers can produce it. This is an
sales and profitability. French carmaker PSA example of the slowdown in European and
Peugeot Citroën, for instance, experienced a American economies causing Chinese businesses
significant decline in sales in 2012 as demand fell to act more aggressively, which has eventually led
in Southern Europe on the back of the recession in to the collapse of large parts of the British steel
the eurozone. In response to the problem, the industry such as the (Indian-owned) Tata steel
company announced significant job cuts aimed at works at Port Talbot near Cardiff in 2016.
reducing costs and looked to the French Since market conditions can vary substantially
government for a series of multi-billion-euro loans in different locations, some businesses can
to keep it afloat until trading conditions improved. experience significant variations in performance in
As the global economy slowed, steel industries different parts of their operations. US car giant
have been heavily affected. After a period of rapid Ford, for example, announced significant losses in
expansion (driven mostly by the growth of Chinese Europe in 2012 alongside ‘spectacular’ results in
infrastructure and social development), China’s its North American division. Like Chrysler and
economy has now started to slow as demand from other competitors including GM, Ford was able to
more developed countries who consume Chinese- offset its European losses with stronger sales in
made products has fallen. This has led to a the United States. It also posted pre-tax profits in
dramatic drop in the price of steel as it is no longer its South American and Asian markets.
Further information on the organisations mentioned in this mini case is available at

web
link www.psa-peugeot-citroen.com; www.tatasteel.com; www.ford.com;
➚ www.chrysler.com; www.gm.com
The social, cultural and demographic environment

Both demand and supply are influenced by social, cultural and demographic factors.
Cultural factors, for example, may affect the type of products being produced or sold, the
markets they are sold in, the price at which they are sold and a range of other variables.
People are a key organisational resource and a fundamental part of the market for goods
and services. Accordingly, socio-cultural influences and developments have an impor-
tant effect on business operations, as do demographic changes (Chapters 7 and 8).
The technological environment

Technology is both an input and an output of business organisations as well as being an
environmental influence on them. Investment in technology and innovation is fre-
quently seen as a key to the success of an enterprise and has been used to explain differ-
ences in the relative competitiveness of different countries (Chapter 8). It has also been
responsible for significant developments in the internal organisation of businesses in the
markets for economic resources.

The immediate or operational environment 9
The legal environment

Businesses operate within a framework of law, which has a significant impact on various
aspects of their existence. Laws usually govern, among other things, the status of the
organisation (Chapter 11), its relationship with its customers and suppliers and certain
internal procedures and activities (Chapter 9). They may also influence market structures
and behaviour (e.g. Chapters 16 and 19). Since laws emanate from government (includ-
ing supranational governments) and from the judgments of the courts, some under-
standing of the relevant institutions and processes is desirable (e.g. Chapters 5 and 9).
The ethical and ecological environment

Ethical considerations have become an increasingly important influence on business
behaviour, particularly among the larger, more high-profile companies. One area where
this has been manifest is in the demand for firms to act in a more socially responsible way
and to consider the impact they might have on people, their communities and the natu-
ral environment (Chapter 10).
The immediate or operational environment

Resources and resource markets
An organisation’s need for resources makes it dependent to a large degree on the suppliers
of those resources, some of which operate in markets that are structured to a considerable
extent (e.g. Chapter 8). Some aspects of the operation of resource markets or indeed the
activities of an individual supplier can have a fundamental impact on an organisation’s
success and on the way in which it structures its internal procedures and processes. By
the same token, the success of suppliers is often intimately connected with the decisions
and/or fortunes of their customers. While some organisations may seek to gain an advan-
tage in price, quality or delivery by purchasing resources from overseas, such a decision
can engender a degree of uncertainty, particularly where exchange rates are free rather
than fixed (Chapter 17). Equally, organisations may face uncertainty and change in the
domestic markets for resources as a result of factors as varied as technological change,
government intervention or public opinion (e.g. conservation issues).
Customers
Customers are vital to all organisations and the ability both to identify and to meet con-
sumer needs is seen as one of the keys to organisational survival and prosperity – a point
not overlooked by politicians, who are increasingly using business techniques to attract
the support of the electorate. This idea of consumer sovereignty – where resources are
allocated to produce output to satisfy customer demands – is a central tenet of the market
economy (Chapter 6) and is part of a capitalist ideology whose influence has become
all-pervasive in recent years, the idea being that companies competing is the most effi-
cient way to organise society. Understanding the many factors affecting both individual

and market demand, and the ways in which firms organise themselves to satisfy that
demand, is a vital component of a business environment that is increasingly market led.
Competitors
Competition – both direct and indirect – is an important part of the context in which
many firms operate and is a factor equally applicable to the input as well as the output
side of business. The effects of competition, whether from domestic organisations or
from overseas firms (see Chapter 17, for example), are significant at the macro as well as
the micro level and its influence can be seen in the changing structures of many advanced
industrial economies (Chapter 13). How firms respond to these competitive challenges
(e.g. Chapter 12) and the attitudes of governments to anti-competitive practices (Chap-
ter 19) is a legitimate area of concern for students of business.
Analysing the business environment

In a subject as all-encompassing as the business environment it is possible to identify
numerous approaches to the organisation of the material. One obvious solution would
be to examine the various factors mentioned above, devoting separate chapters to each
of the environmental influences and discussing their impact on business organisations.
While this solution has much to recommend it – not least of which is its simplicity – the
approach adopted below is based on the grouping of environmental influences into three
main areas, in the belief that this helps to focus attention on key aspects of the business
world, notably contexts, firms and their markets.
mini case Fresh but not so easy
A recurring theme in this and previous editions of providing a low-risk method of entry into a large
the book is the need for businesses to monitor and lucrative market, with the focus on providing
and, where necessary, respond to changes in the fresh produce at low prices in competition with
business environment. Equally important is the existing retailers such as Trader Joe’s and Walmart.
requirement for a firm to understand the needs of As a preliminary step, the company sent some of
the customers in the markets in which it currently its senior executives to the United States to live
operates or in which it wishes to expand its with American families for several months in order
operations as a means of growing the organisation. to understand their shopping habits and product
Even some of the world’s largest and most preferences. It also ran a high-profile promotional
sophisticated companies can sometimes get this campaign to support its plans to open up 1,000
wrong. stores in California and neighbouring states before
Take the very well documented case of Tesco launching the brand on the east coast.
PLC’s foray into the US grocery retailing market Tesco’s hope that it would be able to break even
with the launch of its Fresh & Easy stores in 2007– in two years quickly evaporated and the company
8. Initially established in a number of states on the was forced to pump hundreds of millions of
US west coast, the experiment was aimed at pounds into the venture to keep it afloat. Apart

