Socioeconomic Impact Analysis

Slides prepared by Leigh Lim

 Introduction
• The focus of analysis is on the impacts of
business operations on various sectors that it
interacts with in its production and distribution
activities
• The effects are not only economic and
commercial but can be social, cultural and
environmental as the operation of a business
firm has spillover effects on the environment
where it operates
 Framework for Socioeconomic Impact
Analysis
• In the production and distribution activities of the
firm, whether the firm is a buyer of inputs or a seller
of its outputs, the firm creates an impact on its
sellers and buyers
• Direct impacts: felt by suppliers of inputs and owners
of factor inputs
• Externalities: (spillover effects) benefits and costs
incurred by parties outside the transactions between
firms and its suppliers; and firms and its buyers
Tracing the Impacts Through the Sourcing of
Inputs of a Business Firm
• Intermediate Inputs
– Internal vs External Sources
– Independent Suppliers vs Subsidiary of
Conglomerate
– Raw vs Semiprocessed Inputs
– Market Power of the Firm
Tracing the Impacts Through the Sourcing of
Inputs of a Business Firm
• Factor Inputs
– Within the Community vs Outside the Community
– Direct Employment vs Subcontracting
– Minimum Wage vs Market Rate
– Organized vs Nonorganized
– Human Resource Development
– Temporal and Spacial Working Conditions
Tracing the Impacts Through the Sourcing of
Inputs of a Business Firm
• Sourcing Funds for Capital Formation
– Own Savings vs Capital Market
– Foreign Borrowing vs Foreign Direct Investment
– Market Determined vs Regulated rate of Return
• Sourcing for Land Inputs
– Land Intensity of Business
– Location of Business and Opportunity Cost of Land
Use
Tracing the Impacts Through the Sourcing of
Inputs of a Business Firm
• Sourcing for Managers and Professionals
– Insiders vs Outsiders
– In-house vs Outsourced Training
• Payment of Taxes
Tracing the Impacts Through the Distribution
of Outputs of a Firm
• Output as Intermediate Inputs
– Contributions on Industrial Integration
– Contributions to the Productivity of Other
Industries
• Output as Final Demand
– Personal Consumption
– Investment
– Government Consumption
– Exports
Accounting for Spillover Effects of a Business
Firm
• Positive Externality: if the spillover effects
enhance the welfare of a third party
• Negative Externality: if the third party’s
welfare is reduced
• We have to recognize that any business
transaction will have positive and negative
spillover effects to individuals, the immediate
community, the society and the environment
 Viability of a Business Enterprise
• All the 4 perspectives we discussed in Chapter 3
are focused on the profitability of a business but
viability does not depend on profitability alone
• Business viability also considers the impact of
the firm’s operations on its stakeholders
• Table 4.1 is a guide and checklist in identifying
these direct and indirect impacts as well as the
positive and negative effects arising from the
productive and distributing activities of a firm
Recommendations on Managing the Impacts
of a Business Enterprise
• Improve the productivity of firm’s workers
• Source their raw materials, labor, and capital
inputs from the community where they operate
• Use environmentally friendly alternatives in the
production process and distribution procedures
• Be socially responsible as commercial
enterprises
Recommendations on Managing the Impacts
of a Business Enterprise
• Participate in the production of intermediate
goods within the country
• Enhance the productivity of the services
sector
• Carry out measures to protect consumers
 Synthesis
• The socioeconomic impact of a firm can be analyzed in
terms of its production and distribution process
• The firm has impacts on its suppliers of intermediate and
factor inputs
• The firm has impacts on the buyers of its output
• The firm also has impacts on third parties called spillover
effects
• Firms have to be conscious about their impacts on various
stakeholders as well as third parties
• Aside from profitability, proper management of a firm’s
socioeconomic impacts can lead to an appropriate
evaluation of business viability