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IB Business MD > 1.1 Introduction > Flashcards

1.1 Introduction Flashcards

1
Q

4 types of resource inputs

A
  1. Human
  2. Physical
  3. Financial
  4. Enterprise (Knowledge, idea, willingness and risk-taking)
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2
Q

2 types of product

A
  1. Goods - tangible, with physical form; easier to compare with competitors
  2. services - intangible, without physical form to take home; harder to compare
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3
Q

2 main types of production processes based on intensity

A
  1. Capital intensive (high proportion of fixed costs of land or machinery)
  2. Labour-intensive (high proportion of salaries/wages)
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4
Q

4 basic business functions

A

Human resources
Marketing
Finance and accounts
Operations management or production

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5
Q

Responsibilities of HR

A

Recruitment
Trainings
Dismissal
Determination of appropriate compensation

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6
Q

Responsibilities of Finance and accounting

A

To raise fund
Forecasting
Keeping accurate records
Proper payments to suppliers and staff

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7
Q

Responsibilities of marketing

A
  1. Ensuring that the business offers a product desired by a sufficient number of people or businesses and for that purpose -
  2. Development of
    marketing plan,
    strategies,
    activities (e.g. research, promotions).
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8
Q

Responsibilities of operations management?

A

Ensuring that
the processes are appropriate to provide products of desired quantity and
quality

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9
Q

What are the sectors of business activity?

A

Primary
Secondary
Tertiary
Quaternary

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10
Q

Primary sector of business activity?

A

Extraction
Mining
farming
fishing
hunting

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11
Q

Secondary sector of business activity?

A

Manufacturing - processing of raw materials from primary sector

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12
Q

Tertiary sector of business activity?

A

Services, often using manufactured products from secondary sector (also from primary sector), such as
healthcare
education
transportation

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13
Q

Quaternary sector of business activity?

A

Involving knowledge-intensive areas, such as IT, web, e-commerce

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14
Q

What is production chain?

A

Steps in different sectors or industries to turn raw materials into consumer products, ready to be consumed

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15
Q

What is horizontal integration?

A

also called horizontal growth, acquiring or merging with businesses in the same or similar industries.

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16
Q

What is the benefit of horizontal integration?

A

Increased market share,
Less competition
Better control of prices

17
Q

What is vertical integrations?

A

Acquiring or merging with businesses from the earlier or later stages of production chain, often to substitute suppliers or intermediary customers

18
Q

What is the benefit of vertical integrations?

A

Better control of prices
Reliability of supply
Avoidance of government regulations (taxes etc)
Strengthening of market position (not the share but the bargaining power, e.g. suppliers willing to demand less) prices if they know that you may use your own produce)

19
Q

Disadvantages of vertical integration or a conglomerate?

A
  1. Loss of focus (particularly of top management, who would require understanding of many industries)
  2. Diseconomies of scale
20
Q

What is a conglomerate?

A

Acquiring or merging with unrelated businesses (to lower risks etc)

21
Q

Reasons for starting up a business

A

Rewards
Independence
Necessity
Challenge
Interest
A gap found
Sharing an idea

22
Q

Drivers of Business idea?

A

Market (driven) - determined by the existing/observable need
Product (driven) - determined by the entrepreneur ready to convince others of the products benefits

23
Q

Stages of starting up a business?

A
  1. Organizing the basics (location, name, legal structure, operational structure, overall understanding of infrastructure including suppliers and customers)
  2. Market research to refine the idea
  3. Planning the business and writing a business plan
  4. Establishing legal requirements/constraints
  5. Raising finance
  6. Testing the market
24
Q

Possible problems and deviations from the planned stage of `organization the basics’ for a start -up?

A

Location inappropriate
Name does not register
Structure inappropriate
Suppliers unreliable

25
Q

Possible problems and deviations from the planned stage of `Market research’ for a start -up?

A

Research was poor (poor questionnaire, poor sample)
Target market was inappropriate
The test was too optimistic

26
Q

Possible problems and deviations from the planned stage of `Business plan’ for a start -up?

A

Unconvincing business plan (for potential finance- providers)
Goals too vague

27
Q

Possible problems and deviations from the planned stage of `legal requirements’ for a start -up?

A

Important parts of the law (e.g. Labour laws) not addressed, such as
Registration
Labour law
Consumer protection
Taxes

28
Q

Possible problems and deviations from the planned stage of `Finances’ for a start -up?

A

Accounts not kept properly
Incorrect forecasts
Raising funds too difficult

29
Q

Possible problems and deviations from the planned stage of `Testing the market’ for a start -up?

A

Pilot inconclusive
Failed launch
Limited success

30
Q

Elements of a business plan?

A
  1. A business idea, aims, objectives - the what, why and how, including USP;
  2. Business organization - location, structure, type,
    Decision- makers;
  3. HR - devision of responsibilities, remunerations;
  4. Finance - forecasted budgets, income statements and cash-flows;
  5. Marketing - forecast of sales, segments, promotional mix;
  6. Operations - Quantity& quality of output, lead times, supply chain.
31
Q

Purpose of a business plan?

A

Raise the finance
Support strategic planning
Identify recourse needs
Provide focus for development
Provide measures of success

32
Q

How to guess if the business is capital intensive?

A
  1. Can be measured by the fixed asset to sales ratio.

If the ratio of fixed assets to sales is greater than 1 then it may be said to be high capital based organization,

The ratio below 0.85 the capital intensity may be said to be low.
2. can also be measured by comparing the capital expenditure and revenue expenditure

33
Q

Disadvantages of capital intensive business?

A
  1. High initial costs
  2. High risk , such as - small changes in sales can lead to big changes in profits and return on invested capital.
  3. Initially, the losses will be more, due to heavy investment and depreciation.
  4. The liquidity remains low as more than 60 percent of assets normally consist of capital assets.
34
Q

Advantages of capital intensive business?

A

Less competition because of the high capital requirement.

Investors are more attracted because of higher returns.

The non-operating cost like depreciation is high in capital intensive business. If real depreciation/reduction in value is lower than required to report to tax authorities, accounts may show lower profits, thus lowering tax obligations.

35
Q

Examples of capital intensive businesses?

A

Automobile manufacturing, oil production, steel production, telecommunications, railways, airlines

36
Q

Examples of labour intensive?

A

Hospitality (hotels, restaurants, tourguides)
Agriculture,
IT, web development, financial services

IB Business MD (38 decks)

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