Mini case: Fresh but not so easy 11
from the rather unfortunate coincidence of the high-quality produce. Some consumers also
launch of its brand with the sub-prime crisis and apparently complained that the name Fresh & Easy
subsequent recession in the United States, retail reminded them of a deodorant or a sanitary
analysts have pointed to some fundamental errors product.
in understanding the preferences of US By the time of its withdrawal from the US
consumers. Mistakes are said to have included an market in September 2013, Tesco had reputedly
unclear image; cold and antiseptic stores; the lost more than £1.8 billion. On the positive side,
introduction of self-pay checkouts; using cling film Tesco has made ventures into other markets. Trent
on fresh products; an over-emphasis on ready Hypermarket, owned jointly by Tesco and Tata was
meals; an unwillingness to embrace the ‘coupon formed in 2015 and after a mixed time during the
culture’ that is an important part of the US pandemic was making around £4 million a month
shopping experience; and problems in ensuring in profit by the second quarter of 2022.
web Tesco’s website address is: www.tesco.com

➚ link
Following a basic introduction to the idea of the ‘business environment’, in Part Two
consideration is given to the political, economic, social, cultural, demographic, legal,
ethical and ecological contexts within which businesses function. In addition to examin-
ing the influence of political and economic systems, institutions and processes on the
conduct of business, this section focuses on the macroeconomic environment and on
those broad social influences that affect both consumers and organisations alike. The
legal system and the influence of law in a number of critical areas of business activity are
also a primary concern and one which has links with Part Three.
In Part Three, attention is focused on three central structural aspects: legal structure,
size structure and industrial structure. The chapter on legal structure examines the impact
of different legal definitions on a firm’s operations and considers possible variations in
organisational goals based on legal and other influences. The focus then shifts to how
differences in size can affect the organisation (e.g. access to capital, economies of scale)
and to an examination of how changes in scale and/or direction can occur, including the
role of government in assisting small business development and growth. One of the con-
sequences of changes in the component elements of the economy is the effect on the
overall structure of industry and commerce – a subject which helps to highlight the impact
of international competition on the economic structure of many advanced industrial
economies. Since government is a key actor in the economy, the section concludes with
an analysis of government involvement in business and in particular its influence on the
supply as well as the demand side of the economy at both national and local levels.
In Part Four, the aim is to compare theory with practice by examining issues such as
pricing, market structure and foreign trade. The analysis of price theory illustrates the
degree to which the theoretical models of economists shed light on the operation of
business in the ‘real’ world. Similarly, by analysing basic models of market structure, it is
possible to gain an understanding of the effects of competition on a firm’s behaviour and
to appreciate the significance of both price and non-price decisions in the operation of
markets.

The analysis continues with an examination of external markets and the role of gov-
ernment in influencing both the structure and the operation of the marketplace. The
chapter on international markets looks at the theoretical basis of trade and the develop-
ment of overseas markets in practice, particularly in the context of recent institutional,
economic and financial developments (e.g. the Single Market, globalisation, the euro).
The section concludes with an investigation of the rationale for government interven-
tion in markets and a review of government action in three areas, namely privatisation
and deregulation, competition policy and the operation of the labour market.
To emphasise the international dimension of the study of the business environment,
each chapter of the book concludes with a relevant national and international cases
which draw together some of the key themes discussed in the previous chapters. By exam-
ining specific issues and/or organisations, the aim is to highlight linkages between the
material discussed in the text and to provide an appreciation of some of the ways in
which business activity reaches well beyond national boundaries.
The concluding chapter in the book stresses the continuing need for organisations to
monitor change in the business environment and examines a number of frameworks
through which such an analysis can take place. In seeking to make sense of their environ-
ment, businesses need access to a wide range of information, much of which is available
from published material, including government sources. Some of the major types of
information available to students of business and to business organisations – including
statistical and other forms of information – are considered in the final part of this
chapter.
Central themes
A number of themes run through the text and it is useful to draw attention to these at
this point.
Interaction with the environment

Viewed as an open system, the business organisation is in constant interaction with its
environment. Changes in the environment can cause changes in inputs, in the transfor-
mation process and in outputs, and these in turn may engender further changes in the
organisation’s environment. The internal and external environments should be seen as
interrelated and interdependent, not as separate entities.
Interaction between environmental variables

In addition to the interaction between the internal and external environments, the vari-
ous external influences affecting business organisations are frequently interrelated.
Changes in interest rates, for example, may affect consumer confidence and this can have
an important bearing on business activity. Subsequent attempts by government to influ-
ence the level of demand could exacerbate the situation and this may lead to changes in
general economic conditions, causing further problems for firms. The combined effect
of these factors could be to create a turbulent environment which could result in

Central themes 13
uncertainty in the minds of managers. Failure to respond to the challenges (or opportuni-
ties) presented by such changes could signal the demise of the organisation or at best a
significant decline in its potential performance.
The complexity of the environment

The environmental factors identified above are only some of the potential variables faced
by all organisations. These external influences are almost infinite in number and variety
and no study could hope to consider them all. For students of business and for managers
alike, the requirement is to recognise the complexity of the external environment and
to pay greater attention to those influences which appear to be the most pertinent and
pressing for the organisation in question, rather than to attempt to consider all possible
contingencies.
Environmental volatility and change

The organisation’s external environment is further complicated by the tendency towards
environmental change. This volatility may be particularly prevalent in some areas (e.g.
technology) or in some markets or in some types of industry or organisation. As indicated
above, a highly volatile environment causes uncertainty for the organisation (or for its
sub-units) and this makes decision-making more difficult.
Environmental uniqueness
Implicit in the remarks above is the notion that each organisation has to some degree a
unique environment in which it operates and which will affect it in a unique way. Thus,
while it is possible to make generalisations about the impact of the external environment
on the firm, it is necessary to recognise the existence of this uniqueness and where appro-
priate to take into account exceptions to the general rule.
Different spatial levels of analysis

External influences operate at different spatial levels – local, regional, national, suprana-
tional, international/global – exemplified by the concept of LoNGPEST/LoNGPESTLE
(see Chapter 19). There are few businesses, if any, today that could justifiably claim to be
unaffected by influences outside their immediate market(s).
Two-way flow of influence

As a final point, it is important to recognise that the flow of influence between the organi-
sation and its environment operates in both directions. The external environment influ-
ences firms, but by the same token firms can influence their environment, and this is an
acceptable feature of business in a democratic society which is operating through a mar-
ket-based economic system. This idea of democracy and its relationship with the market
economy is considered in Chapters 5 and 6.

