Business in the Market Economy (HSC SSCE Economics): Revision Notes
Investment, Technological Change, and Ethical Decision Making
Introduction
The twenty-first century business environment is highly competitive and rapidly changing. Business managers must remain alert to opportunities created by globalisation and new technologies like the internet. At the same time, they need to understand ethical decision making and how their business impacts broader society, particularly the natural environment. These forces significantly influence how businesses operate in the market economy.
The modern business landscape requires managers to balance multiple priorities: embracing technological innovation, maintaining ethical standards, and responding to globalisation—all while remaining competitive in fast-moving markets.
Production methods
Technological change and innovation have substantially increased the productive capacity of the economy by enabling more efficient use of existing resources. When businesses invest in technology, they often experience radical transformations in how they produce goods and services.
Ethical decision making occurs when business decisions about production methods, employment and other matters are made taking into consideration the impacts on broader society and the environment, rather than simply aiming to maximise profits for the firm.
The computerisation of production processes provides a clear example of technological change. Car manufacturers, for instance, have automated many aspects of their production lines. While the specific impact varies between firms, technological change in production methods typically results in:
- Lower production costs
- Increased operational efficiency
- Reduction in workforce size requirements
- Capacity for larger production runs
These changes create both opportunities and challenges for businesses as they adapt to new ways of operating.
Ethical decision making in business
The importance of business ethics
Recent years have witnessed numerous corporate scandals involving dishonesty and misconduct by business executives. These scandals have resulted in substantial financial penalties and have prompted calls for businesses to adopt more ethical decision-making processes.
Major Business Scandals and Their Costs:
Unethical business practices have resulted in massive financial penalties:
- Volkswagen: $45 billion in fines and refit costs globally after cheating on fuel emission tests
- Nippon Yusen Kabushiki Kaisha: $25 million fine for colluding to reduce competition
- Banking Royal Commission: Over $2 billion in regulatory expenses for major Australian banks
These cases demonstrate that unethical behaviour carries severe financial consequences beyond reputational damage.
Beyond legal compliance
Business ethics extends beyond simply complying with laws, meeting contractual obligations, and treating customers well. It involves going above and beyond legal requirements and incorporating social interests into decision making. Board members and decision makers must maintain the business's "social license" to operate.
Unethical decision making can damage a business's reputation and negatively affect revenue and profits. Increasingly, consumers, citizens, governments and even employees expect businesses to be driven not only by the profit motive but also by a broader social purpose.
Areas affected by ethical considerations
Business ethics can influence many types of decisions:
What to produce: Is it ethical to manufacture tobacco products that cause lung cancer?
How to produce: Is it ethical to use contractors in countries where workers receive very low wages and work in unsafe conditions?
How to market: Is it ethical to make exaggerated or misleading claims about products?
The pressure to increase profits can lead corporations toward unethical behaviour, which has increased focus on the role of ethics in business decision making. Corporate social responsibility programmes and "triple bottom-line reporting" aim to encourage more ethical decision making by measuring not only financial performance but also social and environmental impacts.
Ethical decision making in global supply chains
In a globalising economy, ethical decision making plays an increasingly important role in production methods. Some businesses consider social interests even when these considerations may not directly increase profits. Ethical decisions become particularly important when businesses operate global supply chains involving production in developing countries, where they might reduce costs by:
- Paying workers very low wages
- Using chemicals banned in developed economies
- Employing production methods prohibited in wealthier nations
- Operating in unsafe working conditions
Example: Ethical Environmental Decision Making
A furniture manufacturer in a developing economy chooses plantation timber over old-growth forest timber. While this decision might reflect normal business considerations if plantation timber costs less, ethics play a role to the extent the business considers the environmental impact of its timber sourcing strategy.
This demonstrates how ethical considerations can align with or go beyond pure profit motives in business decisions.
Impact on prices
Information and communications technologies have fundamentally transformed the marketplace by creating better-informed consumers. Search engines provide immediate online access to numerous businesses, both locally and internationally, enabling quick price comparisons between competing firms.
This increased transparency has significantly affected business operations:
- Profit margins have been squeezed as consumers can easily identify the lowest prices
- Firms face pressure to reduce costs to remain competitive
- Businesses must compete with overseas competitors who may have lower operating costs
The result is a more competitive market environment where businesses cannot maintain high prices through information asymmetry. Technology has shifted power toward consumers, who now have unprecedented access to pricing information across multiple suppliers.
Employment effects
New technologies have created mixed impacts on employment within firms. Understanding both the positive and negative effects helps explain labour market changes in modern economies.
Job displacement
Technological change has made many traditional jobs redundant. Businesses have substantially reduced staffing levels as faster production technologies and data-processing systems have decreased labour requirements. Several factors contribute to job losses:
- Automation of production processes reduces manual labour needs
- Advanced data-processing technologies eliminate administrative positions
- Increased competitiveness from overseas firms has led some businesses to cut back local manufacturing operations or relocate them offshore
New employment opportunities
Conversely, the growth of new technologies creates new job opportunities. Strong demand exists for employees with specific information technology skills, particularly computer programming and related technical capabilities. The technology sector continues to expand, generating employment in areas that did not exist a generation ago.
