The Difference between Primary and Secondary Stakeholders - Essay Example

Primary Stakeholders Name: Course: Tutor: Date: Introduction Stakeholders are those parties or organisations which offer resources that are more or less crucial to a firm’s long term success. The resources may be both tangible and non-tangible. Primary stakeholders are those stakeholders whose unrelenting association is totally necessary for a firm’s wellbeing. These include employees, investors, customers, shareholders, governments and communities that provide the necessary infrastructure (Ferrell, Fraedrich & Ferrell, 2010, p. 33). Primary stakeholders also include other actors along the value chain in the market environment such as dealers, suppliers, and creditors (Akpinar, 2009, p. 34). This paper discusses the features of primary stakeholders and their importance in relation to multinational enterprises by focusing on the government, employees, customers, suppliers and creditors. Government According to the Capital Flow Analysis website, the government is a crucial primary stakeholder and the final authority that has a say on what firms must do. In deed, firms must bow to the sovereign, which is the government. Thus, when a government controls what all firms under its jurisdiction do, it becomes the major factor in determining capital flows (Shroy, 2004). Governments play a crucial role in providing infrastructures that enable firms to operate seamlessly. They also ensure that markets exist where firms can sell whatever they produce. Importantly, governments set the laws and regulations that must be obeyed by firms in their operations and dealings with other players in their respective industries. It also to governments and other related communities that taxes and other obligations required of firms are due (Sims, 2003, p. 74). In the line of setting laws and regulations, Freeman, Harrison and Wicks governments (2007, p.8) note that a government can drastically alter the design and delivery of services of products, and that it also affects each of the primary stakeholder relationships since it regulates the flow of information to financiers as well as the set of permissible practices with employees. A good exemplar of the role of the government as pertains to firms is the Sarbanes Oxley Act legislation of 2002 as implemented in the United States. This law requires that a company’s senior financial officers be subject to a code of ethics, failure to which, the company must declare publicly that they are not. Since no firm wants to say publicly that its chief executive officer or chief financial officer is not subject to a code of ethics, firms in the United States not only have codes of ethics but those codes are applicable to the top corporate officers. As such, many multinational companies, including John Deere, GlaxoSmithKline, Pixat and Nike have posted their codes of conduct on their websites. This has become a common practice for public companies (Hansen & Mowen, 2006, p. 18). Governments also play a critical role in lowering unemployment rates by creating opportunities for firms, both national and multinational, to enhance their production and this increase employment (International Labour Office, 2008, p. 18-40). The International Labour Office further points out that this strategy focuses on allowing employment to play its role a bridge between macroeconomic policies to promote growth and social policies to enhance the welfare of populations. Employees Employees are primary stakeholders because they are closely integrated with the firm as they contribute to the firm in fundamental ways. Essentially, they are part of the firm as what they do largely determine the success of the firm – they are the most important factor or resource of the company (Greenwood, 2008, p. 3). Firms therefore have to pay keen attention to the factors that affect the performance of their employees such as pay, security, respect and so forth. Employees have to be paid well to enhance their motivation, and have to be assured they can work for the organisation for a long period as long as they are doing rightly what they are required to do. Importantly, the firm should create an environment in which employees have respect for each other and across all levels even in different geographical locations. Conocophilips, which is the third largest oil company in the United States and the fifth largest refiner in the world, has a section on its website dedicated to its stakeholders. The site states that the company initiates dialogue with its employees and seeks their input in its day-to-day activities. Additionally, the company offers numerous opportunities for employees to offer their thoughts on the company through opinion surveys, one-on-one employee discussions, and town hall meetings. The information gathered through such forums helps management in addressing issues that are important to employees, such as safety, employee compensation ad retention, and environmental safety and so forth. Failure to act as Conocophilips has done leads to a situation whereby some employees are not satisfied in their positions, which may lead to upheaval from different quarters. For instance, Nike was accused of mistreating its overseas employees, especially those in working in Asia during the 1990s. Nike preferred sourcing from Asia due to what was perceived to be low costs of labour. But news reports indicated that many of the factories in Asia were “sweatshops” that underpaid workers compared to the better-paying factories in the United States. Nike was also accused of employing under-age people and using dangerous chemicals (Frisch, 2008, p. 32). All these accusations dented Nike’s image globally and show how essential the role played by employees to a firm is. Notably, is important for firms to ensure that their