Synopsis
In the process of transforming inputs into output, business organisations operate in a
multifaceted environment which affects and is affected by their activities. This environ-
ment tends to be complex and volatile and comprises influences which are of both a
general and an immediate kind and which operate at different spatial levels.
Understanding this environment and its effects on business operations is vital to the
study and practice of business.
Summary of key points
● Business activity is essentially concerned with transforming inputs into outputs for
consumption purposes.
● All businesses operate within an external environment that shapes their operations and
decisions.
● This environment comprises influences that are both operational and general.
● The operational environment of business is concerned with such factors as customers,
suppliers, creditors and competitors.
● The general environment focuses on what are known as the PESTLE factors.
● In analysing a firm’s external environment attention needs to be paid to the interaction
between the different environmental variables, environmental complexity, volatility and
change, and to the spatial influences.
● While all firms are affected by the environment in which they exist and operate, at times
they help to shape that environment by their activities and behaviour.
case
study
Facing the unexpected
In previous editions of the book we have stressed The same is true when natural disasters occur, as
how the business environment can sometimes the following examples illustrate.
change dramatically and unexpectedly for the worse,
2010 – the eruption of an Icelandic volcano sent a
using the September 11, 2001 attack on the World
cloud of volcanic ash over large parts of Europe,
Trade Center in the United States as an example of
resulting in the grounding of aircraft and weeks of
what is known as an exogenous shock to the
disruption of air travel. Airlines in particular were
economic system.
badly affected and faced additional costs because
Mercifully, events of this kind tend to be relatively
of stranded passengers and cancelled flights.
rare, but when they occur they present a considerable
Beneficiaries included hoteliers who had to
challenge to the businesses and industries affected.

accommodate people unable to travel and had an impact on tourism across Europe, with
alternative transport businesses (e.g. ferry hotel occupancy in London down as a result.
operators). In 2017 the Manchester Arena was bombed during
2013 – sudden and devastating storms in the a concert which had local and national effects on
Burgundy and Bordeaux regions of France how show security was managed.
destroyed swathes of the French wine industry, In 2020–21 Covid-19 radically changed business
resulting in a loss of jobs and income in the across a wide range of sectors.
affected local communities, with a knock-on
impact on local businesses. In China, a heatwave While there is little a business can do to protect
across the central and eastern parts of the country itself totally against events of this kind, many larger
badly affected the farming industry and tempted firms, especially multinationals, tend to put in place
the government to spend millions on artificial steps contingency plans to manage unexpected crises,
to trigger rain. In some areas power failures whether they are caused by human or natural
occurred as the demand for electricity soared as events. A business continuity plan (BCP) can help
individuals and organisations turned on the air- an organisation to respond quickly and effectively to
conditioning. Much warmer conditions were also a negative situation and hopefully to survive the
experienced in parts of Northern Europe, including experience and learn from it. Smaller firms on the
the UK, resulting in increased sales of certain items whole tend to lack the financial and human
(e.g. barbecues, sunscreen) and tempting many resources needed to adopt such resilience
people to holiday at home. Other adverse natural measures and some may not survive an adverse
events in 2013–14 included a super typhoon in the change in the external environment. For other
Philippines, extensive fires in parts of Australia, a organisations such a change may bring with it
major drought in California and severe storms and business opportunities, an unexpected though
flooding in southern England, all of which had possibly welcome gain from an event that has a
major effects on businesses and communities in negative impact on other firms.
the affected areas.
2015–16 – in 2015 terrorists armed with assault Case study questions
rifles and hand grenades attacked a beach resort in
1 Can you think of any other examples of major unan-
Tunisia. The British Foreign Office issued travel
ticipated events in your own country (or areas of your
advice to avoid all but essential travel to the
own country) that have had a serious adverse effect
country, as did many other governments. The
on its firms and/or industries?
result was a 37 per cent fall in foreign spending in
Tunisia, whose economy is 8 per cent dependent 2 Can you think of any businesses that may have ben-
on tourism. In 2016 attacks on Brussels and Paris efited commercially from this event or these events?
Review and discussion questions

1 In what senses could a college or university be described as a business organisation?
How would you characterise its ‘inputs’ and ‘outputs’?
2 Taking examples from a range of quality newspapers, illustrate ways in which business
organisations are affected by their external environment.
3 Give examples of the ways in which business organisations can affect the external
environment in which they operate.

Assignments
1 Assume you are a trainee in a firm of management consultants. As part of your
induction process you have been asked to collect a file of information on an
organisation of your choice. This file should contain information not only on the
structure of the organisation and its products but also on the key external
influences that have affected its operations in recent years.
2 For a firm or industry of your choice, undertake a PESTLE analysis indicating the
likely major environmental influences to be faced by the firm/industry in the next
five to ten years.
Further reading
Daniels, J. D., Radebough, L. H. and Sullivan, D. P., International Business: Environments and
Operations, 14th edition, Prentice Hall, 2012.
Fernando, A. C., Business Environment, Dorling Kindersley/Pearson Education India, 2011.
Hamilton, L. and Webster, P., The International Business Environment, 3rd edition, Oxford University
Press, 2015.
Steiner, G. A. and Steiner, J. F., Business, Government and Society: A Managerial Perspective, 13th
edition, McGraw-Hill/Irwin, 2011.
Wetherly, P. and Otter, D. (eds) The Business Environment: Themes and Issues, 3rd edition, Oxford
University Press, 2014.
Worthington, I., Britton, C. and Rees, A., Economics for Business: Blending Theory and Practice,
2nd edition, Financial Times/Prentice Hall, 2004, Chapter 1.

2 Business organisations:
the internal environment
The systems approach to the study of business organisations stresses the

interaction between a firm’s internal and external environments. Key aspects of
the internal context of business include the organisation’s structure and
functions and the way they are configured in pursuit of specified organisational
objectives. If the enterprise is to remain successful, constant attention needs to
be paid to balancing the different influences on the organisation and to the
requirement to adapt to new external circumstances. This responsibility lies
essentially with the organisation’s management, which has the task of blending
people, technologies, structures and environments.

outcomes ● outline the broad approaches to organisation and management, paying
particular attention to the systems approach
● identify alternative organisational structures used by business organisations
● discuss major aspects of the functional management of firms
● illustrate the interaction between a firm’s internal and external environments
Key terms Bureaucracy Human relations approach Project team

Classical theories of Human resource Public sector
organisation management Re-engineering
Contingency approach Management Scientific management
Divisional structure Marketing Sub-systems
Downsizing Marketing concept Systems approach
Formal structures Marketing mix Theory X and Theory Y
Functional organisation Matrix structure Theory Z
Functional specialisation Organisation chart Virtual organisation
Hierarchy of needs Private sector Voluntary (or third) sector
Holding company Profit centre

18 Chapter 2 · Business organisations: the internal environment
Introduction
Under the systems approach to understanding business activity presented in Chapter 1, the
organisation lies at the heart of the transformation process and tends to be seen as a kind of
‘black box’ which contains a multitude of elements – including structures, processes, people,
resources and technologies – that brings about the transformation of inputs into outputs (see
below). While the study of the business environment rightly focuses on the external context
of business organisations, it is important to recognise that firms also have an internal environ-
ment that both shapes and is shaped by the external context in which they operate and make
decisions. This notion of the interplay between an organisation’s internal and external environ-
ments is a theme that runs through many of the chapters in this book.
As students of business and management will be aware, the internal features of busi-
ness organisations have received considerable attention from scholars researching these
fields, and a large number of texts have been devoted to this aspect of business studies.
In the discussion below, the aim is to focus on three areas of the internal organisation that
relate directly to a study of the business environment: approaches to understanding
organisations, organisational structures, and key functions within the enterprise. Further
insight into these aspects and into management and organisational behaviour generally
can be gained by consulting the many specialist books in this field, a number of which
are mentioned at the end of this chapter. Issues relating to a firm’s legal structure are
examined in detail in Chapter 11.
A central theme running through any analysis of the internal environment is the idea of
management, which has been subjected to a wide variety of definitions. As used in this
context, management is seen both as a system of roles fulfilled by individuals who man-
age the organisation (e.g. entrepreneur, resource manager, coordinator, leader, motivator,
organiser) and as a process that enables an organisation to achieve its objectives. The
essential point is that management should be seen as a function of organisations, rather
than as a controlling element, and its task is to enable the organisation to identify and
achieve its objectives and to adapt to change. Managers need to integrate the various
influences on the organisation – including people, technology, systems and the
environment – in a manner best designed to meet the needs of the enterprise at the time
in question and be prepared to institute change as and when circumstances dictate.
The concept of the organisation: an initial comment