Understanding the Employment Trade-off
Technology creates a fundamental tension in labour markets:
- Job losses occur as automation replaces human workers in traditional roles
- Job creation happens in new technology sectors requiring specialized skills
The net effect varies by industry and economy, but workers must adapt by developing new skills to remain employable in technology-driven markets.
Ethical considerations in employment
Ethical decision making also influences firms' employment strategies. Some businesses have implemented affirmative action strategies that actively seek to recruit women, reflecting the historical under-representation of women in senior leadership roles and certain professions.
While all businesses must meet equal employment opportunity obligations under law, ethical factors may encourage businesses to exceed their legal obligations by actively hiring employees from groups that have traditionally suffered disadvantage or discrimination.
Output and profits
Benefits of technology investment
Businesses that invest in technology typically gain several competitive advantages. They can offer better-quality products at lower prices than competitors. By utilising the latest technology, they respond more effectively to changes in market demand and can customise their output to meet specific marketplace needs.
This improved capability often increases demand for their products, resulting in higher output levels and increased profitability. This can create a virtuous cycle:
- Investment in technology
- Improved products and lower costs
- Increased demand
- Higher output and profits
- Resources for further investment
The Virtuous Cycle of Technology Investment
When technology investments succeed, they create a self-reinforcing cycle. Higher profits from improved efficiency provide capital for further investment, which leads to even better products and processes. This cycle can give businesses a sustained competitive advantage in their markets.
Risks of technology investment
However, technology investment carries no guarantee of success. Businesses must prepare for substantial upfront investments in technology, and several risks exist:
- Some technologies may fail to perform to expectations
- Substantial expenditure may be required to repair technological problems
- Not all technology investments will recoup their costs in the long term
Technology Obsolescence Risk
A business might invest substantially in new technology only to find that competitors invest in even better technology at a much lower price, making the initial investment obsolete. This risk means businesses must carefully evaluate technology investments and remain flexible in their strategic planning.
Foreign investment in Australia
Australia attracts significant foreign direct investment (FDI), which provides important capital for economic development. In 2019, Australia's new foreign direct investment exceeded $75 billion, bringing the total investment stock to almost $1 trillion.
Major sources of investment
The two largest foreign investors in Australia are:
- United States: $940 billion (27% of total foreign investment in 2018)
- United Kingdom: $575 billion (16% of total foreign investment)
Other significant equity investors include Belgium, Japan and Hong Kong.
Foreign direct investment plays a crucial role in Australia's economic development by providing capital for business expansion, infrastructure development, and technological advancement. The diversity of investment sources helps reduce dependence on any single economy.
Industry distribution
The mining and quarrying industry has experienced significant growth in FDI flows, despite recent slowdowns in commodities activity. The total stock of FDI in mining and quarrying accounts for more than $366 billion, equivalent to 38% of total FDI stock by industry. This represents three times the contribution of manufacturing, which has the second-largest share of FDI.
The sectors experiencing the most growth in FDI stock in 2018 were:
- Finance (up 46%)
- Accommodation and food service (up 29%)
- Real estate (up 13%)
Examples of new business investment
Recent foreign business investments in Australia demonstrate the diversity of sectors attracting capital:
| Company | Country of origin | Investment | Product/technology |
|---|---|---|---|
| Saputo | Canada | $1.3 billion | Dairy company |
| Power China | China | $330 million | Renewable energy – wind farms |
| Bosch Group | Germany | $2.5 million | Agricultural technology |
Types of products
Technology-driven product innovation
New technologies expand the range of products that businesses can produce to satisfy market demand. Technological change creates completely new products and entire industries. This innovation explains why consumers regularly update products such as cars, cameras, computers and sound systems—each generation of technology offers improved features and capabilities.
When new production technologies offer greater flexibility, they make it possible to customise output to individual consumer preferences. Smaller production runs become more affordable, broadening the product range and making it easier to satisfy diverse consumer demands.
Ethical consumerism and new products
Ethical decision making in business has influenced the production of new types of products and services. Examples include organic food, renewable energy and recycled paper. The growth of such markets is primarily driven by ethical consumerism—consumers choosing to purchase goods based on environmental or social values.
While businesses profit by selling these goods and services, business ethics also plays a role in motivating entrepreneurs to enter these markets. The motivation combines profit opportunities with personal values about sustainability and social responsibility.
Cloud services and digital infrastructure
Company intranets and cloud-based services represent important business innovations enabled by internet technology. Cloud services allow employees to access data on any device, whether working from home, in the office, or travelling.
Key cloud services include:
Work management services: Work-from-home software, time management systems and career planning advice enable flexible working arrangements and improve productivity.
Software-as-a-service: Access to accounting tools, human resources systems and customer relationship management platforms without requiring local installation or maintenance.
Collaborative document development: Shared development of work documents that multiple people can simultaneously edit, improving team coordination and reducing version control problems.
