The same as internal stakeholders, external stakeholders also have an interest in the decisions and activities of a business. But, they do not form a part of the business. External stakeholders include customers, lenders such as banks or microfinance providers, suppliers, the government, local community, pressure groups and competitors.
1. Customers
Customers are one of the most important aspects of the business. Some people say that customers are always right. It is because they can choose to spend their money elsewhere thereby negatively impact sales revenue of the business.
To find out what customers need and want, businesses use market research. Ultimately, the firm’s desire is to keep customers happy and loyal.
Roles of customers
Customers purchase goods and services from the business.
They provide revenue from sales which allows the business to function every day and expand in the future.
Objectives of customers
Customers expect greater choice of better-quality products at competitive prices. They want to receive quality goods and prompt after sales service.
Also, they want to make sure that the business is going to continue to exist in the future as it is important in case goods break down and may need spare parts to be repaired.
Customers do not want to be overcharged, but are prepared to pay a fair price which gives value for money.
When a business is earning good profits, it may then reinvest some of its profits into product development and expansion. Customers may then receive a better quality and better variety of products.
As a business expands, it may also benefit from economies of scale – as the level of production rises, it reduces the cost of making each unit of output. The business might decide to reduce the price of its products which will greatly benefit customers.
Rights of customers
Customers have rights to receive goods and services that meet local laws regarding health and safety, design, performance, labeling, etc.
In case goods break down, they want to be offered replacements, repairs, compensation in the event of failure according to the country’s laws.
Responsibilities of the business to customers
Businesses should pay attention to the needs of their customers.
In a world of ever competitive markets, increasing free trade and international competition, it is essential to satisfy customers’ demands in order to stay in business in the long-term by increasingly listening to the opinions of their customers.
The business must make decisions about quality, design, durability and customer service by considering the customers’ objectives for, in most cases, well-made, attractive goods that perform as intended.
Businesses also have responsibilities to customers not to violate the law concerning consumer protection and advertising.
Companies should also avoid taking advantage of vulnerable customers, such as the elderly or children, and not using high-pressure selling tactics, but adhere to ethical actions and act responsibly.
The business should also listen to dissatisfied customers as they might be the best source of learning for any business.
Benefits to the business of accepting these responsibilities
The business will gain consumer loyalty which will result in repeated purchases.
It will have good publicity when customers give word of mouth recommendations to their family members, friends and colleagues. Good customer feedback will help to improve future sales of goods and services.
Responsibilities of customers to the company
To be honest and pay for goods bought or services received when requested.
Not to steal from the company.
Not to make false claims about regarding poor service, underperforming goods or failed items.
2. Lenders
Access to finance (capital) is a necessity for many business projects. A big portion of this capital comes from long-term bank loans.
Bank and other lending companies such as microfinance providers lend money to businesses in order to earn interest. Upon the expiration of the loan, the borrowed capital should be returned by the company.
Lenders do not like giving loans for risky projects, therefore they will usually refrain from lending to new companies without much experience, or to companies without any collateral (security guarantee to back up the loan such as land or buildings). They are interested in the financial success of the project because it will affect their ability to receive their loans back, with interest earned.
Roles of lenders
Lenders provide finance to the business in different forms such as bank loans, overdraft or mortgage.
Objectives of lenders
Lenders want to receive interest payments from borrowers when payments are due.
Lenders also want to have the whole borrowing repaid by the borrower by the due date, or earlier.
Rights of lenders
Lenders can choose whether or not to lend money to the particular business.
They want to be paid interest on loan or mortgage as stipulated in the loan agreement.
They want the whole amount to be repaid on the agreed date.
Responsibilities of the business to lenders
Lenders want to know, if they will be paid the interest on any loans given to the business. So, they will want to check that the business is able to repay the borrowed amount – its long-term profitability rates.
The business should inform the lenders such as bank about whether the business is making enough Net Profit Before Interest and TAX, and has enough cash to make those payments.
Lenders will also want to know about any other amount of borrowing the business has already.
Lenders may also want to know the market value of Fixed Assets such as land, buildings or equipment that can be used as collateral against any lending.
Benefits to the business of accepting these responsibilities
Easy access to many different sources of finance such as bank loans, overdraft or mortgage.
Responsibilities of lenders to the company
Lenders shall provide agreed amounts of finance on the agreed date for the agreed period of time without any delays or any other unexpected requirements.
3. Suppliers
Suppliers provide a business with inventory required for producing products – stocks of raw materials, component parts and finished goods. Suppliers also provide commercial services to support all business functions such as accounting services, Public Relations (PR) services or maintenance of the assembly lines.
