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Regulations

Monitoring changes to Government regulations can be particularly important when planning business operations in some industries.  From 6am on July 1st 2007, new regulations were introduced in England to outlaw smoking in enclosed public places, with similar bans having already been introduced in Scotland, Wales and Northern Ireland (BBC Video Clip).  Some business owners are complaining that this is the extension of what they see as the “nanny stateâ€?. 

The aim of the ban is to reduce the number of deaths resulting from second-hand smoke, currently estimated by doctors to be up to 600 people a year (BBC, 1st July 2007).  However experts hold differing views on the impact to public health.  Lord Wakeham, Economic Affairs Committee member, suggests that "As the risks from passive smoking are tiny, the direct impact on public health is likely to be so small as to be immeasurable."  Sir Liam Donaldson, Chief Medical Officer for England, on the other hand suggests that "it is one of the most significant public health reforms in England for decades." (BBC, 30th June 2007).

So what is the impact of these changes to business?  Whilst clubs and pubs are experiencing some additional costs in the development of outdoor smoking areas, it is perhaps the tobacco companies that will feel the impact most.  Are the tobacco companies worried about their profits?  There is some evidence to suggest that the cigarette manufacturers have already increased their prices to offset any fall in demand.  Also the tobacco firms suggest that previous evidence from smoking bans in places such as Ireland indicates that the fall in cigarette sales is only temporary (BBC, 29th June 2007).  The tobacco companies can also offset any declining market in Europe with increasing sales in other parts of the world.   If the Chinese government relaxes rules on the development of new tobacco factories for western companies, then a lucrative new market could be available.  China sold 1,798bn cigarettes in 2003, according to the Xinhua news agency (BBC, 8th February 2007).

As an example of new regulation, the smoking ban has been well-publicised and plenty of warning has been given for businesses to ready themselves for its introduction.  Another good example from the Times 100 case study series relates to how Nestlé has been able to make changes that pre-empt regulations introduced by the government. Amid gradual changes to the rules surrounding food labelling, Nestlé introduced clearer nutritional labelling on their products.    At McCain Foods (most well known for its oven chips), they have also identified changes that are required to their food labelling.  This was undertaken as part of a formal analysis to the external environment – known as SLEPT analysis.

Sources:

England smoking ban takes effect – BBC News, 1^st July 2007

Will the ban boost public health? – BBC News, 1^st July 2007

Tobacco profits burn bright despite bans – BBC News, 29 June 2007 

China stubs out cigarette venture – BBC News, 8 February 2006 

The Times 100 Case Studies Edition 12 – Nestle

The Times 100 Case Studies Edition 12 – McCain

BBC Video Clips:

BBC News Video Clip - Smoking Ban Comes into Force

Suggested Study Questions:

- If left to the free market, how is the market for cigarettes considered a market failure?

- What is meant by the term “nanny state�?

- Why might the demand for cigarettes be described as price inelastic? 

- What do you think will be the impact of the smoking ban in England?

- What is meant by SLEPT analysis, how can it be used?