According to Stoner and Freeman (1992: 4), an organisation can be defined as two or
more people who work together in a structured way to achieve a specific goal or set of
goals. Defined in this way, the term covers a vast array of structures in the:
● private sector – that part of the economy where ownership and control of the organ-
isation is in the hands of private individuals or groups and where profit-seeking is a
central goal;
● public sector – that part of the economy under the control of government and its
agencies and where the state establishes and runs the different types of organisation
on behalf of its citizens and for their general well-being;

Another random document with
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occur during their growth, until they are adult. The wings first appear
in the form of prolongations of the meso- and meta-nota, which
increase in size, the increment probably taking place at the moults.
The number of joints of the antennae increases during the
development; it is effected by growth of the third joint and
subsequent division thereof; hence the joints immediately beyond
the second are younger than the others, and are usually shorter and
altogether more imperfect. The life-histories of Termites have been
by no means completely followed; a fact we can well understand
when we recollect that these creatures live in communities
concealed from observation, and that an isolated individual cannot
thrive; besides this the growth is, for Insects, unusually slow.
Natural History.—The progress of knowledge as to Termites has

shown that profound differences exist in the economy of different
species, so that no fair general idea of their lives can be gathered
from one species. We will therefore briefly sketch the economy, so
far as it has been ascertained, in three species, viz. Calotermes
flavicollis, Termes lucifugus, and T. bellicosus.
Fig. 230.—Some individuals of Calotermes flavicollis: A, nymph with

partially grown wing-pads; B, adult soldier; C, adult winged
individual. (After Grassi.)
Calotermes flavicollis inhabits the neighbourhood of the

Mediterranean Sea; it is a representative of a large series of species
in which the peculiarities of Termite life are exhibited in a
comparatively simple manner. There is no special caste of workers,
consequently such work as is done is carried on by the other
members of the community, viz. soldiers, and the young and
adolescent. The habits of this species have recently been studied in
detail in Sicily by Grassi and Sandias.[289] The Insects dwell in the
branches and stems of decaying or even dead trees, where they
nourish themselves on those parts of the wood in which the process
of decay is not far advanced; they live in the interior of the stems, so
that frequently no sign of them can be seen outside, even though
they may be heard at work by applying the ear to a branch. They
form no special habitation, the interior of the branch being sufficient
protection, but they excavate or increase the natural cavities to suit
their purposes. It is said that they line the galleries with proctodaeal
cement; this is doubtful, but they form barricades and partitions
where necessary, by cementing together the proctodaeal products
with matter from the salivary glands or regurgitated from the anterior
parts of the alimentary canal. The numbers of a community only
increase slowly and remain always small; rarely do they reach 1000,
and usually remain very much below this. The king and queen move
about, and their family increases but slowly. After fifteen months of
their union they may be surrounded by fifteen or twenty young; in
another twelve months the number may have increased to fifty, and
by the time it has reached some five hundred or upwards the
increase ceases. This is due to the fact that the fertility of the queen
is at first progressive, but ceases to be so. A queen three or four
years old produces at the time of maximum production four to six
eggs a day. When the community is small—during its first two years
—the winged individuals that depart from it are about eight or ten
annually, but the numbers of the swarm augment with the increase of
the population. The growth of the individuals is slow; it appears that
more than a year elapses between the hatching of the egg and the
development of the winged Insect. The soldier may complete its
development in less than a year; the duration of its life is not known;
that of the kings and queens must be four or five years, probably
more. After the winged Insects leave the colony they associate
themselves in pairs, each of which should, if all goes well, start a
new colony.
The economy of Termes lucifugus, the only European Termite

besides Calotermes flavicollis, has been studied by several
observers, the most important of whom are Lespès[290] and Grassi
and Sandias. This species is much more advanced in social life than
Calotermes is, and possesses both workers and soldiers (Fig. 231,
2, 3); the individuals are much smaller than those of Calotermes.
Burrows are made in wood of various kinds, furniture being
sometimes attacked. Besides making excavations this species builds
galleries, so that it can move from one object to another without
being exposed; it being a rule—subject to certain exceptions—that
Termites will not expose themselves in the outer air. This is probably
due not only to the necessity for protection against enemies, but also
to the fact that they cannot bear a dry atmosphere; if exposed to a
drying air they speedily succumb. Occasionally specimens may be
seen at large; Grassi considers these to be merely explorers. Owing
to the extent of the colonies it is difficult to estimate with accuracy
the number of individuals composing a community, but it is doubtless
a great many thousands. Grassi finds the economy of this species in
Sicily to be different from anything that has been recorded as
occurring in other species; there is never a true royal pair. He says
that during a period of six years he has examined thousands of nests
without ever finding such a pair. In place thereof there are a
considerable number of complementary queens—that is, females
that have not gone through the full development to perfect Insects,
but have been arrested in various stages of development. In Fig.
231, Nos. 4 and 5 show two of these abnormal royalties; No. 4 is
comparatively juvenile in form, while No. 5 is an individual that has
been substituted in an orphaned nest, and is nearer to the natural
condition of perfect development. We have no information as to
whether any development goes on in these individuals after the state
of royalty is assumed, or whether the differences between these
neoteinic queens are due to the state of development they may
happen to be in when adopted as royalties. Kings are not usually
present in these Sicilian nests; twice only has Grassi found a king,
but he thinks that had he been able to search in the months of
August and September he would then have found kings. It would
appear therefore that the complementary kings die, or are killed after
they have fertilised the females. Parthenogenesis is not thought to
occur, as Grassi has found the spermathecae of the complementary
queens to contain spermatozoa.
Fig. 231.—Some of the forms of Termes lucifugus. 1, Young larva; 2, adult
worker; 3, soldier; 4, young complementary queen; 5, older substitution
queen; 6, perfect winged Insect. (After Grassi.)
The period of development apparently occupies from eighteen to twenty-

three months. At intervals swarms of a great number of winged
individuals leave the nest, and are usually promptly eaten up by various
animals. After swarming, the wings are thrown off, and sometimes two
specimens or three may be seen running off together; this has been
supposed to be preliminary to pairing, but Grassi says this is not the case,
but that the object is to obtain their favourite food, as we shall mention
subsequently.
Although these are the usual habits of Termes lucifugus at present in