workers are well motivated, are secure in their places of work, and that they are respected as they reflect the company’s image. It is especially important for multinational firms to ensure that disparities in working conditions for workers in different parts of the world are minimal. Customers Customers are primary stakeholders of firms as most of the strategies employed by firms to improve their services and products target customers. According to Williams (2011, p. 85), if customers find the firm’s products or services less desirable, the firm’s sales profits will decline. And if profits fall, the company’s stock price will plummet, and consequently the company will have difficulty attracting investment funds that could be used to support growth in the long term. Firms therefore need to do whatever they can to ensure that they maintain their valued customers and attract new ones. They can do this by focusing on value, quality, enhancing customer care and producing ethical products. At IBM, the focus on internal processes related to the delivery of specific solutions, coupled with customer relationship management, are the main strategic priorities for the company (Woodside, p. 364). This focus has helped the company to develop a value preposition where services align with the particular needs of different customer groups and sectors. According to Woodside, Golfetto and Gibbert (2008, p. 364), IBM can therefore offer ad hoc solutions both for its customers’ production lines and for their end markets, which has enabled the company to realise a vast improvement in the conversion rate of prospects to customers. Further, an analysis done by the IBM Institute for Business Value suggests that the success of services (or products) produced by a company depends on the company’s positioning itself as an indispensable part of its customers’ value creation process – not merely by producing a valued service but by helping the customer to create more value (Greenberg, 2002, p. i ). The writer also argues that when a product is designed such that the customer realises significantly more value from it, the supplier improves its competitive position and thus shares in the windfall that it helped to create. Achieving the aforementioned requires a firm to deliver high quality services or products and improve its relations with the customers. Firms show their concern for their customers by being professional, efficient, reliable, friendly, being experts in their fields, showing that they care and being trustworthy (Wellington, 2010, p. 19). But achieving excellence requires more than these mere basics. Firms are expected to add value wherever they can to attract more customers. As the IBM case has shown, giving customers more value and showing concern for them attracts them and helps in maintaining them. Hence, giving customers a more personalized approach (such as by offering different wide product ranges in different geographical areas in the case of multinational firms) will increase their numbers and translate to more profits for the company. Importantly, the company has to show that the goods or services are produced ethically by showing that they care for the other primary stakeholders (such as employees) to avoid the dented image such as that of Nike which was discussed earlier. Suppliers Suppliers play a significant role in relation to the success of a business. They can have a dramatic impact on the business, and hence, are an important part of the pre-acquisition analysis. If a company has one or two supplies that contribute a large portion of the company’s raw materials, then the business is extremely vulnerable any problems that the suppliers might have. For instance, if the suppliers are unable to deliver the supplies in a timely manner, then the company may not be able to meet its contractual obligations. It is therefore imperative that a firm evaluates the number of suppliers it has, whether the suppliers are in good shape financially, whether they deliver products in a timely manner, and whether the business has a good relationship with its suppliers (Joseph, Nekoranec & Steffens, 1993, p. 88). These issues revolve around having suppliers who foster equitable business opportunities and guarantee security of the company’s operations by their continued dealings with the company. For a company to be guaranteed business opportunities as well as business security, its suppliers must have a number of characteristics. First is reliability, whereby if a supplier is reliable, the company’s business will run smoothly. On the other hand, if the supplier is not reliable, the company may have to maintain high inventories which will increase its costs. Second, as mentioned earlier, it is not enough to rely on one supplier. Having multiple suppliers is therefore critical as any problem facing the single supplier will adversely affect the company. Multiple sources of supply will reduce the risk of insecurity associated with supply (Jain, Trehan & Trehan, 2009, p. 8). The condition between a supplier and the purchasing company can be tricky especially where the two are also competitors. For instance, an employee of Samsung, which supplies components to Apple, admitted to having supplied confidential data to Apple, which was used by Apple in the manufacture of its latest device, the iPad (Brian, 2011). This definitely compromised the security of Samsung’s operations, and exposed it to unfair competition from Apple due to the leaked information. Further, this point reinforces the fact that suppliers have to be reliable and trustworthy – not ones that will jeopardise the business opportunities of a company. Creditors A creditor is an entity that extends by giving another party permission to borrow money that is to be paid back at a later date. Companies need creditors