Roles of suppliers
Suppliers supply goods and provide services to allow the business to continuously produce its products without any unplanned stoppage time. So, the business can offer its products to its own customers on time.
Objectives of suppliers
Suppliers have an interest in the activities of a business as they want to know, if they will get paid on time for any goods they have supplied to the business on trade credit. They of course want to receive prompt payments.
Suppliers will want to know, if the business has enough cash to pay its short-term debts.
The success of suppliers depends a lot on the success of the businesses they supply to. If a business is expanding, it will most likely be producing more goods, so more inventories will be needed. This will increase the sales and potential profits of the supplier.
Suppliers also want to be treated fairly and not being forced by businesses with strong buying power to reduce prices. When a business buys greater quantities of inventories from its suppliers, then it may expect to pay lower prices – this can reduce the profit margins of suppliers.
Rights of suppliers
Suppliers have rights to be paid on time – as laid down either by law or by the service agreement between the business and suppliers.
They also should be treated fairly by the purchasing business, e.g. not to have lower prices forced on them by a much larger and more powerful customer business.
Responsibilities of the business to suppliers
Suppliers strive for regular contract orders with clients in the long-term.
The business ought to pay any outstanding bills to suppliers on time.
The quality of a firm’s goods or services is only as good as raw materials it purchases. If supplies are of poor quality or frequently late, then problems will appear when trying to satisfy customers. Therefore, reliable suppliers must be found and given clear instructions on what is required.
Benefits of accepting these responsibilities
When good working relationship is established with suppliers, the business can receive quality stocks on time and at a reasonable price.
A good relationship can also mean that suppliers can offer preferential trade credit terms, which allow a business to buy today, but pay at a later date, thus improving the firm’s cash flow position (liquidity).
The business can gain supplier loyalty – suppliers will be prepared to meet deadlines and requests for special orders.
Responsibilities of suppliers to the company
Suppliers shall supply goods and services ordered by the business in the time and condition as laid down by the purchase contract or supplier’s service agreements.
4. The Government
The government is a very important stakeholder as it has legal influence on business activity. It receives TAXes from businesses to further develop the country by spending on things such as public education, healthcare system, construction of roads, railways, bridges and airports, and the military services.
It also sets legal framework for all businesses in the economy.
Roles of the government
The government is in charge of passing laws that stimulate or restrain many aspects of business activity in the country.
It provides all laws to allow legal business activity to take place, e.g. employment legislations, consumer protection laws or health and safety standards.
It encourages business activity to achieve healthy economic stability.
Collects the correct amount of corporate TAX paid from Net Profits before Interest and TAX.
Objectives of the government
The government must be paid the correct amount of TAXes on time.
To have minimal spending on unemployment benefits.
If the government owns state-owned businesses, it will also aim for growth for these businesses to increase its financial stake.
Rights of the government
Businesses have the duty to the government to meet all legal constraints, such as producing only legal goods and to pay TAXes on time.
The government receives TAXes on the profits of businesses. The higher the profits, the higher the TAX revenues paid to the government. TAX revenues are an important source of finance for government spending. Because many governments pay benefits to unemployed workers, if businesses are expanding, this will reduce the level of unemployment, and so reduce government spending on these benefits.
Responsibilities of the business to government
All businesses should meet their legal responsibilities as defined by government legislation, pay TAXes on time, complete government statistics where possible, seek export markets, etc.
Benefits to the business of accepting these responsibilities
Good relations with the government might lead to business expansion – receiving planning permissions, government contracts, subsidies, licenses to set up new operations, etc.
It is because businesses that meet their responsibilities to the government and the wider society are more likely to be awarded privileges.
The government might also offer incentives to multinational corporations to locate in their country, such as subsidized rent and TAX concessions.
It might also introduce initiatives that benefit business organizations, such as investment in road building and communications networks.
Responsibilities of the government to the company
The government aims to ensure that businesses act in the public’s interest. It can stimulate business activity by lowering interest rates and/or TAXes to create employment and investment opportunities.
The government shall treat businesses equally under the law.
It has the responsibility to prevent unfair competition that could damage business survival chances.
It should establish good trading links with other countries to allow international trade.
Politicians should not unfairly constrain business activities through abusing government interventions.
5. Local community
Businesses that operate in a local area, will provide local people employment opportunities and employees will spend some of their money locally, e.g. by using local TAXI services or filling their cars with gas at local gas stations. This will increase the revenue and profits of local businesses such as retailers, restaurants and entertainment outlets.
Roles of the local community
Provide local services and infrastructure to the business to allow it to operate, produce and sell within legal limits.
The local community can put demands on businesses to create jobs thus providing extra income and spending in the local community.