Sicily, it must not be concluded that they are invariable; we have in fact
evidence to the contrary. Grassi has himself been able to procure in
confinement a colony—or rather the commencement of one—
accompanied by a true royal pair; while Perris has recorded[291] that in
the Landes he frequently found a royal pair of T. lucifugus under chips;
they were accompanied in nearly every case by a few eggs. And
Professor Perez has recently placed a winged pair of this species in a box
with some wood, with the result that after some months a young colony
has been founded. It appears probable therefore that this species at times
establishes new colonies by means of royal pairs derived from winged
individuals, but after their establishment maintains such colonies as long
as possible by means of complementary queens. It is far from improbable
that distinctions as to the use of true and complementary royalties may be
to some extent due to climatic conditions. In some localities T. lucifugus
has multiplied to such an extent as to be very injurious, while in others
where it is found it has never been known to do so.
The Termitidae of Africa are the most remarkable that have yet been
discovered, and it is probably on that continent that the results of the
Termitid economy have reached their climax. Our knowledge of the
Termites of tropical Africa is chiefly due to Smeathman, who has
described the habits of several species, among them T. bellicosus. It is
more than a century since Smeathman travelled in Africa and read an
account of the Termites to the Royal Society.[292] His information was the
first of any importance about Termitidae that was given to the world; it is,
as may be well understood, deficient in many details, but is nevertheless
of great value. Though his statements have been doubted they are
truthful, and have been confirmed by Savage.[293]
Fig. 232.—Royal cell of Termes bellicosus, partially broken open to show

the queen and her attendants. (After Smeathman.) B, Antenna of the
queen; b, b, line of entrances to the cell; A, A, an entrance, in this line,
closed by the Termites. × ⅞.
T. bellicosus forms buildings comparable to human dwellings; some of

them being twenty feet in height and of great solidity. In some parts of
West Africa these nests were, in Smeathman's time, so numerous that
they had the appearance of villages. Each nest was the centre of a
community of countless numbers of individuals; subterranean passages
extended from them in various directions. The variety of forms in one of
these communities has not been well ascertained, but it would seem that
the division of labour is carried to a great extent. The soldiers are fifteen
times the size of the workers. The community is dependent on one royal
couple. It is the opinion of the natives that if that couple perish so also
does the community; and if this be correct we may conclude that this
species has not a perfect system of replacing royal couples. The queen
attains an almost incredible size and fertility. Smeathman noticed the
great and gradual growth of the abdomen, and says it enlarges "to such
an enormous size that an old queen will have it increased so as to be
fifteen hundred or two thousand times the bulk of the rest of her body, and
twenty or thirty thousand times the bulk of a labourer, as I have found by
carefully weighing and computing the different states." He also describes
the rate at which the eggs are produced, saying that there is a constant
peristaltic movement[294] of the abdomen, "so that one part or other
alternately is rising and sinking in perpetual succession, and the matrix
seems never at rest, but is always protruding eggs to the amount (as I
have frequently counted in old queens) of sixty in a minute, or eighty
thousand and upward in one day of twenty-four hours."
This observer, after giving an account of the great swarms of perfect

winged Insects that are produced by this species, and after describing the
avidity with which they are devoured by the Hymenopterous ants and
other creatures, adds: "I have discoursed with several gentlemen upon
the taste of the white ants; and on comparing notes we have always
agreed that they are most delicious and delicate eating. One gentleman
compared them to sugared marrow, another to sugared cream and a
paste of sweet almonds."
From the preceding brief sketch of some Termitidae we may gather the
chief points of importance in which they differ from other Insects, viz. (1)
the existence in the community of individuals—workers and soldiers—
which do not resemble their parents; (2) the limitation of the reproductive
power to a single pair, or to a small number of individuals in each
community, and the prolongation of the terminal period of life. There are
other social Insects besides Termitidae: indeed, the majority of social
Insects—ants, bees, and wasps—belong to the Order Hymenoptera, and
it is interesting to note that analogous phenomena occur in them, but
nevertheless with such great differences that the social life of Termites
must be considered as totally distinct from that of the true ants and other
social Hymenoptera.
Development.—Social Insects are very different to others not only in the

fact of their living in society, but in respect of peculiarities in the mode of
reproduction, and in the variety of habits displayed by members of a
community. The greatest confusion has arisen in reference to Termitidae
in consequence of the phenomena of their lives having been assumed to
be similar to those of Hymenoptera; but the two cases are very different,
Hymenoptera passing the early parts of their lives as helpless maggots,
and then undergoing a sudden metamorphosis to a totally changed
condition of structure, intelligence, and instinct.
The development of what we may look on as the normal form of

Termitidae—that is, the winged Insects male and female—is on the whole
similar to that we have sketched in Orthoptera; the development in
earwigs being perhaps the most similar. The individuals of Termitidae are,
however, in the majority of cases if not in all, born without eyes; the wing-
rudiments develop from the thoracic terga as shorter or longer lobes
according to the degree of maturity; as in the earwigs the number of joints
in the antennae increases as development advances. All the young are,
when hatched, alike, the differences of caste appearing in the course of
the subsequent development; the most important of these differences are
those that result in the production of two special classes—only met with in
social Insects—viz. worker and soldier. Of these the workers are
individuals whose development is arrested, the sexual organs not going
on to their full development, while other organs, such as the eyes, also
remain undeveloped; the alimentary canal and its adjuncts occupy nearly
the whole of the abdominal cavity. The adult worker greatly resembles—
except in size—the young. Grassi considers that the worker is not a case
of simple arrest of development, but that some deviation accompanies the
arrest.
The soldier also suffers an arrest of development in certain respects

similar to the worker; but the soldier differs in the important fact that the
arrest of the development of certain parts is correlative with an
extraordinary development of the head, which ultimately differs greatly
from those of either the worker or of the sexual males and females.
Fig. 233.—The pairs of mandibles of different adult individuals of Termes sp.
from Singapore. A, Of worker; B, of soldier; C, of winged male; D, of
winged female.
Soldier.—All the parts of the head of the soldier undergo a greater or less
change of form; even the pieces at its base, which connect it by means of
the cervical sclerites with the prothorax, are altered. The parts that
undergo the greatest modification are the mandibles (Fig. 233, B); these
become much enlarged in size and so much changed in form that in a
great many species no resemblance to the original shape of these organs
can be traced. It is a curious fact that the specific characters are better
expressed in these superinduced modifications than they are in any other
part of the organisation (except, perhaps, the wings). The soldiers are not
alike in any two species of Termitidae so far as we know, and it seems
impossible to ascribe the differences that exist between the soldiers of
different species of Termitidae to special adaption for the work they have
to perform. Such a suggestion is justifiable only in the case of the Nasuti
(Fig. 234, 1), where the front of the head is prolonged into a point: a duct
opens at the extremity of this point, from which is exuded a fluid that
serves as a cement for constructing the nest, and is perhaps also used to
disable enemies. Hence the prolongation and form of the head of these
Nasuti may be fairly described as adaptation to useful ends. As regards
the great variety exhibited by other soldiers—and their variety is much
greater than it is in the Nasuti—it seems at present impossible to treat it
as being cases of special adaptations for useful purposes. On the whole it
would be more correct to say that the soldiers are very dissimilar in spite
of their having to perform similar work, than to state that they are
dissimilar in conformity with the different tasks they carry on.
Fig. 234.—Soldiers of different species of Termites. (After Hagen.) 1,
Termes armiger; 2, T. dirus; 3, Calotermes flavicollis; 4, T. bellicosus;
5, T. occidentis; 6, T. cingulatus (?); 7, Hodotermes quadricollis (?); 8,
T. debilis (?), Brazil.
The Termite soldier is a phenomenon to which it is difficult to find a

