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

1. STAKE HOLDERS,
CONSUMERS AND
BUSINESS
Units 4 and 5
Prof. Prabha Panth
3-Jun-12

2. Stakeholders in Business
• Stakeholders: Individuals and groups with
interests, expectations, and demands about
what business should provide to society.
• Business should consider stakeholders’
expectations under:
– Legitimacy: the validity of the stakeholder’s claim,
– Power: the ability of the stakeholders to affect the
firm’s operations,
– Urgency: the degree of immediate attention of the
stakeholder’s claim.
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3. Stakeholders and Business
1. Government 2. Employees
6. Environment Business 3. Owners
5. Society 4. Consumers
3

4. Types of Stakeholders
• Primary stakeholders: with direct stake in the
organisation and its success – owners, managers, share
holders, and workers.
Includes:
– Core stakeholders: essential to the survival of the firm,
– Strategic stakeholders: vital to the organisation and to
face its threats and opportunities – owners and managers
• Secondary stakeholders: public or special interest
stake in the organisation –
consumers, government, civil
society, neighbourhood, environment. Also called:
– Outside stakeholders
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5. Stakeholder Management Strategy
Stakeholder’s Potential for Threat to Organisation
Stakeholder’s
Stakeholder Type 4
Potential for Mixed Blessing
Stakeholder Type 1
Cooperation Supportive
with Strategy:
Strategy:
Collaborate
Organisation Involve
Stakeholder Type 3
Stakeholder Type 2
Non-supportive
Marginal
Strategy:
Strategy:
Defend
Monitor
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6. The Clarkson Principles of Stakeholder
Management
1. Acknowledge: and monitor concerns of legitimate
stakeholders.
2. Listen and communicate with stakeholders,
3. Adopt mechanisms sensitive to stakeholders’ claims and
requirements,
4. Interdependence and distribution: recognise the
interdependence of interests, and distribute benefits
accordingly.
5. Cooperate with other public and private entities – to reduce
any negative impacts of the business, and to pay
compensation,
6. Avoid activities that infringe rights of stakeholders, e.g. right
to life, property, and clean environment.
7. Transparency of activities, reporting of actions taken to
address stakeholders’ requirements.
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7. Competitive forces
• In perfect competition, firms work in a no risk
environment, with equal shares in the
market, and equal profits
• But in the real world, there is no perfect
competition, only oligopoly or monopolistic
competition,
• Businesses have to face different types of
competition risks, affects their market size and
profits
• SWOT analysis –
Strengths, Weaknesses, Opportunities and
Threats
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8. Porter’s - Five Forces
• Porter: to diagnose the principal competitive
pressures in a market and assess its strength
and importance to the firm.
• He identifies five forces that affect the
competitive structure of firms.
• The five forces are external forces that impact
on a company’s ability to compete in a given
market.
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9. Porter’s - Five Forces
Threat of new
entrants
Bargaining Rivalry among Bargaining
power of competing firms power of buyers
suppliers
Threat of
substitutes
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10. 1. Rivalry among firms: cut throat
competition, oligopoly, high fixed costs, no product
differentiation.
2. Threat of new entrants: low barriers to
entry, government licensing policy, economies of
scale, expected retaliation.
3. Bargaining power of buyers: monopsony, consumers’
knowledge, undifferentiated products (no brand
loyalty)
4. Bargaining power of suppliers: supplies from few
firms, vertical integration, few or no substitutes.
Influences input prices (oil)
5. Threat of substitute products: rivals develop
substitutes, technology, adv campaigns
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11. CONSUMING CLASSES IN INDIA
• In recent times consumerism is growing in India.
• Factors affecting consumerism in India:
1. More access and availability of consumer durables
and luxuries, imports and local production
2. Growth of service sector, and incomes,
3. Growth of middle class, 600 million effective
consumers
4. Change in lifestyles,
5. Credit cards, consumer loans and credit,
6. Growth of shopping malls,
7. Change in attitudes towards consumption,
8. Larger share of younger generation in population.
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12. Indian Retail Market
• Indian retail market is considered to be the
second largest in the world in terms of growth
potential.
• The market growing at 11-12% pa.
• C-durable expenditure accounts for around
10% of GDP.
• Attracts global retail giants
• Investments estimated in C-durables: Rs 200
billion by end of 2010.
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13. India: consumer classes (NCAER)
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14. Indian Consumer classes - forecast
100% 3
90% 10
24
80% 17
70% 54
35
60% 77
50% 36
46
40%
30% 32 35
20% 24
15 17
10% 8
6
2 6 8
0% 5
0 1 7 12 20
1965
1995
2005
2015
2025
Globars Strivers Seekers Aspirants Deprived 14