It might also want businesses to be accountable for the impact of their activities on the local environment and put pressure on businesses to sponsor local fund-raising events. These considerations are necessary to the local community’s acceptance of businesses operating in their location.
Objectives of the local community
To receive benefits for the local economy such as employment and subsidizing community facilities.
And to avoid the negative impact of business activities such as noise, air and traffic pollution.
Rights of the local community
To be consulted about major changes that affect it, e.g. expansion plans or changing methods of production:
Not to have the community’s lives badly affected by the business’s activities.
Responsibilities of the business to the local community
Businesses that meet responsibilities to the local community may have it easier to expand or they may attract local customers easier.
Businesses shall offer secure employment to the local population, so there is less local fear of job losses, buy supplies locally to generate more income for the local community, reduce the transport impact of business activity such as traffic jams resulting from deliveries and sending out orders to customers, or noise from delivery trucks or the production process, and keep the adverse effects on the natural environment to a minimum.
A business may also provide financial support or other benefits to the local community, e.g. donate to charities or build facilities for a local soccer team.
Benefits to the business of accepting these responsibilities
Local councils will be more likely to give planning permission to expand the business; local communities are more likely to accept some of the negative effects caused by business operations, if businesses can provide financial support for community groups and local projects such as schools or clinics.
Responsibilities of the local community to the company
Local community should cooperate with the business as much as possible when it comes to daily running of the business and expansion plans.
Also, meet any reasonable requests from business for local services such as public transport, utilities such as water, electricity and gas, waste disposal, broadband Internet services, etc.
6. Pressure groups
Pressure groups consist of individuals with a common interest who seek to place demands on organizations to act in a particular way or to influence a change in their behavior, e.g. against smoking, deforestation or harmful treatment of animals, or the protection of the natural environment.
Roles of pressure groups
Pressure groups influence the decisions and actions of businesses directly or by influencing government policy, such as by lobbying for a change in legislation. Some pressure groups, do this by operating on an international level and getting support from the general public who are aware and concerned about damage to the environment.
Objectives of pressure groups
Pressure groups aim to influence the company to act in a particular way or to influence a change in behavior by putting pressure on the company, e.g. to stop polluting the environment.
Rights of pressure groups
Pressure groups can take direct actions by trying to achieve its causes, e.g. stage mass protests or take legal action against firms that may have acted illegally.
They can boycott the company’s products – the refusal to buy products from a certain business as a sign of protest, by creating adverse publicity for the business.
They can lobby – using the power of pressure groups to influence key issues with employers, legal representatives and the government, e.g. demanding government to legislate against socially undesirable business activities.
They can also create negative Public Relations (PR) to raise public awareness and support – getting negative publicity about a specific opinion or cause, e.g. charities often use famous celebrity ambassadors to support their mission.
Responsibilities of the business to pressure groups
Meet with local community groups to ensure that the business is seen as a good neighbor and does not violate any laws or customs.
Meet with the pressure group officials to promote joint management activities.
Ensure that current policies and procedures at the company are following both national and local laws.
Benefits to the business of accepting these responsibilities
Promise of no boycotting, no staging mass protests or taking legal action against firms.
Not using the power of pressure groups to influence key issues.
No negative Public Relations (PR) that may hurt company’s reputation.
Responsibilities of pressure groups to the company
Pressure groups should give enough time to the business to correct its actions as it may take some time to change business objectives into more socially responsible.
Pressure groups should also adhere to all agreements that were made with the business, and refrain from breaking its promises.
7. Competitors
Competitors are the rival businesses of our business organization operating in the same market.
Roles of competitors
Competitors’ s role is to act legally according to the laws and regulations in a country set by the government to create a stable and growing market.
To propel and stimulate growth of other businesses in the same industry for the common good.
Objectives of competitors
Competitors want to remain competitive by being aware of the practices and products of their rivals and responding properly.
Competitors also want to benchmark their performance against other companies in the same industry by comparing key business indicators such as sales revenue, market share, number of employees and profit.
Rights of competitors
Competitors wish to coexist and compete ethically with each other, and to make the industry more competitive as a whole. Any given company wants to avoid misinformation, making trade secrets public, hacking, stealing sensitive business information or bribery to win contracts.
Responsibilities of the business to competitors
The business should avoid any unethical or illegal practices targeting its competitors, such as lying to the competitor’s customers or damaging competitor’s property such as shops or office buildings.
Benefits to the business of accepting these responsibilities
Peaceful coexistence and ethical competition with each other in order to make the industry more competitive.
Responsibilities of competitors to the company
To create competitive rivalry in the industry to stimulate innovation and creation of new products for the benefits of the market and customers.
Avoidance of any unethical or illegal practices.