parallel among Insects. The soldier in the true ants is usually not definitely
distinguished from the worker, but it is possible that in the leaf-cutting
ants, the so-called soldier may prove to be more similar in its nature to
the Termite soldier. The soldiers of any one species of Termite are
apparently extremely similar to one another, and there are no
intermediates between them and the other forms, except in the stages of
differentiation. But we must recollect that but little is yet known of the full
history of any Termite community, and it is possible that soldiers which in
the stage of differentiation promise to be unsatisfactory may be killed and
eaten,—indeed there is some evidence to this effect. There is too in
certain cases some difference—larger or smaller size being the most
important—between the soldiers of one species, which may possibly be
due to the different stage of development at which their differentiation
commenced.
It would at present appear that, notwithstanding the remarkable difference

in structure of the soldiers and workers of the white ants, there is not a
corresponding difference of instinct. It is true that soldiers do more of
certain things than workers do, and less of others, but this appears to be
due solely to their possession of such very different structures; and we
are repeatedly informed by Grassi that all the individuals in a community
take part, so far as they are able, in any work that is going on, and we find
also in the works of other writers accounts of soldiers performing acts that
one would not have expected from them. The soldiers are not such
effective combatants as the workers are. Dudley and Beaumont indeed
describe the soldiers as merely looking on while the workers fight.[295] So
that we are entitled to conclude that the actions of the soldiers, in so far
as they differ from those of the rest of the community, do so because of
the different organisation and structures of these individuals. We shall,
when speaking of food, point out that the condition of the soldier in
relation to food and hunger is probably different from that of the other
forms.
Various Forms of a Community.—The soldiers and workers are not the

only anomalous forms found in Termitid communities; indeed on
examining a large nest a variety of forms may be found that is almost
bewildering. Tables have been drawn up by Grassi and others showing
that as many as fifteen kinds may be found, and most of them may under
certain circumstances coexist. Such tables do not represent the results of
actual examination in any one case, and they by no means adequately
represent the number that, according to the most recent observations of
Grassi, may be present; but we give one taken from Grassi, as it conveys
some idea of the numerous forms that exist in certain communities. In this
table the arrangement, according to A, B, C, D, E, represents successive
stages of the development:—
Forms of Termes lucifugus. (After Grassi.) Zool. Anz. xii. 1889, p. 360.
On inspecting this table it will be perceived that the variety of forms is due
to three circumstances—(1) the existence of castes that are not present
in ordinary Insects; (2) the coexistence of young, of adolescents, and of
adults; and (3) the habit the Termites have of tampering with forms in their
intermediate stages, the result of which may be the substitution of
neoteinic individuals in place of winged forms.
This latter procedure is far from being completely understood, but to it are
probably due the various abnormal forms, such as soldiers with rudiments
of wings, that have from time to time been discovered in Termite
communities, and have given rise to much perplexity.
In connexion with this subject we may call attention to the necessity, when
examining Termite nests, of taking cognisance of the fact that more than
one species may be present. Bates found different Termites living
together in the Amazons Valley, and Mr. Haviland has found as many as
five species of Termitidae and three of true ants in a single mound in
South Africa. In this latter case observation showed that, though in such
close proximity, there was but little further intimacy between the species.
There are, however, true inquiline, or guest, Termites, of the genus
Eutermes, found in various parts of the world living in the nests of other
Termitidae.
Origin of the Forms.—The interest attaching to the various forms that

exist in Termites, more particularly to the worker and soldier, is evident
when we recollect that these never, so far as we know, produce young. In
the social Hymenoptera it has been ascertained that the so-called neuters
(which in these Insects are always females) can, and occasionally do,
produce young, but in the case of the Termites it has never been
suggested that the sexual organs of the workers and soldiers, whether
male or female, ever become fruitful; moreover, the phenomena of the
production of young by the white ants are of such a nature as to render it
in the highest degree improbable that either workers or soldiers ever take
any direct part in it. Now the soldier is extremely different from the sexual
individuals that produce the young, and seeing that its peculiarities are
not, in the ordinary sense of the word, hereditary, it must be of great
interest to ascertain how they arise.
Before stating the little information we possess on this subject, it is
necessary to reiterate what we have already said to the effect that the
soldiers and workers are not special to either sex, and that all the young
are born alike. It would be very natural to interpret the phenomena by
supposing the workers to be females arrested in their development—as is
the case in social Hymenoptera—and by supposing the soldiers to be
males with arrested and diverted development.
The observations already made show that this is not the case. It has been
thoroughly well ascertained by Lespès and Fritz Müller that in various
species of Calotermes the soldiers are both males and females. Lespès
and Grassi have shown that the workers of Termes lucifugus are of male
and female sex, and that this is also true of the soldiers. Although the
view of the duality of the sexes of these forms was received at first with
incredulity, it appears to be beyond doubt correct. Grassi adds that in all
the individuals of the workers and soldiers of Termes lucifugus the sexual
organs, either male or female, are present, and that they are in the same
stage of development whatever the age of the individual. This statement
of Grassi's is of importance because it seems to render improbable the
view that the difference of form of the soldier and worker arises from the
arrest of the development of their sexual organs at different periods. The
fact that sex has nothing whatever to do with the determination of the
form of workers and soldiers may be considered to be well established.
The statement that the young are all born alike is much more difficult to
substantiate. Bates said that the various forms could be detected in the
new-born. His statement was made, however, merely from inspection of
the nests of species about which nothing was previously known, and as it
is then very difficult to decide that a specimen is newly hatched, it is
probable that all he meant was that the distinction of workers, soldiers,
and sexual forms existed in very small individuals—a statement that is no
doubt correct. Other observers agree that the young are in appearance all
alike when hatched, and Grassi reiterates his statement to this effect.
Hence it would appear that the difference of form we are discussing
arises from some treatment subsequent to hatching. It may be suggested,
notwithstanding the fact that the young are apparently alike when
hatched, that they are not really so, but that there are recondite
differences which are in the course of development rendered
conspicuous. This conclusion cannot at present be said with certainty to
be out of the question, but it is rendered highly improbable by the fact
ascertained by Grassi that a specimen that is already far advanced on the
road to being an ordinary winged individual can be diverted from its
evident destination and made into a soldier, the wings that were partially
developed in such a case being afterwards more or less completely
absorbed. This, as well as other facts observed by Grassi, render it
probable that the young are truly, as well as apparently, born in a state
undifferentiated except as regards sex. Fig. 230 (p. 363) is designed to
illustrate Grassi's view as to this modification; the individual A is already
far advanced in the direction of the winged form C, but can nevertheless
be diverted by the Termites to form the adult soldier B.
According to the facts we have stated, neither heredity nor sex nor arrest
of development are the causes of the distinctions between worker and
soldier, though some arrest of development is common to both; we are
therefore obliged to attribute the distinction between them to other
influences. Grassi has no hesitation in attributing the anatomical
distinctions that arise between the soldiers, workers, and winged forms to
alimentation. Food, or the mode of feeding, or both combined, are,
according to the Italian naturalist, the source of all the distinctions, except
those of sex, that we see in the forms of any one species of Termite.
Feeding.—Such knowledge as we possess of the food-habits of