These technologies have transformed how businesses operate, enabling more distributed workforces and improving operational efficiency. The shift to cloud-based infrastructure reduces the need for expensive on-premises servers and IT infrastructure while increasing flexibility.
Globalisation
Technology as a driving force
Technology represents one of the major driving forces behind market globalisation. The development of global money and stock markets, mediated by worldwide computer networks, has made it possible for businesses to attract investment funds from across the world. Individual investors can diversify their investments internationally with relative ease.
The low cost of communication allows information to flow more freely between countries, enabling consumers and businesses to make better-informed decisions about consumption and production. Businesses can also access overseas markets for their goods more effectively than ever before.
The Global Market Economy
The overall effect is that technology facilitates the emergence of a global market economy, where national boundaries become less significant barriers to economic activity. This transformation has profound implications for businesses, workers, and consumers worldwide.
Ethical implications of globalisation
Globalisation creates significant implications for ethical decision making in business. Through greater access to foreign markets, businesses can source products produced in economies with fewer regulations. While purchasing these goods remains legal, some production processes may involve:
- Forced labour
- Very low wages
- Dangerous work environments
- Denial of workers' rights to join trade unions and seek better pay
Consumer and NGO Scrutiny
In a global economy, consumers and non-government organisations pay greater attention to transnational corporations' practices in poorer nations. This scrutiny places pressure on businesses to improve the practices of their subsidiaries and suppliers, even when operating in countries with weaker regulations.
Examples of ethical responses to globalisation
Several companies have responded to ethical concerns about their global supply chains:
Example: Cadbury's Fair-Trade Commitment
The confectionary business committed to using only fair-trade chocolate in its Australian manufacturing operations, ensuring cocoa farmers receive fair compensation. This decision demonstrates how businesses can respond to ethical concerns about their supply chains, even when it may increase production costs.
Example: Coca-Cola Healthcare Initiative
Following the "Treat Your Workers" campaign on United States college campuses, Coca-Cola agreed to extend healthcare coverage for workers in its bottling and production supply chain in Africa, where many workers are HIV positive and need medical care. This response shows how consumer activism can influence multinational corporations' labour practices.
These examples demonstrate how consumer and activist pressure can encourage multinational corporations to adopt more ethical practices in their global operations.
Environmental sustainability
Core concepts
Environmental sustainability involves minimising pollution and waste, preserving the natural environment, and increasing the use of renewable energy. Businesses may change their activities to become more environmentally sustainable in response to several factors:
- Consumer demands for environmentally responsible products
- New environmental regulations
- Government financial incentives
- Business ethics that value environmental protection
Driving investment in new technologies
Environmental sustainability represents a significant driver of investment in new technologies. It affects both what goods and services businesses produce and how they produce them. Most major Australian corporations now maintain environmental policies outlining their strategy for improving environmental sustainability.
The push toward environmental sustainability creates both challenges and opportunities for businesses. While transitioning to sustainable practices requires investment, it also opens new markets and can improve brand reputation with environmentally conscious consumers.
Case study: Qantas environmental strategy
Qantas provides an example of how environmental sustainability influences business operations. The airline has developed an environmental sustainability strategy that includes:
Example: Qantas Environmental Sustainability Strategy
Carbon neutral flying: Passengers can pay extra to offset emissions from their flight, addressing consumer concerns about climate change.
Emissions reduction targets: The company aims to cut net emissions by 50% by 2050, requiring substantial changes to operations.
Technology investment: Achieving the target to improve fuel efficiency by 1.5% annually requires investment in new, more efficient aircraft and advanced navigational technology.
This example demonstrates how environmental sustainability goals drive technological investment and operational changes across the business. The strategy balances consumer expectations, regulatory requirements, and long-term business viability.
Exam technique guidance
When answering questions about technological change and ethical decision making:
For "outline" questions: Provide a brief description with key features, using specific examples where relevant.
For "explain" questions: Show how or why something occurs, using cause-and-effect relationships. Connect technological change to specific business outcomes.
For "analyse" questions: Break down the issue into components, examine relationships between elements, and consider both positive and negative impacts.
For "evaluate" or "assess" questions: Make a judgment about the significance or effectiveness of technological change or ethical decision making. Consider multiple perspectives and weigh costs against benefits. Use contemporary Australian examples to support your evaluation.
Key Points to Remember:
-
Ethical decision making requires businesses to consider broader social and environmental impacts, not just profit maximisation. This includes maintaining a "social license" to operate and going beyond legal compliance.
-
Technology investment can create a virtuous cycle of improved products, lower costs, increased demand and higher profits, but it also carries risks of obsolescence and requires substantial upfront expenditure.
-
Employment effects of technology are mixed: while automation displaces some jobs, new technologies create opportunities in areas like IT and require workers with new skill sets.
-
Globalisation driven by technology creates both opportunities (access to global markets and investment) and ethical challenges (supply chain practices in developing countries requiring greater scrutiny).
-
Environmental sustainability is increasingly central to business strategy, driving investment in new technologies and affecting what products are produced and how they are manufactured. Companies like Qantas demonstrate how sustainability goals shape operational decisions and investment priorities.