Page 326 - Cambridge IGCSE Business Studies

Cambridge IGCSE Business Studies Section 6 External influences on business activity

Businesses also need to make sure that ethical practices are followed by all parts
of their supply chain, from suppliers and distributors to the sales agents who sell
their products.

Conflicts between profits and ethics

Businesses may find that achieving ethical objectives increases their costs. Greater

costs mean lower profits, so businesses often face a conflict between profi ts and

ethics. For example, an increase in production levels may lead to economies of
scale and possibly more sales, but it also causes an increase in pollution. Paying
employees higher salaries rather than earning higher profits is another example of

an ethical decision.

It is important that the right balance is found, as earning profit by unethical
means is not good for the long-term survival of a business.

The outsourcing industry is a good example of the conflict between profi ts
and ethics. Outsourcing is the relocation of business functions (such as fi nance or

manufacturing operations) to other countries. This means that jobs may be lost in
one country, and gained in another.
ACTIVITY 25.4

Many businesses worldwide have outsourced some of their business functions to countries such as India, Philippines,
China, Brazil and Costa Rica. This is usually done in order to reduce costs (because of a cheaper workforce) and increase
profitability. The businesses also benefit from favourable exchange rates with these countries. This loss of local jobs to
people in other countries has contributed to increasing unemployment in the home country.
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1 Businesses argue that during a global recession they need to cut costs in order to survive and make profits. Discuss in a
group the ethical decision between loss of local jobs and growth in profits.

2 Some reports say that foreign workers are often paid wages lower than the local minimum wage of the business’s own
country. Do you think this is ethical?

How businesses respond to ethical issues
When faced with an ethical issue, a business has to consider the interests of the

various stakeholders. When stakeholders have conflicting interests, decision-
making may not be easy. Both the advantages and disadvantages of ethical
behaviour need to be considered. These are shown in Table 25.6.

Advantages Disadvantages
TOP TIP ■ Improved image and reputation, which ■ High costs may be involved when
helps in attracting new investors, choosing raw materials ethically
Questions on social or
which can help a business grow. (such as using recycled materials) as
environmental issues will usually
■ Can be a motivating factor for existing opposed to choosing the one with the
require you to give an opinion on

staff, which will help with retaining lowest price, leading to lower profits.
a given statement. Try to look for
them. ■ Costs may be increased by improving
both the positive and negative
■ Customers these days demand eco- working conditions and pay for
points and make a decision. Make
friendly products that have been employees, and not using cheap child
sure points are relevant to the
made fairly. Businesses can use this labour. All this leads to lower profits.
type of business identified (this
to improve their brand awareness and
is what is meant by the word
recognition.
‘context’).
Table 25.6 Advantages and disadvantages of ethical behaviour