Termitidae is chiefly due to Grassi; it is of the very greatest importance, as
giving a clue to much that was previously obscure in the Natural History
of these extraordinary creatures.
In the abodes of the Termites, notwithstanding the enormous numbers of

individuals, cleanliness prevails; the mode by which it is attained appears
to be that of eating all refuse matter. Hence the alimentary canal in
Termitidae contains material of various conditions of nutritiveness. These
Insects eat their cast skins and the dead bodies of individuals of the
community; even the material that has passed through the alimentary
canal is eaten again, until, as we may presume, it has no further nutritive
power. The matter is then used for the construction of their habitations or
galleries, or is carried to some unfrequented part of the nest, or is voided
by the workers outside of the nests; the pellets of frass, i.e. alimentary
rejectamenta, formed by the workers frequently betraying their presence
in buildings when none of the Insects themselves are to be seen. The
aliments of Calotermes flavicollis are stated by Grassi and Sandias to be
as follows: (1) wood; (2) material passed from the posterior part of the
alimentary canal or regurgitated from the anterior part; (3) the matter shed
during the moults; (4) the bodies of other individuals; (5) the secretion of
their own salivary glands or that of their fellows; (6) water. Of these the
favourite food is the matter passed from the posterior part of the
alimentary canal. We will speak of this as proctodaeal food. When a
Calotermes wishes food it strokes the posterior part of another individual
with the antennae and palpi, and the creature thus solicited yields, if it
can, some proctodaeal food, which is then devoured. Yielding the
proctodaeal food is apparently a reflex action, as it can be induced by
friction and slight pressure of the abdomen with a small brush. The
material yielded by the anterior part of the alimentary canal may be called
stomodaeal product. It makes its appearance in the mouth in the form of a
microscopic globule that goes on increasing in size till about one
millimetre in diameter, when it is either used for building or as food for
another individual. The mode of eating the ecdysial products has also
been described by Grassi and Sandias. When an individual is sick or
disabled it is frequently eaten alive. It would appear that the soldiers are
great agents in this latter event, and it should be noticed that owing to
their great heads and mandibles they can obtain food by other means
only with difficulty. Since they are scarcely able to gnaw wood, or to
obtain the proctodaeal and stomodaeal foods, their condition may be
considered to be that of permanent hunger, only to be allayed by
carnivorous proceedings. When thrown into a condition of excitement the
soldiers sometimes exhibit a sort of Calotermiticidal mania, destroying
with a few strokes five or six of their fellows. It is, however, only proper to
say that these strokes are made at random, the creature having no eyes.
The carnivorous propensities of Calotermes are apparently limited to
cannibalism, as they slaughter other white ants (Termes lucifugus) but
never eat them.
The salivary food is white and of alkaline nature; when excreted it makes
its appearance on the upper lip. It is used either by other individuals or by
the specimen that produced it; in the latter case it is transferred to the
lower lip and swallowed by several visible efforts of deglutition. The
aliments we have mentioned are made use of to a greater or less extent
by all the individuals except the very young; these are nourished only by
saliva: they commence taking proctodaeal and stomodaeal food before
they can eat triturated wood.
Royal Pairs.—The restriction of the reproductive powers of a community

to a single pair (or to a very restricted number of individuals) occurs in all
the forms of social Insects, and in all of them it is concomitant with a
prolongation of the reproductive period far exceeding what is natural in
Insects. We are not in a position at present to say to what extent the lives
of the fertile females of Termitidae are prolonged, there being great
difficulties in the way of observing these Insects for long periods owing to
their mode of life; living, as they do, concealed from view, light and
disturbance appear to be prejudicial to them. We have every reason to
believe, however, that the prolongation extends as a rule over several
years, and that it is much greater than that of the other individuals of the
community, although the lives of even these latter are longer than is usual
in Insects; but this point is not yet satisfactorily ascertained. As regards
the males there is reason to think that considerable variety as to longevity
prevails. But the belief is that the royal males of Termitidae also form an
exception to other Insects in the prolongation of the terminal periods of
their lives. In Hymenoptera, male individuals are profusely produced, but
their lives are short, and their sole duty is the continuation of the species
by a single act. We have seen that Grassi is of opinion that a similar
condition of affairs exists at present with Termes lucifugus in Sicily, but
with this exception it has always been considered that the life of the king
Termite is, roughly speaking, contemporaneous with that of the queen; it
is said that in certain species the king increases in bulk, though not to an
extent that can be at all compared with the queen.
It must be admitted that the duration of life of the king has not been
sufficiently established, for the coexistence of a king with a queen in the
royal cell is not inconsistent with the life of the king being short, and with
his replacement by another. Much that is imaginary exists in the literature
respecting Termites, and it is possible that the life of the king may prove
to be not so prolonged as has been assumed.
Fig. 235.—Royal pair of Termes sp. from Singapore, taken out of royal cell.
A, A, King, lateral and dorsal views; B, B, queen, dorsal and lateral
views. Natural sizes.
Returning to the subject of the limitation of the reproduction of the

community to a single pair, we may remark that a priori one would
suppose such a limitation to be excessively unfavourable to the
continuation of the species; and as it nevertheless is the fact that this
feature is almost, if not quite, without exception in Insect societies, we
may conclude that it is for some reason absolutely essential to Insect
social life. It is true that there are in Termitidae certain partial exceptions,
and these are so interesting that we may briefly note them. When a royal
cell is opened it usually contains but a single female and male, and when
a community in which royal cells are not used is inspected it is usually
found that here also there are present only a single fertile female and a
single king. Occasionally, however, it happens that numerous females are
present, and it has been noticed that in such cases they are not fully
matured females, but are imperfect, the condition of the wings and the
form of the anterior parts of the body being that of adolescent, not adult
Insects. It will be recollected that the activity of a community of Termites
centres round the great fertility of the female; without her the whole
community is, as Grassi graphically puts it, orphaned; and the
observations of the Italian naturalist make it clear that these imperfect
royalties are substitution queens, derived from specimens that have not
undergone the natural development, but have been brought into use to
meet the calamity of orphanage of the community. The Termites
apparently have the power of either checking or stimulating the
reproductive organs apart from other organs of the body, and they appear
to keep a certain number of individuals in such a condition that in case of
anything going wrong with the queen, the reserves may be brought as
soon as possible into a state of reproductive activity. The individuals that
are in such a condition that they can become pseudo-royalties are called
complementary or reserve royalties, and when actually brought into use
they become substitution royalties. It is not at present quite clear why the
substitution royalties should be in such excess of numbers as we have
stated they were in the case we have figured (Fig. 236), but it may be due
to the fact that when the power of the community is at a certain capacity
for supporting young a single substitution royalty would not supply the
requisite producing power, and consequently the community adopts a
greater number of the substitution forms. Termites are utterly regardless
of the individual lives of the members of the community, and when the
reproductive powers of the company of substitution royalties become too
great, then their number is reduced by the effective method of killing and
eating them.
According to Grassi's observations, the communities of Termes lucifugus

are now kept up in Sicily almost entirely by substitution royalties; the
inference being that the age of each community has gone beyond the
capacity for life of any single royal queen.
The substitution royalties are, as we have said, called neoteinic (νεος,

youthful, τείνω, to belong to), because, though they carry on the functions
of adult Insects, they retain the juvenile condition in certain respects, and
ultimately die without having completed the normal development. The
phenomenon is not quite peculiar to Insects, but occurs in some other
animals having a well-marked metamorphosis, notably in the Mexican
Axolotl.[296]
Fig. 236.—Pair of neoteinic royalties, taken from the royal chamber of

