Every country has its own regulations, laws and regulatory bodies or agencies governing the manufacturing, sales, marketing and dispensing of products within the country. Laws and regulations are purposely made for human beings and other institutions as a guide to bring order and sanity into the society. Because of this, it is likely that their application will impact upon the plans of firms; their effects on a given firm are also unavoidable.
An attempt would be made to discuss stated regulations and laws with particular reference to aviation and airline, environmental regulations, stock market regulations, banking regulations, research (and development) co-operation regulations, stock options regulations, labour regulations, intellectual character and social security regulations industry by industry and effects on the plans of firms where necessary.
For example, the Airport High Density Rule (HDR) in the aviation industry was considered as controversial. This rule requires that no more than 155 flights take off and land at O’Hare Airport and at three other major airports in the country between 6.45am and 9.15p.m.That restriction was expected to keep number of airline operations at O’Hare during that timeframe and also to keep the amount of noise generated by aircraft. When this failed, a law was hypothesizedv to abolish the rule.
On the tobacco industry, for example, the Food and Drug Administration (FDA), an agency of the US government published a rule on tobacco in the federal register to control the sale and dispensing of cigarettes and smokeless tobacco to children and adolescents based on the health consequences of tobacco use. The rule specifies that anyone younger than 18years of age should not be sold cigarette and smokeless tobacco. The rule further requires manufacturers, distributors, and retailers to comply with certain conditions regarding the sale, dispensing and promotion of tobacco products. consequently, vending machines and self-service displays were banned; billboards within 1,000feet of schools and playgrounds were also extremely. This might have adversely affected firms who include in such businesses.
In financial terms, however, the rule is expected to produce meaningful health-related benefits, ranging between $28 billion to $43 billion each year based on the assumption that many adolescents would not start smoking because of the rule; with the FDA estimating that the rule will impose one-time costs of around $187 million.
With firms of all sizes, access to capital is of great importance especially when it comes to start-ups.Laws and regulations may affect the amount of investment obtainable either from foreign or local investors or financial institutions. The most important regulations on capital are usually set by governments. These rules or regulations mainly affect the development of venture capital already though they are meant to guard against defaults. In the UK for example, the introduction of the business angel networks by the government to co-ordinate the flow of SME investment capital is proving successful-a positive effect. Also due to without of access to pension fund capital in the European Union there is a limited institutional investment. In the case of the United States, most capital venture firms prefer to make investments larger than $3 million, while most entrepreneurs are unable to acquire more than $250 000 from own source and close relations.
The impact of regulations on plans of firms especially those who are technology-based limits the venture capital funding for these firms and affect what they can or intend to do and ultimately limiting their capabilities to use new hands thereby affecting the socio-economic fibre of the society. For example, some government regulations already specifies the kind of investors eligible to fund venture capital because of the high risks for certain classes of investors.
In some countries, most firms’ source of financing is by the stock markets. In the UK for example except the London Stock Exchange, there is different Investment market( AIM); purposely established to assist SMEs. Quite often, the rules on the registration, listing and IPO in terms of size, age ,profit and management set up are too costly and unnecessarily complicated for small and start-ups. This is known to make difficulty access to finance for most firms and always making it impossible for certain firms to pursue their plans and always their growth needs. Ghana Sugar Estate is an epitome of firms which are denied needed funding as a consequence of controversial restrictions on listing to the Ghana Stock Exchange. The effects of this is seen in the overgrown plantations of the newly formed sugarcane company in the Eastern vicinity of Ghana, loss of about £2,000 a day in revenue to the company and loss of jobs, and raw materials for most industries which depend on processed sugarcane for their work. The impact on the firms planning course of action is that funds will not be obtainable to pay and continue most of its qualified personnel.
With technology-based firms like which need continued innovations, source of financing is meaningful to their planning and so any regulations or laws meant to provide adequate source(s) of finance is welcomed.
The NYSE has come under intense scrutiny to reform as there had been spates of irregularities in the exchange in terms of trading practices. Up till 2001, stocks traded in fractions of eighths and sixteenths i.e. 12.5 cents and 6.25cents respectively enabling a specialist buying a stock to sell to make at the minimum 12.5cents.That has narrowed to a insignificant penny. This is as a consequence of decimalisation; a rule set up to change trading from fractions to decimals.Decimalisation reduces spread. The largest specialist firm LaBranche & Co., has been affected with a reduction of its market capitalization being halved to $474million in the past year. The effect of this regulation on LaBranche’s plans could be felt in its budget as funds might not be obtainable. It will also have effect on its investors.
despite this, the impact of this decimalization rule is felt on NYSE which in the long term can tear the Exchange apart thereby affecting the very people the rule seeks to eliminate that is the brokers and specialists on the floor. The effect on NYSE’s plan is to start perform its 1.4b shares daily electronically. It is believed that if NYSE does not match its rivals like NASDAQ on automatic trading, investors can take their trades in other places and that method a lost of huge annual fees in revenue to NYSE and possibly lost of jobs.
