Chapter 2 - Business structure Flashcards
Industrial structures
- Primary - Raw materials
- Secondary - Raw materials»_space; Finished goods
- Tertiary - Final product to customer
- Quarternary - Information services like ICT
Industrilisation
the growing importance of the secondary sector manufacturing industries in developing countries - opposite
is deindustrialisation
Developing VS Developed countries
Developing
Primary sector»_space; Secondary sector
Developed Countries
Tertiary sector
Industrialisation Benefits
- GDP Increases with living standards
- Less importing and more exporting
- Job creation
- More tax payers for government
- Value added
Industrialisation Problems
- Urbanisation
- Imports of raw material needed
- Multinational companies are made
Deindustrialisation Causes
- Rising incomes with higher
standard of living results in
spending on services not on goods - Manufacturing businesses in
developed countries face much
more competition due to increase
in global industrialisation
Deindustrialisation Consequences
- Job losses in agriculture and
manufacturing industries - Movement towards cities and
towns - Job opportunities in service
industries - Increased need for retraining
3 Main economic Systems
- Planned Economy (Centrally Planned, command or collectivist economy) Economic resources are planned, owned and controlled by the state
- Market Economy (Free enterprise Economy) Economic resources mainly owned by private sector with little intervention from state
-
Mixed Economy
Both Private and Public Sector Involved
Centrally Planned
Economy
- Opposite of Market
Economy - Do not trust market
mechanisms - Government decides what gets produced and who receives it
- Try to avoid resource
wasting
Market Economy
- Consumers choose what
they want - Producers supply it
- Government does not interfere
Problems:
- Price Fixing to only provide goods that are cheap and easy to produce
- Some essential goods
and services do not get
supplied»_space; Not profitable
Mixed Economy
- Mix between Market and Centrally planned
- Government supplies essentials»_space; Sets up certain organisations
- Discourages consumption of negative goods
- Encourages consumption of positive goods
- Controls via legislation
- Redistributes income
3 Business Sectors
Public Sector - run and owned by the government
Private Sector - run and owned by the private individuals
Non Profit Organsisations - run and owned by the government and private individuals
Public corporations Advantages
- Managed with social objectives not profit objective
- Loss making service will be
kept operating if there is great
enough social benefit - Financed from government
Public corporations Disadvantages
- Tendency towards inefficiency due
to lack of profit targets - Subsidies form government
encourages inefficiencies - Government may interfere in
business decision (Gov may make decisions not in line with objectives but propaganda)
Legal structures of Businesses
Private Sector
Sole Traders
Partnerships
Limited Companies: Private and Public
Cooperatives
Franchises
Joint Ventures
Holding Companies
Sole Trader Advantages
- easy to set up
- owner has full control
- owner keeps all profits
- owner chooses work hours
- owners can establish close relationships with staff
- business can be based on interest/skill
Sole Trader Disadvantages
- unlimited liability = owners assest are at risk
- intense competition from larger firms
- owner is responsible for all aspects of management = lack some skills eg accounting
- hard to raise capital
- long hours to get outcome
- lack of continuity- no separate legal status, owners death = businesses end
Advantages of a partnership
-partners may specialize in different areas of business management
- share decision making
- additional capital from each partner
- greater privacy and fewer legal formalities than coporate organisations
Disadvantages of a partnership
- all partners have unlimited liability(with exceptions)
- profits are shared
-no continuity = partnership needs to be reformed in event of partner death - can not sell shares
- sole trader becoming a partnership = risk losing independent decision making = slow decisions
- one partners actions influence all partners
Private limited company Advantages
- shareholders have limited liabilities
- Company has separate legal personal
- has continuity
- original can retain control
- can raise capital from sale of shares to family
- has greater status than unincorporated businesses
Private limited company Disadvantages
- has legal formalities to establish business
- can not sell shares to general public
- hard for shareholders to sell shares
- end of year accounts must be sent to government office responsible for companies - less secrecy over financial affairs
Public limited company Advantages
- shareholders have limited liability
- company has separate legal identity
- has continuity
- easy to buy/sell shares for shareholders = encouraging investment
- sale of shares to public = easy to obtain capital
Public limited company Disadvantages
- legal formalities
- high cost of paying business consultants when creating a plc
- share prices are subject to fluctuation (economy state)
- lots of legal requirements concerning disclosure of information to shareholders and public (annual publication of detailed reports and accounts to public
- risk of takeover due to availability of shares on stock exchange
-directors may be influenced by short-term objectives of major investors
Memorandum of Association
Memorandum of Association: this states the name of the company, the address of the head office, through which it can be contacted, maximum share capital for which the company seeks authorisation and the declared aims of the business
A memorandum of association should be completed; greatest interest of shareholders. Knowing the max share capital means relative importance of a single share can be determined. Being aweare of the company’s aims means shareholders can avoid businesses that operate in markets and products that they don’t want to be associated with eg. weapons
Articles of Association:
Articles of Association:
document covers the internal workings and control of the business. The names of the directors and the procedures to be followed at meetings
Cooperative features
- All members can contribute to running the business and shares workload, responsibility and decision making
- All members have 1 vote
- Profits are shared equally
- Common form of organization operated by members for their mutual benefit. Works well in agriculture and retail sectors
- Differentiate between Producer/Worker cooperatives
(making) and Retail Cooperatives (selling) - In agricultural cooperatives members arrange for the purchase of seeds and materials in
bulk to benefit from economies of scales - also sells produce collectively to get better price
Cooperative Advantages
- Bulk buying
- Working together on problems and decisions
- Good motivation from shared profits
Cooperative Disadvantages
- Poor management unless professional managers employed
- Capital shortage as sales of shares to non members are not allowed
- Slow decision making due to consultation
Franchise advantages
- low chance of failure = established brand name and product
- advice and training are offered by franchiser
- franchiser pays for national advertising
- supplies are obtained from established and quality checked suppliers
- franchiser agrees to not open another branch in area
Franchise disadvantages
- a share of profits has to be paid to franchiser each year
- initial franchise licence is expensive
- local promotion needs to be paid by the franchisee
- franchisee can not choose supplies or supplier to use
- strict rules over pricing and layout of the outlet to reduce the franchisee’s control over their own business
Joint Venture
Joint venture is when 2 or more business firms work together in a particular project for mutual benefit. They only work together on that project and it does not affect ownership of their organisation
Simplest form of business co-operation.
Joint venture Pro and Con
Pro:
- resource sharing eg. technology, expertise = reduces individual cost
- give access to new markets
- risk sharing = risks and liabilities are shared reducing the burden on any single entity
- Synergy = combining each others strengths = innovation and competitive advantage
Con:
- Conflict and interest = different goals or strategies
- Shared profits
- Culture differences = communication barriers
Social Enterprise
people, planet, profit
Business with mainly social objectives that reinvests most of its profits into benefiting the community and not on maximising returns to owners. They use business principles to achieve social objectives. They are not charities and cannot rely on donations
Social enterprise pro/con
pro:
- Social impact = positive brand image
- Brand loyalty - consumers prefer eco friendly businesses
- Access to funding - grants, impact investors, crowdfunding
- employee satisfaction = feel as if they are contributing to a greater cause