because it is the creditors who provide funds required for research and development, business expansion, and other investments. It is important to note that without cash, a company cannot settle its bills nor implement growth plans, and it may find difficulty in obtaining credit or taking advantage of emerging business opportunities (Agency Management Roundtable, 2008). Before advancing cash to a company, creditors will evaluate the company’s liquidity and credit score. Liquidity refers to the degree to which a security or an asset can be purchased without affecting its price. If a company’s assets or securities have low liquidity, creditors will be reluctant to advance funds to the company. But companies that have high liquidity will attract more creditors easily because of the security that is guaranteed. Credit score refers to a numerical expression derived from statistical analysis of an entity’s creditworthiness. Creditors use credit scores to indicate a borrower’s creditworthiness. Generally, companies that show reliability in repaying their debts will attract more funds from creditors. Based on the statistical models developed by Fair, Isaac and Company (FICO), credit score measures the amount of debt an entity is carrying, the length of time the entity has been using credit, the entity’s recent opening of new credit accounts, its repayment history, and the types of credit in which its is involved (CareOne). If for instance a company owes a lot of money, then its credit score is lowered. It the company’s use of credit is recently established, its credit score is also lowered. New credit accounts can also lower the credit score as they indicate that the company has a high tendency to be in debt. Additionally, if a company has been defaulting in its repayment of debt, the probability of it being trusted by a creditor is slim. During the recent global financial crisis, Ford Motor Company survived without a government bailout because of its reputable debt history. This helped the company to improve its image and win new customers - another group of its primary stakeholders - globally (The New York Times). Conclusion Primary stakeholders are those parties whose continued association with a company is necessary for the company’s wellbeing. These include governments, employees, customers, suppliers and creditors. Governments create the environment for business and also intervene through taxation. They also ensure that companies are operational to promote employment. Employees reflect the company’s image and also interact with the company’s customers. Customers are the main focus of business as they determine the direction taken by the firm. Suppliers are also essential because it is their dealings with the business that will determine how active and reliable it becomes in its operations. Finally, creditors are necessary because they offer the much-needed financial support to firms, with which firms can invest in research, expansion, new product development and so forth. References Agency Management Roundtable, 2008, “The Importance of Liquidity in Today’s Economy,” available from http://agencyroundtable.com/uploaded/articles/MW_April_supp.pdf (05 October 2011). Akpinar, M. 2009, “Understanding primary stakeholders of a firm in response to market integration in the European Union” Turku school of Economics, available from http://info.tse.fi/julkaisut/vk/Ae2_2009.pdf (4 October 2011). Brian, M. 2011, “Former Samsung manager admits to leaking iPad supply data to hedge fund manager” Thursday September 15, 2011, available from http://thenextweb.com/apple/2011/09/15/former-samsung-manager-admits-to-leaking-ipad-supply-data-to-hedge-fund-manager/ (05 October 2011) CareOne, “What is A Credit Score and How Is It Used?” available from http://www.careonecredit.com/knowledge/article.aspx?article=136 (05 October 2011). Conocophilips not dated, “Key Stakeholders,” available from http://www.conocophillips.com/EN/susdev/accountability/engagement/stakeholders/Pages/index.aspx (4 October 2011). Ferrell, O. C., Fraedrich, J. & Ferrell, L. 2010, Business Ethics: Ethical Decision Making and Cases (8th edition), Cengage Learning, New York. Freeman, R. E., Harrison, J. S. & Wicks, A. C. 2007, Managing for stakeholders: survival, reputation, and success, Yale University Press, London. Frisch, A. 2008, The Story of Nike, The Creative Company, New York. Greenberg, D. 2002, “Product Provider to Customer Value Provider: Escaping the services maze,” IBM Corporation, available from http://www-07.ibm.com/services/pdf/ibv_p2s_3.pdf Hansen, D. R., Mowen, M. M 2006, Managerial Accounting (8th edition), Cengage Learning, New York. International Labour Office, 2008, Record of proceedings, International Labour Organization, Geneva. Jain, T.R. Trehan, M. & Trehan, R. 2009, Business Environment, FK Publications, Delhi. Joseph, R.A., Nekoranec, A. M. & Steffens, C. H. 1993, How to buy a business: entrepreneurship through acquisition, Kaplan Publishing, New York. Shroy, J. O. 2004, “First Among Corporate Stakeholders,” Capital Flow Analysis, available from http://www.capital-flow-analysis.com/investment-essays/primary_stakeholder.html (4 October 2011). Sims, R. R. 2003, Ethics and corporate social responsibility: Why giants fall, Greenwood Publishing Group, New York. The New York Times, “Ford Motor Company,” available from http://topics.nytimes.com/top/news/business/companies/ford_motor_company/index.html (05 October 2011). Wellington, P. 2010, Effective Customer Care: Understand Needs, Improve Service, Build Relationships, Kogan Page Publishers, London. Williams, C. 2011, Effective Management: A Multimedia Approach (5th edition), Cengage Learning, New York. Woodside, A.G., Golfetto, F. & Gibbert, M. 2008, Creating and Managing Superior Customer Value, Emerald Group Publishing, London. Read More