Until recently when it was announced on the TV a hypothesizedv credit regulation to enhance transparency, the credit or loans market has been hidden with secrecy that most firms were paying too much interest which affects their operations. already though to the large firms the unavailability of the transparent credit regulation seem to assistance them i.e. their profit, on the whole it costs the SMEs to the extent that the US government has introduced new types of regulations that requires edges to report their lending to SMEs which are ranked and publicised by the government as a guide for possible lenders. In addition, in the United States, reforms to reduce paperwork, speed up loan approval and reduce costs have led a number of commercial edges to create new departments specialising in the origination and sale of small business advice and other guaranteed loans. At the moment some 60% of SMEs now rely on some form of bank credit.
In Ghana, the government has put in place certain regulations which are believed to be in favour of small firms like First Allied Loans and Savings Bank. This company posted a profit before tax of about $2m, a lot of money for a new bank. The impact on the plans of this firm is the recruitment of the best human resources in the industry culminating in a position to compete favourably with old and big edges in the Ghanaian banking industry.
However ,after deregulation in Britain, competition between edges and stock markets and among edges rose with loan increases to SMEs.Nationwide Building Society was one of such edges to assistance from deregulation. It can now compete favourably with other high street edges. Nationwide is creating more employment as a consequence of the deregulation law. The impact on the firm is that profit has increased and its members are satisfied and consequently growth is imminent.
In a world nowadays with improved, challenging and competitive immense technology innovation and know-how, new businesses spring up in this sector as a consequence of its dynamism. It is also another sector that has a strong interest in research and development in co-operation. These technology-based firms or enterprises, however, are incapable to include themselves for in-house research activities. To this end, consequently, there are in addition numerous regulations most popularly the antitrust law. Known also as the Sherman Act, this is meant to prevent monopoly. Microsoft was accused of using its position in the software market to continue its monopoly in operating systems. It was also accused also accused of using its operating system monopoly strength to rule the browser market and that Microsoft bundled its browser into its operating system to try to force Netscape out of the browser market. By antitrust standards, a estimate gave an extraordinary ruling describing Microsoft’s dominance of the PC operating system market as “applications obstacle to entry” and by that Microsoft held its prices significantly above the competitive level. The effects of this law on the plans of Microsoft is that consumers will now have more choice and so Microsoft will have to come out with more innovations to attract more customers and continue its position in the industry now that there seem to become a competitive market place where all kinds of innovation can thrive. Regulators now appear more powerful and Microsoft will have to reconsider other related laws when planning. The impact on Microsoft’s plans in the long run will in my opinion be positive bringing about more improvements in the PC operating market.
Another area with regulations of concern is intellectual character laws or intellectual character rights (IPR).The reader’s digest information strength dictionary defines intellectual character law or rights (IPR) as ”an intangible character that is the consequence of creativity, e.g. patents or copyrights.” Just as research findings are commercially traded by the owners or universities, patents and copyrights are also traded. Although, the filing of patents is generally known to be inefficient, slow and costly with the system usually in favour of larger firms, its absence could have brought about chaos in industry. For example a French court ruled against internet search powerhouse Google Inc.in an IPR case for linking a trade marked search terms and ordered Google to stop. The impact on Google is however to become meaningful but it is obvious that it closest sent a message to them to review their plans on their IPO which will in effect affect their business plans leading indirectly to a fall in profit as a consequence of the effect of the restriction on the search sets they provide.
It is widely accepted amongst academics and executives in the business world that, the main assets of most firms is their personnel in other information their human resources. There are a number of employee-related regulations and laws in terms of labour, on recruitment and hiring of workers; social security with regard to retirements, pensions and health benefits; and the newly introduced stock options to compensate employee.