15. Consumer durables ('000)
14000 13149
12000
9957
10000
8369
8000
6774
6000
4000 3466 3437
1785 1850
2000 760
276
0
Cars Motorcycles CTV regular Refrigerators White goods
1995-96 2001-02 2005-06 2009-10 15

16. Forecast of Consumers’ Profile
1. Income group: domination of middle class,
2. Demography: average age in India (2020) - 29, in
China and the US – 37, Europe 45.
3. Urban: 35-45% population living in towns and cities
by 2050.
4. Demonstration effect: rural population copies
urban, urban copies Western C-patterns.
5. Brand loyalty: will decrease, as younger generation
are not brand loyal, also more choice,
6. Health conscious: with more education, awareness
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17. Consumer protection
• In Economics, consumers are
supposed to have full knowledge of
the product.
• Is there Consumer’s Sovereignty?
• Unscrupulous business – can sell
unsafe, substandard, dangerous
products.
• Incorrect advertisements forcing
consumer’s to buy their products.
• Consumers have no bargaining power.
• Both international and national
policies to protect consumers and
educate them.
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18. International Forum for Consumers
• International’s Charter of Consumer Rights (UN
1982), to be implemented by governments.
• Eight rights
1. Right to basic needs - Food, clothing, shelter, health
care, education, water and sanitation
2. Right to safety – in consumption, lead in toys, Bt fruits
and vegetables,
3. Right to information – inputs, expiry
dates, reactions, impacts, technology
4. Right to choice – safer and healthier substitutes
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19. 4. Right to be heard – through media, courts,
5. Right to redress – compensation – health effects
6. Right to education – about product, what it
contains, how it impacts consumers,
7. Right to healthy environment – environmental
safety, protection.
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20. Consumer Protection Act, 1986
• COPRA : based on UN Guidelines for Consumer
Protection in 1985 recognising the rights of consumers,
• To protect and save consumers from exploitation, from
adulterated, substandard goods and deficient services,
– setting up of consumer protection councils at the central
and state levels,
– Central Consumer Protection Councils (CCPC) and State
Consumer Protection Councils.
– District consumer protection councils.
– National Consumer Policy to ensure that goods and
services are available to consumers at reasonable prices
and acceptable standards of quality.
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21. Consumer complaints
• A number of NGOs have taken up the cause of
consumer’s complaints :
– International Consumer Rights Protection Council
(ICRPC), Consumer court, Jagoo Party,
However, despite Government policy on consumer rights
and consumer protection, consumers are a helpless lot
in the legal system of India.
The consumer court system of our country is one of the
highly inefficient and impotent systems in the world.
• Years of legal battles (10-15 yrs),
• High costs
• Corrupt bureaucracy,
• Industry power and clout
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22. Business Ethics
Business ethics : refers to the
Includes:
behaviour that a business • Labour management, safety in
adheres to in its daily production, and of final
dealings with the world. product,
(1) avoid breaking • Environmental safety and
the criminal law in one’s protection,
work-related activity; • Pricing of products,
• Proper and not misleading
(2) avoid action that may advs.
result in civil law suits against • Avoid promises of
the company; and products, that cannot be kept,
(3) avoid actions that are • Ethical behaviour of
bad for the company image workers, staff and managers
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23. • Many large companies flout ethics due to their
money power.
– Coca cola – exploitation of labour in South and
Central America, pesticide content – India,
– Union Carbide – Bhopal gas tragedy,
– Nestlé - selling genetically modified food in some
Asian countries without labelling them explicitly.
– Health drinks (Complan, Horlicks) – as substitutes
for a balanced diet, increase intelligence!