Termes sp. at Singapore by Mr. G. D. Haviland. The queen was one of
thirteen, all in a nearly similar state. A, king; B, C, queen.
A point of great importance in connexion with the neoteinic royalties is

that they are not obtained from the instar immediately preceding the adult
state, but are made from Insects in an earlier stage of development. The
condition immediately preceding the adult state is that of a nymph with
long wing-pads; such specimens are not made into neoteinic royalties,
but nymphs of an earlier stage, or even larvae, are preferred. It is
apparently by an interference with one of these earlier stages of
development that the "nymphs of the second form," which have for long
been an enigma to zoologists, are produced.
Post-metamorphic Growth.—The increase of the fertility of the royal

female is accompanied by remarkable phenomena of growth. Post-
metamorphic growth is a phenomenon almost unknown in Insect life,
except in these Termitidae; distension not infrequently occurs to a certain
extent in other Insects, and is usually due to the growth of eggs inside the
body, or to the repletion of other parts. But in Termitidae there exists post-
metamorphic growth of an extensive and complex nature; this growth
does not affect the sclerites (i.e. the hard chitinous parts of the exo-
skeleton), which remain of the size they were when the post-metamorphic
growth commenced, and are consequently mere islands in the distended
abdomen (Fig. 236, B, C). The growth is chiefly due to a great increase in
number and size of the egg-tubes, but there is believed to be a correlative
increase of various other parts of the abdominal as distinguished from the
anterior regions of the body. A sketch of the distinctions existing between
a female of a species at the time of completion of the metamorphosis and
at the period of maximum fertility does not appear to have been yet made.
New Communities.—The progress of knowledge in respect of Termitidae

is bringing to light a quite unexpected diversity of habits and constitution.
Hence it is premature to generalise on important matters, but we may
refer to certain points that have been ascertained in connexion with the
formation of new communities. The duration of particular communities
and the modes in which new ones are founded are still very obscure. It
was formerly considered that swarming took place in order to increase the
number of communities, and likewise for promoting crossing between the
individuals of different communities. Grassi, however, finds as the result
of his prolonged observations on Termes lucifugus that the swarms have
no further result than that the individuals composing them are eaten up.
And Fritz Müller states[297] that in the case of the great majority of forms
known to him the founding of a colony by means of a pair from a swarm
would be just about as practicable as to establish a new colony of human
beings by placing a couple of newly-born babes on an uninhabited island.
It was also thought that pairs, after swarming, re-entered the nests and
became royal couples. It does not, however, appear that any one is able
to produce evidence of such an occurrence. The account given by
Smeathman of the election of a royal couple of Termes bellicosus is
imperfect, as, indeed, has already been pointed out by Hagen. It
suggests, however, that a winged pair after leaving the nest do again
enter it to become king and queen. The huge edifices of this species
described by Smeathman are clearly the result of many years of labour,
and at present substitution royalties are not known to occur in them, so
that it is not improbable Smeathman may prove to be correct even on this
point, and that in the case of some species mature individuals may re-
enter the nest after swarming and may become royal couples. On the
whole, however, it appears probable that communities of long standing
are kept up by the substitution royalty system, and that new communities
when established are usually founded by a pair from a swarm, which at
first are not in that completely helpless condition to which they come
when they afterwards reach the state of so-called royalty. Grassi's
observations as to the sources of food remove in fact one of the
difficulties that existed previously in regard to the founding of new
colonies, for we now know that a couple may possibly bear with them a
sufficient supply of proctodaeal and stomodaeal aliment to last them till
workers are hatched to feed them, and till soldiers are developed and the
community gradually assumes a complex condition. Professor Perez has
recently obtained[298] the early stages of a community from a winged pair
after they had been placed in captivity, unattended by workers. Müller's
observation, previously quoted, is no doubt correct in relation to the
complete helplessness of royal pairs after they have been such for some
time; but that helplessness is itself only gradually acquired by the royal
pair, who at first are able to shift for themselves, and produce a few
workers without any assistance.
Anomalous Forms.—Müller has described a Calotermes under the

name of C. rugosus, which is interesting on account of the peculiar form
of the young larva, and of the changes by which it subsequently becomes

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We combine innovative learning technology with trusted

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Ed Thompson, Ian Worthington and Chris Britton

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First published in Great Britain in 1994 (print)

British Library Cataloguing-in-Publication Data

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Cover design: Kelly Miller

Print edition typeset in 9.5/13pt Stone Serif ITCPro by Straive

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Part One INTRODUCTION 1

Part Two CONTEXTS 69

Part Three FIRMS 233

Part Four MARKETS 325

Part Five CONCLUSION 441

F01_The_Business_Environment-A_Global_Perspective_9e.indd 7 11/02/2023 09:16

Part One INTRODUCTION

1 Business organisations: the external environment 3

2 Business organisations: the internal environment 17

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Case study: Reshuffle at Microsoft 36

3 The global context of business 39

4 De-globalising factors: sovereignty, conflicts and

Part Two CONTEXTS

5 The political environment (P) 71

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Government in democratic states 76

6 The macroeconomic environment (E) 103

7 The demographic, social and cultural context

Learning outcomes and key terms 141

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The demographic environment of business 142

8 The resource context: people, technology and

9 The legal environment (L) 189

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Codes of practice 209

10 The ethical and ecological environment (E) 215

Part Three FIRMS

11 Legal structures 235

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12 Size structure of firms 261

13 Industrial structure 285

14 Government and business 307

F01_The_Business_Environment-A_Global_Perspective_9e.indd 14 11/02/2023 09:16

Case study: Public sector procurement – the Royal Navy 323

Part Four MARKETS

15 The market system 327

16 Market structure 351

F01_The_Business_Environment-A_Global_Perspective_9e.indd 15 11/02/2023 09:16

17 International markets and trade 373

18 Pandemics and Covid-19 399

19 Governments and markets 419

F01_The_Business_Environment-A_Global_Perspective_9e.indd 16 11/02/2023 09:16

Case study: Who leads who? 437

Part Five CONCLUSION

20 Strategy and the changing environment 443