The costs and benefits of such regulations are enormous considering the fact that employee-related issues are slightly at the fabric of the organisation.In many countries the regulations ranging from fee-charging recruitment sets, working hours to social benefits limit the freedom of business executives and entrepreneurs to function usually in terms of hiring and retaining qualified workers. Some regulations on labour also restrict the recruitment and dismissal of personnel, payment of overtime and use of part-time and permanent workers. Coyne (1998) writes that The European Union Directive on the Organization of Working Time which establishes a maximum 48-hour working week including overtime is considered by smaller firms to be interpreted in an inflexible way thereby restricting their ability to make best use of their labour resources. These really affect the firms because they are unable to recruit the best of personnel they might be looking for which could indirectly affect its operation(plans) as most edges choose to deal with firms with most well- qualified personnel. However, to those on the other end of the spectrum, the limitation on the maximum hour regulation is of great assistance and has had positive impact on the plans of the firm. London United Busways Ltd. for example has recently recorded its lowest accident rates as a consequence of the ceiling of EU maximum driving hours a day (and week in addition) thereby preventing tired but money-seeking drivers from driving. The company can now rely on the sets of recruiting agencies to cover for the additional hours. The long-term assistance to LUB is that it can use few workers, give them overtime to cover the needed hours and save some costs on pensions and sick pay to workers. The impact on the plans of LUB is that customers’ confidence in the company will increase and enhances its corporate social responsibility stance.
It must be emphasized here that, the introduction of stock options, which are a new and valuable approach to compensate employees, are prohibitive, excessively regulated or heavily taxed in a number of OECD countries.However, as a consequence of securities rules governing it, the issuance of stock incentives and fiscal rules for their taxation makes it popular with most US small or start-up firms. It is widely used by firms like Yahoo and Google in the early stages to recruit and or keep employees in the company. already though research into this area is current, it is claimed that they have helped in the high growth of the IT and software sector at the Silicon Valley with particular reference to Google which has managed to keep its best human resources over the years, the impact on the firm is already on the brand image and attributes that it has acquired for itself giving it a competitive advantage over the likes in the IT sector and also generating employment for a lot of new ambitious graduates.
Certainly health insurance market is another area which is of great concern to most governments as a consequence of sandals and fraud.Recent studies into health insurance regulations have concluded that state regulation of insurance issue, renewal and rating in general either reduces health insurance coverage or, on net, has no impact on coverage. Some of these regulations, however, presume that regulations may change the risk dispensing of the insured population, raising coverage among high-risk groups and individuals but lowering coverage among low-risk groups and individuals, with no meaningful impact on overall coverage. The studies also assumed that insurance markets are competitive, and consequently, that higher price is an unavoidable effect of regulation. Smaller insurers with increasing returns to extent may respond differently to regulation than larger insurers with comparatively continued returns to extent.
The effects and impacts of laws and regulations on the plans of businesses cannot be overemphasized as the above indicate. Recent insurance scandal in Britain’s oldest insurance company, Equitable, nearly caused its decline.Equitable’s crisis is alleged to have started as a consequence of loopholes in regulation governing British insurance industry when it emerged that it did not have sufficient funds to honour guaranteed annuity policies to a large group of policyholders. The immediate impact on the Equitable insurance was that a court ruled that it closes all new businesses meaning a fall in sets leading to huge debts and also lost of trust and market position to the insurance community and public as a whole which will inevitably force the mutual company to change its business plans and operations.
Throwing more light on this article, a fleeting look of recent stories and reports might be appropriate.
An Oxfam report in Metro of February 9, 2004 edition, reports that some companies particularly Tesco, Taco Bell and Wal-mart were accused of exploiting workers especially women in the name of lower production costs with unpaid overtime, low wages and unhealthy conditions as a consequence of without of regulations.
In the UK, the recent spate of financial scandals leading to loss of pensions for retired workers has prompted the government to put forward a bill in parliament to avoid future loss of pension funds to retired workers.
Another story filed by Georgina Littlejohn in Metro of February, 23, 2004, alleges that UK’s crumbling infrastructure is holding back British businesses. It is claimed that new Government measures announced in July 2004 to help raise transport efficiency in the road and rail sectors have failed to be an effective solution resulting in loss of “man-hours” with 37% saying that lost time has a meaningful impact on their businesses. This costs the UK firms at the minimum 15 billion pounds each year with each firm losing an average of 27,000 pounds.
This is a pointer to the fact that regulations could also be costly to businesses and firms and can negatively or otherwise affect their business plans in the long run.
Nevertheless, it is important to say here that the empirical results presented here, rest on few observations of laws and regulations and it is suggested that further studies must be conducted to confirm these findings and opinions.
As the interests of business do not always coincide with the broader interests of society, governments might nevertheless have to intervene with laws and regulations to unprotected to goals other than profits.