External Influences on

Business Activity :
Political and Legal
Chapter 6.1.1
Business
Environment
The Political Environment :
Privatisation
Privatisation is the process of transferring organisations
from state ownership to being owned and controlled by
individuals and other businesses in the private sector.
• In some case, accompanied by reduction in
government subsidies and grants to industry, legislation
limiting the state’s role in business matter.
• There is greater self regulation by businesses and
government adopts a laissez-faire approach.
Advantages of Privatisation
• Increased efficiency
• Operational Independence
• Higher levels of investment and
innovation
Disadvantages of Privatisation
• Some industries are not suited
to competition
• The need to protect consumers
may become secondary to
profits.
• Short termism (sort term profits
and rising share price and high
dividends.
 Nationalisation is the transfer of a privately owned
organisation to the control of the state.
This has been driven by a number of factors, including the
perceived weak performances of privatised businesses in
Nationalisation some economic sectors. The Coronavirus (COVID-19) crisis
of 2020 has also resulted in some governments being forced
to take a greater degree of control over economic activity.
Advantages of Nationalisation
• Business can operate in public
interest
• The treatment of employees
• Levels of long-term investment
Disadvantages of Nationalisation
• Political Interference-political
pressure and pleasing voters.
• Inefficiency-shielded from
competition, sometimes
management is not expected to
meet targets.
• Reduced competition-more
regulations that govern
industries with nationalised
businesses.
How a
government
might use the
law to control
business
activity
 • Employment practices refers to the way in which businesses
treat their employees from hiring until the end of their
relationship with the business.
• Examples of UK Legislation include:
Employment • The Equalities Act 2010
Practices • Employment Act 1980
• Trade Union Act 1984
• Trade Union Reform and Employment Right Act 1993
• Employment Relation Act 1999
Refer Page 218
Working
Conditions
• Includes hours of works
(48 hours in EU
legislation), paid
holidays (four weeks)
and health and safety.
• Pg. 219-220
 Wage Levels
• Many countries have minimum wage laws, which set out wage rates below which businesses must not pay.
Refer Pg 220
 • UK has a series of laws designed to safeguard consumers
against:
≫ businesses charging excessively high prices or rates of interest
≫ unfair trading practices; for example, selling quantities less
than those advertised
Laws ≫ unsafe products, such as children’s toys with sharp objects or
toxic paint
Relating to ≫ having insufficient information on which to take purchasing

Marketing decisions.
Laws include:
Behaviour • The consumer Rights Act 2015
• The Consumer Credit Act 1974
• The trade Descriptions Act 1968
• The Advertising Standards Authority
Refer Pg.221
 Laws Relating to Competition

Competition Laws are intended to

protect businesses and consumers
from the effects of anti –competitive
practices.
Major Competition laws include:
• The Competition Act 1998
• The Enterprise Act 2002
• The Enterprise and Regulatory
Reform Act 2013
Areas where Competition Law operates in the
UK
• Cartel Activity: Cartels involve two or more businesses working together to limit
the extent of competition in a market. The customers are disadvantaged (usually
due to higher price)
• Abuse of a dominant market position: The law defines a dominant market
position as ‘a position of economic strength enjoyed by an undertaking which
enables it to prevent effective competition being maintained in the relevant
market by affording it the power to behave to an appreciable extent
independently of its competitors, customers and ultimately of its consumers.’
• Other anti-competitive practices-include agreements with suppliers not to sell
below certain prices, limiting production to drive up prices, agreeing not to sell to
a competitor’s customers, etc. This also includes mergers and takeovers which
may be harmful to the competitive process in markets.
Mergers and Takeovers
In the UK, the primary responsibility for the regulation of mergers and takeovers
lies with the Competition and Markets Authority (CMA). Mergers will be assessed
by the CMA if:
≫ the business being taken over exceeds a given size (a sales revenue exceeding
￡ 70 million),
or
≫ the newly merged business would control 25 per cent or more of its market.
Key UK Competition Laws
• The Competition Act 1998
• The Enterprise Act 2002
• The Enterprise and Regulatory Reform Act 2013
(Refer to Pg.222)
 The Law and Business Location
Decisions
• Many countries, including the United States, make it illegal to
locate businesses outside designated zones.
• Businesses that want to build new premises may need to apply
for permission from the authorities. Points for consideration
include:
≫ the size, layout and external appearance of buildings
≫ proposed means of access and impact on the neighbourhood
≫ availability of infrastructure, such as roads and electricity supply
≫ how the proposed use of the development relates to the rest of
the neighbourhood.
≫ use of Special Zone. These are areas within individual countries
where business and trade law are different from the rest of the
 Legal controls may be applied because:
Laws on Particular ≫ The production and consumption of these
products may result in damage to the natural
Goods and environment.
Services. ≫ The goods and services may be harmful to
consumers and they may also be addictive.
≫ Their consumption may have adverse effects on
others or on society generally.

Steps of Control:
• Taxation
• Limiting Sales
• Outright ban on production and consumption
• Restricting Sale to ensure safe consumption
Impact of Changes in Political and Legal Factors.
• Usually leads to more intervention in business matters. This
can lead to increased costs of production for various reasons
(refer page 224).This can lead to loss of sales, market share
and profits.
• Positive changes include motivation and improved worker
performance, avoiding bad publicity and this can benefit
business performance.